When 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:
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:
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!