My Personal Finance Journey

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How Accurate Are My Predictions of 2007? Part 3: On Expense and Closing Comments

Contributed by mm | December 14, 2007 3:13 AM PST

dartaccuracy.jpgThis is the third and last installment of a three-part series that reflects on my predictions of 2007. In the previous posts, I reviewed the result of my predictions on earned income and investment income. Let me finish off this series by debriefing you on my two last remaining forecast on expense:

Prediction #8. Core expense will grow 8-10% in 2007 with growth in travel expenses.

What I Said One Year Ago: Let's say an expatriate's life in a low-income country is still not easy. We managed to reduce our annual spending from $90,000 in 2005 to $80,000 in 2006. At the current level, I do feel we have the right balance of spend vs value. We do look to travel to more places in 2007 (Scandinavian, Maldives and Canada are in the plan), and hence some potential spending increase over that of 2006. We will still be living well below our means -- we intend to keep spending less than 25% of our income.

Result: We did indulge ourselves in travels a bit more than I predicted. Our vacation expense will almost double compared to that of 2006. Together with us paying a higher rent in the 2nd half of the year (for a larger apartment), our total expense in 2007 is expected to be 17% higher than our 2006, and that's almost 8% higher than we budgeted for 2007. (If this had happened to my job as a financial controller, I could have been axed. Nevertheless, the family has a lot of fun in Bali, Hong Kong and Hawaii and soon in Maldives. Sometimes, you really couldn't judge the value of love in monetary terms.) We can probably also explain this off higher-than-expected-income-induced spending -- still, our spending is less than 25% of our income.

Prediction #9. Possible change of rental apartment or home purchase in late 2007 or 2008.

What I Said One Year Ago: We are currently paying $1,600 plus utility for a nice three-bedroom apartment of about 1,200 SqFt in a downtown upscale community. We chose not to buy in 2005 because of the obviously overpriced market. The local real estate market has been cooling down since then, and if price falls to the right levels, we might continue to be a homeowner again. Alternatively, we are considering to move to a larger apartment when our current lease ends in Decmber 2007.

Result: We changed to a new apartment during the summer, which gives us one more bedroom/study and 1,900 sqft space. Rent is now $2,200 a month plus utility. Certainly with more space all family members are happier. I feel we made the right decision to spend a bit more in something that we live in, live by and live with every day.

In conclusion, it is an extremely interesting exercise to review my notes one year back, and understand what has changed, what has not, and why. I'm glad most of my "landscape" calls are not off-base. As I learned from my day job again and again, sometimes a fine financial analysis job really requires top-down thinking.

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This Post Has Received 3 Comments. Share Your Opinions Too.

Deborah Commented on December 14, 2007

I find it interesting how you analysis spending versus income. I do my own thing to monitor that I am doing things to get further ahead financially, but nothing like what you do.

I guess I've always only looked at employment income in my look at spending, and it seems that spending has always been 100% of income with that definition, sigh...

I have always looked at my debt reduction as part of my spending, yet about 20-30% of income has gone to debt reduction. So that would mean spending has been 70-80% of employment income.

I look at investment or equity growth completely separate... About 4.5 years ago we bought our current home, so I pretty much know what our equity was then, as well as what our retirement savings were. I also know exactly what our current equity is because we move out in three weeks because we sold. I guess if I looked at the increase in value of those investments as income, well, that would increase our annual income by about 140-150%, and that puts my spending over the past 4 years at about 30% of income...

Well, moving forward I expect that number to change big time, and not favorably because I expect the increase in investments to be marginal by comparison.

J.C.'s Money Commented on December 14, 2007

Impressive suppression of the increased income effect. Saving just 25% of your income at any level is tough, saving 75% is borderline amazing, especially with a family.

I was impressed with myself saving just over 50% of net income over the last two years, and that's with no family...

I would say at your job you would get the axe for spending too much, in a household, your wife would give you the axe for spending too litte, so it sounds like a happy medium there.

Very impressive stuff. I have never keep track of my spending, which is my goal for 2008, to track every cent. Your post shows the value of treating your cashflow like a business and doing the accounting.

MM Commented on December 14, 2007

Deborah/J.C.: Thanks for the comments. I have to add I didn't include tax in my spending column, and after tax, I save about 60% of income. Still I'm satisfied about the amount.

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