Now that we have gone through the respective analysis of income, expense and tax, it is time to connect the dots. In a nutshell, how much I can keep -- in other words, net worth growth, equals my income after expenses and Uncle Sam's share. If you piece together what I put down in the last three posts, here is what you will get:
|
|
2004 Actual |
2005 Plan |
YoY Growth |
|
Total Income |
$ 154,498 |
$ 196,385 |
27% |
|
Adjusted Gross Income |
$ 120,705 |
$ 148,028 |
23% |
|
Tax |
|
|
|
|
Income Tax |
$ 16,240 |
$ 24,613 |
52% |
|
FICA Tax |
$ 8,224 |
$ 10,652 |
30% |
|
Additional Tax Liability |
$ 2,368 |
$ 3,045 |
29% |
|
Total Tax |
$ 26,832 |
$ 38,311 |
43% |
|
Expenses |
|
|
|
|
Auto |
$ 7,504 |
$ 7,900 |
5% |
|
Bills |
$ 10,054 |
$ 15,431 |
53% |
|
Clothing |
$ 1,722 |
$ 2,400 |
39% |
|
Education |
$ 715 |
$ 620 |
-13% |
|
Food and Groceries |
$ 15,077 |
$ 16,440 |
9% |
|
Healthcare |
$ 428 |
$ 1,560 |
265% |
|
Household |
$ 19,127 |
$ 18,180 |
-5% |
|
Insurance |
$ 1,975 |
$ 2,592 |
31% |
|
Leisure |
$ 2,785 |
$ 5,760 |
107% |
|
Discretionary/Other |
$ 6,317 |
$ 3,960 |
-37% |
|
Total Expenses |
$ 65,703 |
$ 74,843 |
14% |
|
Total Net Worth Increase |
$ 61,963 |
$ 83,230 |
34% |
|
Tax as % of Income |
17% |
20% |
|
|
Total Saving % |
40% |
42% |
|
(Note: What I didn't fully explain in prior posts are: first, FICA tax is the social security tax (6.2% for the first $90,000 of earned income) and medicare tax (1.45% of earned income).
Second, the Year 2004 total net worth increase of $61,963 from the model does not fully tie to my actual net worth growth of $62,937. The difference is due to certain small accounting treatments.)
What the plan says is basically the following:
- Our family income will grow 27% due to more wife's additional job income and other income streams;
- The Big Brother will charge me 43% more;
- However, I manage to keep expense growth to 14%;
- As a result, I stand to keep 34% more, and am looking at a net worth growth of $83,230.
You might ask one question: why I set my 2005 net worth growth goal to be $79,500 instead of $83,230?
The answer is there are more than one risks that can easily knock me off by a few grands without me doing anything differently (or irrationally) -- MSFT stock price is a good example and it is a risk I cannot effectively hedge 100%. My intention is not to set the bar low -- I am also putting a stretch goal of growing net worth by $87,500; I just don't think I should be flunked if I execute the year flawlessly from a personal finance perspective, but failed to grow net worth enoguh because the market tanks.
So, this is my Financial Plan 2005, and in the next 12 months, you can watch me executing this plan step by step. Thank you for being a loyal reader and now you have one more reason to stay with PFBlog :-)
(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.)
