I always enjoyed the budget process. On the job, I organize annual budgets in the magnitude of several hundred million dollars to a billion, and derive great satisfaction by orchestrating how people should envision and plan the coming year. In my personal life, I enjoy dreaming about how we will lead our life in the coming year, spend time to understand the financial realities to support it, and take action accordingly.
Like what I did in 2007, I will start by discussing how I believe the key drivers of our finance will develop themselves in 2008. First on earned income:
1. Income from my daily job will grow at a much slower pace of 5%.
I continue to perform well in my day job duties, I anticipate above-average merit increase on upcoming annual review cycle. Also, the part of my compensation package that is denominated in Renminbi will receive automatic lift as the Chinese currency is getting stronger against the dollar. However, my stock compensation will almost surely decline. Five years ago, my employer switched stock compensation plan from stock options to stock grants, and with my last batch of stock option getting fully vested in 2007, starting from 2008 I can only purely rely on more reliable but much less potentially profitable stock grants getting vested every August.
2. Income from our sideline business will suffer a terrible decline in the magnitude of about 30%.
It is not that I'm foreseeing an economic Armageddon, but it is suffice to say as a business competing in the vibrant online space, any business model is gaining teeth pretty quickly. In my case, an industry-wide change is forcing me to replace our biggest income stream. While I'm cautiously optimistic about the long-term earning power of the business, 2008 will be a reconstruction year for sure.
All together, we now estimate our earned income will shrink by about 4% in 2008 due to the many headwinds listed above. This will be the first time we see a year-over-year earned income decline.
Stay tuned to read our planning for investment income, expense and taxes in 2008.