For people without a huge cash pile for investment (myself included), the formula for financial success is as easy as two sentences: earn more, and spend less. Thanks to my many cost-cutting initiatives in the last two years, my cost structure is already very lean. For 2005, I'm expecting my expense to grow 14% from $65,703 in 2004 to $74,843 in 2005. The growth is significantly less than the 27% improvement I expect from my top line.

Before sharing the details, let me provide some context for year-over-year growth: most of the YoY cost increase is associated with my wife's employment starting in mid 2004. As a result, 2004 results include approximately six months' expense for day care and the expense of the second car while 2005 will see these expenses throughout the year. The YoY comparison is also harder as with two workers we expect more dining-out, lunch and wardrobe expenses.

To a lesser extent, I am also creating more room in my 2005 budget for more entertainment expenses. Last year we only took two short trips and we expect to have more fun this year.

On the favorable side, we will reap the full benefits from last year's successful refinancing to 3.5% 5/1 ARM by reducing our mortgage interest payout. I am also expecting to save $1,200 thru various CFI initiatives.

Now the details line by line and how my 2005 projection compares to my 2004 actual expense:

Actually, I feel pretty confident about the spending plan; it is tight in certain ways but also provides some room for better quality of life. As you might already know, cost control against this plan is one of my goals for 2005.

P.S. From a personal finance perspective, keeping more does not necessarily equal to spend less; Uncle Sam will claim its share and to keep more, smart tax analysis is also needed. Read on.

(This post is part of the five-post Financial Plan 2005 series. If you miss some parts of the series, you might find links to all posts at Financial Plan 2005: The Overview.)