My Personal Finance Journey

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Monthly Review - January 2005 ($200,696, +$5,175)

Contributed by mm | February 4, 2005 4:38 AM PST

Finally, the $200,000 psychological milestone is behind me: the $5,175 monthly gain in January pushed my net worth to $200,696 in a largely uneventful month. For the record, my net worth passed the $100,000 mark in May 2003 -- that is 20 months ago. I expect the next $100,000 should take me less than 15 months, thanks to the increased earning power and more passive income from my warchest.

BALANCE SHEET RESULTS

(Starting from 2005, I am comparing monthly results to balance sheet one year and one month ago for better visibility of progress. Please refer to definition of balance sheet line items.)

  1 Yr Ago 2-Mo Ago Last Month This Month monthly Monthly
  Jan-04 Nov-04 Dec-04 Jan-05 Change Change %
Cash & Equivalent  $            953  $         4,611  $         4,916  $         2,967  $        (1,949) -39.6%
Saving  $       15,548  $       33,653  $       35,675  $       39,750  $         4,075 11.4%
Brokerage  $       21,577  $       16,650  $       17,964  $       17,284  $           (680) -3.8%
Roth IRA  $       10,822  $       13,449  $       13,819  $       18,435  $         4,616 33.4%
401(k)  $       12,005  $       28,562  $       31,234  $       33,186  $         1,952 6.2%
Stock Option  $         2,268  $       13,252  $       12,892  $       12,435  $           (457) -3.5%
ESPP  $         1,291  $         2,278  $         3,798  $         1,746  $        (2,052) -54.0%
Home Equity  $       67,193  $       74,917  $       75,767  $       76,618  $            851 1.1%
Other Assets  $         9,550  $       15,247  $       14,972  $       14,722  $           (250) -1.7%
Receivable (Payable)  $         3,558  $         1,273  $         1,159  $         1,182  $             22 1.9%
Reserve Funds  $        (1,693)  $        (4,451)  $        (4,750)  $        (5,170)  $           (420) 8.8%
Loans  $        (2,959)  $        (7,206)  $        (7,301)  $        (7,194)  $            107 -1.5%
Tax Liability  $        (3,860)  $        (3,864)  $        (4,625)  $        (5,265)  $           (640) 13.8%
Net Worth  $     136,252  $     188,372  $     195,522  $     200,696  $         5,175 2.6%
Liquidation Value  $     110,156  $     156,847  $     163,548  $     168,349  $         4,801 2.9%

IMPORTANT BALANCE SHEET MOVEMENT DISCUSSION

1) Cash/Saving: Cash and savings, combined, continue to increase as a result of regular saving and the sale of ESPP shares from the last quarter.

2) Roth IRA and Brokerage: I made a contribution of $4,000 to my Roth IRA account. Roth IRA balance is also improved due to individual investment performance, which is washed by offsetting performance in brokerage accounts.

3) 401(k): Most 401(k) balance increase is from continued contribution and employer match to my wife's and my account. We expect to do so in the foreseeable future.

4) Stock Option: Stock option suffered from uninspiring MSFT performance, albeit Microsoft delivered a great quarterly earning release. Without a small batch of stock option newly vested this month, the balance would decline even more.

5) ESPP: ESPP balance declined due to the regular quarterly sale of acquired ESPP shares, offset by new contribution in January.

6) Tax Liability: Tax liability increased a bit primarily due to insufficient tax withholding for my wife's salary (as a result, I had to add a journal entry to increase my tax liability to reflect the true net worth status). The balance of tax liability also includes about $800 unpaid tax for 2004, which I will pay in April using credit card.

BRIEF DISCUSSION OF EXPENSES

Our monthly expense for January is only $5,475, the lowest in five month. The favorable variance from last month's $6,764 is driven by the one-off December spending associated with a short holiday trip, plus cost control on dining-out and groceries in January.

IMPORTANT PERSONAL FINANCE ISSUES IN MONTHS AHEAD

- After adding $4,000 to my Roth IRA account this month, I still plan to add $5,000 to my wife's Roth IRA account (she still has $1,000 unused quota from tax year 2004). As Roth IRA allows hassle-free tax-free withdrawal of principal, there is no reason I choose not to contribute.

- With many tax forms coming to my mailbox every day, the tax season starts. I will start to work on my tax returns in February using TaxAct.

This Post Has Received 3 Comments. Share Your Opinions Too.


jason Commented on February 5, 2005

Stock Option Query

Hi MM,

Congratulations on surpassing 200! My 200-300 occurred over 2 months, but that was a very strong month for my heavy weighting in my employer's stock. I definitely welcome that kind of performance going forward, but view it as unlikely to move like that anymore (though I still keep too heavily weighted in the stock and have suffered from the 20% haircut this past month, of which 20% causes a loss of greater than 20% net worth due to stock options basing from a non-zero value).

I have a question about your employee stock options as I am in a company that has 8 billion in cash and has announced they are likely to revise the dividend upwards in the future.
When MSFT did the special dividend of 3$/sh did they revise the cost downwards on the employee stock options granted? I have a feeling that as dividends increase and special dividend likelihood increases, these actions will work against the stock options I have acquired and vested through the years. As the time approaches where it becomes a more immediate concern (2007-2008), I think I will address with HR or IR, but was wondering if you had any insights for this?


jason Commented on February 5, 2005

Sorry one more comment in a statement that caught my eye.

Looking at your approximate income, I am curious how you are able to contribute to a Roth IRA. It seems that your combined income exceeds the allowable contribution to a Roth and exceeds the amount you could write off for a traditional IRA. As is similar to me, I would think you would only be elegible to contribute after tax earnings to a Traditional IRA in order to defer taxes. Just kind of curious if I am missing something that may apply to my situation that caused me to miscalculate my IRA eligibilities.


mm Commented on February 5, 2005

Congrats on getting 100 grand in 2 months! When MSFT issued the $3 special dividend, employee stock option was repriced downward to make employees even. I blogged about it briefly but details can be found here (search "Proposed Amendments to Stock Plans"):

http://www.microsoft.com/msft/SEC/FY04/proxy2004.mspx

Microsoft set a good precendent so there should be no reason other companies will not follow suit if they issue special dividend as well.

On your second question, Roth IRA contribution will phase out between AGI of $150,000 and $160,000. I assume you get my approximate income from my 2005 Financial Plan. However, AGI is my top line income after 401(k) contribution, FSA contribution and many other items, and I am confident by the end of the year my AGI will come under $150,000. Actually, in the tax section of my financial plan (to be posted), I will discuss how a tax analysis will help to find and avoid this trap. Good question Jason!


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