My Personal Finance Journey

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2007 Net Worth Growth Goal vs. Result (and Brief Annual Income Statement)

Contributed by mm | January 5, 2008 3:56 AM PST

networthicon.jpgWhen it comes to the cycle of setting up financial goals and achieving them, oftentimes a good post-mortem analysis gives more insight than mere celebration of another mission accomplished.

As we are quickly bidding farewell to 2007, I took some time to revisit my 2007 plan -- I did a fairly sophisticated model a year ago to set a net worth growth goal of $230,000 -- and I overachieved it by about $34,000. But what really happened?

In order to complete the exercise, I took the original numbers from my 2007 planning financial model (which I did in December 2006), and compared them against actual results in 2007 in the income statement format I introduced lately. Here is the comparison:

6350-chart1.jpg

First as a note: the plan column shows an expected annual net worth growth of $221,740, and for goal-setting purposes, I upped it a bit to declare the $230,000 as the "official" growth goal.

Now one can read many things from the table, but key take-aways are:

1) Our earned income beat the target by a small margin, but it is worthwhile to note the 8% upside of our business income does not come easily from a big base, challenged bandwidth (from day job) and some industry headwinds near the end of the year.

2) However, virtually all upside of earned income increase (from an after-tax basis) was consumed by spending overrun, caused by 1) wealth-indulged increased consumption, and 2) increased level of charitable donations that went to a children computer education center and an elementary school in rural China -- hundreds are benefitting.

3) Speaking of self-managed portfolio, our total return is a bit shy of plan, but our annualized rate of return of 8.77% still exceeded our stated goal of 8% and trumped our benchmark by a big margin. (In retrospect, I assumed we will have an average portfolio base of $800,000 and 8% annual return to achieve the $64,000 gain, but we our portfolio size didn't break $800,000 until September).

4) The appreciation of vested stock options is certainly unexpected -- I considered the stock to be fully valued one year ago (and I still do so now, albeit at a higher price level).

5) The tax line increase is almost purely attributable to the stock option appreciation. The net impact of stock option appreciation, on an after-tax basis, is approximately $42,000.

So all in all, while apparently we were doing great in 2007 for blasting our net worth growth target by a mile, in reality we are just being lucky by staying put on our stock option.

One last interesting view from our 2007 data in what is usually called a percentage analysis:

6350-chart2.jpg

Now our execution is not that bad with 59% of our total income falling to the bottom line. Only if we can keep that level of efficiency forever!

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


Krimo Commented on January 5, 2008

Nice to see that you attribute some success to luck and that you are not "Fooled by Randomness".


drchunger Commented on January 6, 2008

i think that it is important to note that the investment portfolio, probably due the fs stocs that mm holds, did not meet the goals. while it was picked up by msft stock options.. should definitely recognize the shortfall. not to say that the actual result wasn't good... but it is data to get to 2008 plan.


MM Commented on January 6, 2008

drchunger, i think the investment portfolio exceeded the goal ... excluding stock options, it beat the benchmark by almost 2 points. it's only fair i call it a small success :-)


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