My Personal Finance Journey

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Financial Plan 2005: Expenses

Contributed by mm | February 1, 2005 11:24 AM PST

For people without a huge cash pile for investment (myself included), the formula for financial success is as easy as two sentences: earn more, and spend less. Thanks to my many cost-cutting initiatives in the last two years, my cost structure is already very lean. For 2005, I'm expecting my expense to grow 14% from $65,703 in 2004 to $74,843 in 2005. The growth is significantly less than the 27% improvement I expect from my top line.

Before sharing the details, let me provide some context for year-over-year growth: most of the YoY cost increase is associated with my wife's employment starting in mid 2004. As a result, 2004 results include approximately six months' expense for day care and the expense of the second car while 2005 will see these expenses throughout the year. The YoY comparison is also harder as with two workers we expect more dining-out, lunch and wardrobe expenses.

To a lesser extent, I am also creating more room in my 2005 budget for more entertainment expenses. Last year we only took two short trips and we expect to have more fun this year.

On the favorable side, we will reap the full benefits from last year's successful refinancing to 3.5% 5/1 ARM by reducing our mortgage interest payout. I am also expecting to save $1,200 thru various CFI initiatives.

Now the details line by line and how my 2005 projection compares to my 2004 actual expense:

Categories 2004 2005 YoY YoY % Comments
Auto          
  Auto Insurance  $         933  $       1,140  $         207 22.2%  
  Depreciation  $       2,850  $       3,000  $         150 5.3%  
  Gas  $       1,535  $       1,920  $         385 25.0%  
  Maintenance  $       1,182  $       1,560  $         378 32.0%  
  Licensing/Sales Tax  $         957  $         160  $        (797) -83.3% 2004 includes one-time sales tax
  Other  $           47  $         120  $           73 155.3%  
  Auto Total  $       7,504  $       7,900  $         396 5.3%  
Bills          
  Cable/Internet/TiVo  $       1,426  $       1,404  $          (22) -1.5%  
  Cellular  $         297  $         176  $        (121) -40.7% 2004 includes one-time phone purchase
  Day Care  $       6,058  $     11,520  $       5,462 90.2% Only 6.5 months' daycare in 2004
  Electricity and Gas  $       1,054  $       1,080  $           26 2.5%  
  Garbage  $         180  $         197  $           17 9.5%  
  Telephone  $         407  $         384  $          (23) -5.6%  
  Water  $         632  $         670  $           38 5.9%  
  Bills Total  $     10,054  $     15,431  $       5,377 53.5%  
Clothing  $       1,722  $       2,400  $         678 39.3% Larger professional wardrobe
Education  $         715  $         620  $          (95) -13.3% CFA enrollment, etc.
Food and Groceries          
  Dining Out  $       3,934  $       4,800  $         866 22.0%  
  Lunch  $       1,290  $       1,800  $         510 39.6%  
  Groceries  $       9,853  $       9,840  $          (13) -0.1%  
  Food and Groceries Total  $     15,077  $     16,440  $       1,363 9.0%  
Healthcare  $         428  $       1,560  $       1,133 264.9% Expect major dental expenses in 2005
Household          
  Home Maintenance  $       3,637  $       3,600  $          (37) -1.0% Accrual
  Appliance and Furnishings  $       2,415  $       2,400  $          (15) -0.6%  
  Property Tax  $       3,592  $       3,600  $             8 0.2%  
  Mortgage Interest  $       9,483  $       8,580  $        (903) -9.5% Refinancing benefits
  Household Total  $     19,127  $     18,180  $        (947) -5.0%  
Insurance          
  Homeowner  $         459  $         552  $           93 20.3% Includes Umbrella Insurance
  AD&D/Disability  $       1,003  $       1,200  $         197 19.7% Thru Employment
  Life  $         513  $         840  $         327 63.7% Thru Employment
  Insurance Total  $       1,975  $       2,592  $         617 31.3%  
Leisure          
  Books and Magazines  $         269  $         300  $           31 11.4%  
  Movie and Video Rental  $         105  $         180  $           75 70.7%  
  Toys  $         202  $         480  $         278 137.5%  
  Vacation  $       2,208  $       4,800  $       2,592 117.4%  
  Leisure Total  $       2,785  $       5,760  $       2,975 106.8%  
Other Expenses          
  Gifts  $       2,148  $       3,000  $         852 39.6%  
  Other Expenses  $       4,168  $       2,160  $      (2,008) -48.2% 2004 includes $1,800 refinancing
  CFI - Expense Avoidance  $            -    $      (1,200)  $      (1,200)    
  Other Expenses Total  $       6,317  $       3,960  $      (2,357) -37.3%  
Total Expenses  $     65,703  $     74,843  $       9,140 13.9%  

Actually, I feel pretty confident about the spending plan; it is tight in certain ways but also provides some room for better quality of life. As you might already know, cost control against this plan is one of my goals for 2005.

P.S. From a personal finance perspective, keeping more does not necessarily equal to spend less; Uncle Sam will claim its share and to keep more, smart tax analysis is also needed. Read on.

(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.)

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