Behind my set of ambitious 2005 goals is a financial plan. I finished the plan about two weeks ago (in an Excel workbook), and I am happy to share the details of my plan in the next few posts. In this five part series about this annual plan, you will read the following:
1. Overview: why an annual financial plan is necessary.
2. Income: understand your income streams and risks.
3. Expense: understand your expense and cost cutting opportunities.
4. Tax: how to plan (well) ahead and avoid tax mistakes.
5. Summary: recap of growth projection, risks and opportunities
Before I start to share the numbers, let me say a few words on why I need a plan.
My finance is becoming more complicated with every passing year. With two bread-earners, one little kid, a house, two cars and various investments, there are many moving parts in my financial life. The planning process allows me to think through what will reasonably happen next year and prepare for them mentally.
Specifically, a good plan can tell me, well before I start a year, how much I will earn, how much I will spend, and how fast I can grow my net worth with reasonable assumptions. The data I obtained from the planning process can serve as a yardstick to measure my performance.
Equally importantly, the details revealed in the planning process foretells the potential issues and risks in executing toward my annual goals. I believe these information will help me avoid certain personal finance mistakes.
The framework of my financial plan is actually simple. My net worth increase is essentially determined by how much we can pull in, how much we will spend, and how much tax liability we will have with these income and expenses. As a result, I first looked into income, expense and tax individually, and then piece together my financial picture for 2005.
Read on for my 2005 income projection ...