My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.


By Topics

Overall:
0. About (10)
1. My Progress (139)
2. Car & Home (107)
3. Credit (138)
4. Banking (33)
5. Saving (49)
6. Investing (308)
7. Taxes (89)
8. Spending (74)
9. Misc (97)
A. Archive (49)



MONTHLY ARCHIVE

Feb 2014 (3)
Jan 2014 (6)
Jan 2012 (1)
Apr 2011 (1)
Mar 2011 (1)
Feb 2011 (1)
Jan 2011 (1)
Dec 2010 (1)
Oct 2010 (1)
Sep 2010 (1)
Aug 2010 (1)
Jul 2010 (1)
Jun 2010 (1)
May 2010 (1)
Apr 2010 (1)
Mar 2010 (6)
Feb 2010 (2)
Jan 2010 (7)
Dec 2009 (3)
Feb 2009 (4)
Jan 2009 (8)
Dec 2008 (1)
Jun 2008 (2)
May 2008 (2)
Apr 2008 (5)
Feb 2008 (3)
Jan 2008 (15)
Dec 2007 (32)
Nov 2007 (6)
Oct 2007 (8)
Sep 2007 (9)
Aug 2007 (24)
Jul 2007 (2)
Jun 2007 (1)
May 2007 (3)
Apr 2007 (4)
Mar 2007 (4)
Feb 2007 (13)
Jan 2007 (6)
Dec 2006 (3)
Nov 2006 (7)
Oct 2006 (7)
Sep 2006 (6)
Aug 2006 (4)
Jul 2006 (10)
Jun 2006 (1)
May 2006 (3)
Apr 2006 (2)
Mar 2006 (6)
Feb 2006 (6)
Jan 2006 (3)
Dec 2005 (1)
Nov 2005 (9)
Oct 2005 (8)
Sep 2005 (13)
Aug 2005 (25)
Jul 2005 (16)
Jun 2005 (17)
May 2005 (19)
Apr 2005 (20)
Mar 2005 (24)
Feb 2005 (23)
Jan 2005 (36)
Dec 2004 (40)
Nov 2004 (34)
Oct 2004 (17)
Sep 2004 (21)
Aug 2004 (59)
Jul 2004 (37)
Jun 2004 (31)
May 2004 (29)
Apr 2004 (52)
Mar 2004 (49)
Feb 2004 (49)
Jan 2004 (31)
Dec 2003 (48)
Nov 2003 (52)
Oct 2003 (29)
Sep 2003 (8)
Aug 2003 (5)
Jul 2003 (2)
Jun 2003 (2)
May 2003 (5)
Apr 2003 (2)
Mar 2003 (2)
Feb 2003 (3)
Jan 2003 (29)



 

Financial Plan 2008, Part 3: Spending and Tax

Contributed by mm | December 27, 2007 11:01 AM PST

plan08.jpgEarlier in this Financial Plan 2008 series I shared the respective 2008 outlook of our household's earned income and investment income. Today I will complete the itemized list of planning assumptions by discussing the spending and tax picture of 2008. Still, the discussion will follow the planning framework we adopted earlier (so that if you read all three posts, you can assemble our 2008 Financial Plan yourself).

5. Our spending level in 2008 will be flat in Chinese Yuan terms but will increase by 6% in U.S. Dollar terms.

There are several counter-currents in the play. First, the expected continuation of the U.S. Dollar depreciation against the Yuan will be translated into higher U.S. Dollar spending since most of our cost structure is denominated in Chinese Yuan. Second, in the middle of 2007 we moved to a larger (and therefore more expensive) apartment, and our son moved from kindergarten to elementary school (read: higher cost from private school), so these two of our biggest spending categories will cost us more in 2008. Third, the local economy has a lot of inflation brewing these days -- the latest CPI reading indicates 6% annual inflation -- and inflationary pressure will almost certainly continue in 2008.

On the flip side, we recognize that having four overseas family vacations in 2007, while certainly affordable, is probably on the high end of what are willing to spend, and therefore we will likely reduce the frequency and visit more domestic places (we actually visited more cities outside of China than within China so there are definitely a lot more to explore without flying long hours).

All together, we think we will be able to keep our spending growth in line with the speed of Yuan's appreciation.

6. Our tax bill is likely to be 25% smaller in 2008.

The forecast on tax is decidedly the hardest, but after all the headwinds we discussed so far, we finally may be looking at some help from the tax line. Let me start by emphasizing that the tax accounting at PFBlog is always on accrual basis (instead of cash basis) from the very beginning, which means we estimate recognize tax liability whenever our portfolio appreciates (and vice versa). This allows faithful reflection of our true financial picture and avoid distortion to net worth calculation during tax-bearing investment transactions.

There are several things that may work collectively in 2008 to produce a favorable tax picture for us. First, once we count out further employee stock option appreciation gain, we will have a smaller tax bite (which will be partially offset by higher investment income from our actively managed portfolio, which will grow in size and return in absolute dollars). Second, our slightly shrinking earned income will mean a smaller tax base. And third, my employer upgraded the tax gross-up policy for benefits in July 2007, so in 2008 I will be able to collect the full benefit of the new policy (versus six months in 2007), and that's a handsome sum of several grands.

Offsetting that will be the appreciation of Yuan (again). Since 60% of our tax burden is paid in Renminbi, our tax bill in dollar terms will be unfavorably affected by 3-4% in 2008.


Now that I have shared my best-effort estimate of the six key drivers behind our net worth growth in 2008, will you be able to put together the annual financial planning model like I do? In the final post of our Financial Plan 2008 series, I will share the result and final thoughts.

More PFBlog Articles You Might Find Interesting ...



Read More ... 139 Posts In The Same Category










This page was last rebuilt at January 27, 2014 07:33 AM PST.
 

RSS FEED





PERSONAL FINANCE BLOGS I READ

Consumerism Commentary
Get Rich Slowly
My Money Blog
All Financial Matters
The Simple Dollar






.

Error 500 - Internal server error

Error 500 - Internal server error

An internal server error has occured!
Please try again later.



Copyright 2003-2014, PFBlog.com. All Rights Reserved. (Privacy Policy)