The angels have stopped singing, but there are heralds of 2024 who say that 2025 will not be all rosy; it will be good for some but not for others.
While there will be challenges for those who reap evil, there is no guarantee that those who benefit from developments in 2025 will ultimately be better off, as danger awaits those who fall prey to lifestyle change .
Lifestyle drift, also called lifestyle inflation, refers to the increase in spending as income increases, primarily to increase living standards. As more financial resources are devoted to spending, what was once considered a luxury is now seen as a necessity.
Among the group who can expect to reap higher incomes are young professionals who get promoted or earn more through consulting and various forms of business and who are motivated by their image and social prestige, people in pre-retirement who earn more than ever before but spend less. because they have repaid their loans and no longer have responsibility for their children who have become independent, and recently retired people who received their 25 percent tax-free retirement capital from their retirement fund and who receive their pension and draw on their savings and investments for retirement. We must not forget people who access better-paid jobs by changing employers.
There are others who will probably have more money to spend in 2025. Perhaps there are some who collected good bonuses over the past year, which they protected well. There are also individuals who may have made a lot of money from their investments, liquidated an asset, or benefited from an inheritance from a loved one, or received a good payout from an insurance claim. We should not forget those who are likely to receive a big payday before the end of the year – perhaps through the conclusion of a new collective labor agreement with retroactive pay, or employees likely to receive a 2025 end-of-year bonus.
Higher income and lower spending lead to higher discretionary income, which means higher purchasing power. There is a real risk that money that should be saved and invested will be diverted to finance the acquisition of high-end motor vehicles and additional vehicles, for example to finance more expensive food choices, vacations and housing. This becomes more urgent for individuals who are driven to compete with others who appear to be doing well, or for people who want to make up for what they think they missed in the past.
This tendency to spend more as income increases is often not obvious. It is not for nothing that we speak of silent inflation. This desire to improve the standard of living can have the opposite effect: a decline in the standard of living. Spending without serious thought can lead to increased debt and decreased savings. The latter reduces the ability to invest and removes a critical cushion that can be useful in times of crisis and emergency.
The year 2024 has bequeathed several good and bad things to 2025. The good ones include inflation within the target range set by the Bank of Jamaica, the BOJ, although many still complain about rising prices and pressure on their pockets, low unemployment, public spending on roads. , a relatively stable exchange rate, and measures taken by the BOJ to lower interest rates. It’s a mixed bag. When lenders finally adjust their lending rates, borrowing should be cheaper, but, on the other hand, savers and investors in interest-bearing securities are already seeing lower returns. The big negative is that the economy is not robust – sometimes it generates anemic growth, other times negative growth – all the more reason to be cautious.
Many people will continue to feel the effects, and new people will join them, but others will cope well. Doing it right doesn’t mean the end of budgeting. In fact, it becomes more crucial to curb excessive spending and provide funds for investment.
One way to create and manage a budget is to establish each expense item as a percentage of total expenses, which in turn should be expressed as a percentage of total income. This allows for increased spending, if necessary, but gives some level of control. It is also important to express savings and investments as a percentage of total income. And it remains vital to question every spending decision. If this approach is followed, there should be more funds to stimulate savings and investments, to deal with emergencies and to resolve other important financial issues.
Earning more income in 2025, like any other time, can be beneficial – with good management. Spending to match increasing income, or worse, spending more, is not the ideal way to improve financial well-being. So seize opportunities to earn more income, but avoid lifestyle excesses.
Oran A. Hall, author of Understanding Investments and lead author of The Handbook of Personal Financial Planning, offers advice on personal financial planning and counsel.finviser.jm@gmail.com
