My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.


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Why I Don't Reveal Income Information, and Some Revelation

Contributed by mm | January 3, 2006 5:25 AM PST

Many of you rightfully pointed out that income statement is a noticeable missing component of this 3-year-old personal finance blog. Being a corporate finance professional, I do agree that financial disclosure, no matter a personal one or corporate one, is always incomplete without income statement data. In the case of PFBlog, the lack of such revelation, of course, is an intentional miss.

So why do I want to keep this to myself while I'm revealing literally anything but my social security number at this blog? There are two main reasons:

First, both my wife and I have signed confidentiality agreement with our employers to keep compensation package as a secret, and we do want to honor what we promised. It is really unfair to the company, as well as to our managers and colleagues, to openly discuss our compensation.

More importantly, revelation of income does no more than satisfying some peeking eyes. To me, personal finance improvement mostly involves rational spending ("finding the best deal"), transactional efficiency (credit card rewards, best savings rates, etc.), and wise investment decisions. Simply talking about our household income will help no one in achieving better financial results.

With that said, the best I can do is probably to provide some combined numbers -- hopefully this will provide some context to understand our net worth growth pattern.

Below is the combined results for 2003 to 2005. In each year, combined results include my job income, my wife's job income and our sideline "hobby" income. This does not include investment income, interests/dividends, and gains from our home sale.

2003......$115,390
2004......$142,560
2005......$233,093

The leap between 2004 and 2005 includes one-time benefit from my relocation, increased earning power of my wife, and income streams from our sideline business.

What's up for next year? We are looking at north of $250,000. The increase over 2005 includes more expatriate benefits, offsetting by my wife's lower job income and lower sideline income. If we add back investment income, we do expect our 2006 income will be 20-30% stronger than 2005's.

Is this disclosure good enough?

This Post Has Received 20 Comments. Share Your Opinions Too.


fatboy Commented on January 3, 2006

MM, you have the rights to your privacy, and I would do the same if I were you. One other reason people are curious about your job income versus the total household income is to make you a yardstick to measure their success. In other words, if you make $X/year and save $Y/year, it follows that I should at least save $Y/year if I make $X/year. I think disclosing the total household income from your and your wife's jobs minus your "hobby" income could be more informative. However, you can just as easily disclose the percentage of income that you save every month or year without disclosing anything about your income, which will still yield the same result for everyone. :)


CPA1298 Commented on January 3, 2006

MM,

Fatboy hit the nail on the head. One of the supplemental schedules I am adding to my 12/31/2005 financial statement are a dozen different ratios (net income as a % of total revenues, net income as a % of total after-tax revenues, etc.). My wife and I, with a combined household income of $50,000, had a net income about 25% of gross income. I think this number is decent, but I would like to compare it to others. Sadly, it seems that most blogs lack this disclosure.

As always, thanks for the great blog.


MM Commented on January 3, 2006

Good comment. However, I'll argue it is much more difficult to save 10% from $20,000 household income than saving 20% from $200,000. (On the other hand, growing 10% from a net worth base of $400,000 is considerably harder than growing 20% from $20,000 -- with the same income stream.) While I certainly adopt a lot of ratios when I compare multiple years of my own record, I'm not so sure % is a good way to compare with others.


Debbie Commented on January 7, 2006

CPA1298, I earn about mid-thirties and my net worth goes up an amount equal to about half my pay in any period. (I'm guessing this is what you're asking about.) But I've had time to get my net worth up to about $170,000. The higher one's net worth (and the smaller one's income), the easier it is to increase it by some large percentage of your income, even with just a small return.

One could argue convincingly that everyone is unique, so you can't compare at all. Nevertheless we can still learn from each other. I find percentages to be more comprehensible than amounts when I'm learning from someone who makes multiples of what I make.


CPA1298 Commented on January 8, 2006

Debbie - congratulations on accumulating a net worth of $170k on income in the mid-thirties. Can I ask if this savings was from that income, or was there an extraordinary event (ie. inheritance, etc.)? If you can live on the $30k, the net worth should take care of itself.


Debbie Commented on January 10, 2006

CPA1298 - Actually, most of my net worth was accumulated on an income in the mid-twenties. There was no extraordinary event, although I have no dependents and am 43 years old, so I've had some time.

I have three extreme strategies: 1) I buy most clothes at thrift stores. 2) I buy ten-year-old reliable cars for cash and keep them for ten years (with no collision insurance). 3) My house is a small one in a safe neighborhood on the wrong side of the tracks, so to speak, and I have a paying housemate.

These strategies let me do four things most people don't get to do: 1) I live debt-free besides my mortgage (to be paid off when I'm 50). 2. I save money. 3. I go on fun vacations. 4. I get to retire when I'm 52 (best guess so far). (That retirement thing is partly because I work for the state and still get a pension--that's pretty extraordinary nowadays.) Plus I get to do plenty of things that most other people also get to do like watch movies and eat out too much.


CPA1298 Commented on January 22, 2006

Debbie -

I like your 'extreme' ideas. It's sad that they are extreme, but in today's materialistic society, living in such a way is very rare.

My wife's family is a similar story. My father in law was the sole breadwinner for most of the time, and worked as a school teacher. They raised seven kids, and put them all through parochial school and paid for college for all seven, as well as modest weddings for the four daughters. All this while paying off a house, without any help from inheritance, etc. They also had some extreme ways of living - all kids wore yardsale clothes, the cars were used, vacations were infrequent and modest, no meals were eaten outside of the home, etc. I respect them for their accomplishments, and their common-sense approach could be applied by many to great benefit.


Neil Commented on February 2, 2006

Debbie, sounds like a good strategy that pretty much anyone could employ. Would be nice to have some guide for how to pull it off without relapsing for those not currently accustomed to that minimalism in those particular areas.


Crespi Commented on February 2, 2006

Living debt free is super hard with so many enticing offers out there for credit and financing. Kudos to those of you who can do it.

I'm preparing to cut up 3 or 4 credit cards next month.


Empty Spaces Commented on February 7, 2006

I've managed to accumulate a networth of about 4 times my annual salary since i graduated & started working in 1999. I have a non-working wife who's going to grad school and I've achieved it by living below my means and investing my money. We splurge on vacations but thats about it. We'll splurge on other stuff next year when my wife graduates and she'll start working.


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