If you recall, my net worth increase in 2004 was $20,000 higher than my original plan, and the variance is predominantly driven by the additional income my wife brought in from her (unplanned) daily job. To some extent, my net worth increase in 2005 depends more on income increase than cost control, because I have a pretty lean cost structure that does not leave much fat to be cut.
The key for income projection is to 1) understand the components of your income, and 2) make reasonable estimate for each component. The income structure of my family for 2005 will be as follows:
- Job Income: My wife and I will both work full time throughout the year. Our job income includes base pay, bonus, 401(k) employer match, ESPP gains from the "immediate sale" strategy, stock option and stock awards.
- Investment Income: I expect modest interest, dividend and capital gain for 2005.
- Home Appreciation: I will continue to book a small home value appreciation every month according to my personal account policy.
- CFI Income: I expect $1,200 or more additional income by taking advantages of various promotions offers and getting credit card rewards. (For reference, my last year's record is $1,300.)
- Other Income: I also have some expectation on my advertisement income through PFBlog.com, among other things.
Due to employer's policy, I cannot disclose my job income. I also don't think it is necessary for the purpose of showing how a financial plan can be done because different people have very different income structure.
Anyhow, I can still show all my income streams as a whole. For 2005, I expect a total of $196,385 from various sources, and this represents 27% year-over-year increase of total income.
As I discussed in the last post, it is also important to understand the risks associated with the numbers. For my 2005 income stream, there are two major risks:
First, my employee stock option income (and stock award income, to amuch lesser extent), depends on the market price of MSFT as a stock. The above income projection assumes MSFT will close 2005 relatively flat at $26.50, which may or may not happen.
Second, while neither my wife's or my job security is at danger, it is becoming pretty stressful for a family to keep two full-time (challenging) jobs while fostering a kid. It is possible that at certain point of time, my wife might want to stop working for a while, and leaving a hole in our income streams.
How do I think of both risks? For the first risk, there is not much I can do to influence the stock price, although I may consider to lock in some profits if MSFT stock price rises above certain point. I will also position the rest of my portfolio properly so that the rest of my portfolio can more or less compensate the loss I might incur in my less-controllable stock option part.
For the second risk, I will total support my wife. Although we probably wil not be able to meet our financial targets as a result, it is important that we balance our personal life with the financial life (or short-term happiness with long-term happiness). If such a decision is made, I will consider it as an investment for higher quality of life.
So much for income, and if you are interested, go ahead to my 2005 spending plan.
(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.)