Income:

• Salary (after tax) – 6,000
• Rental Income (no tax since negative cashflow) – 700

Total Income: 6,700

Expenses:

• Rental Costs (HOA of 276, mortgage loan of 870, property tax of 150) – 1,296
• Student Loans – 190
• Prepayment of Rental – 500
• Savings – 4,414
• Discretionary Expenses – 300

Total Expenses: 6,700

Compared to the November 2009 Budget Breakdown, it can be seen that the main differences lie in lower discretionary expenses (600 to 300, down 50%) and higher savings (1,460 to 4,414, up 202%) due to a higher salary (3,400 to 6,000, up 76%). I gotta admit that I do like this new salary and being able to stash away a lot of money for investments, too bad the gravy train is ending in a month. But I am even more happy that I’m heading home away from this 120+ degree sweltering heat! Ain’t no amount of money worth living here.

The actual monthly numbers for this is:

• Taxes - 1,600 – Hefty? Yea. Large percentage? Not really, considering this includes a host of random costs (Health, dental, vision insurance; work life insurance, tiny pension contribution) along with the FICA, federal, and state income taxes. Of course the reason it is a lower percentage is because I max out the 401k contribution every year.
• Savings - 2,710 – Consists of the after-tax savings and 401k contribution. Savings go toward building up the emergency fund, buying foreign currencies, diversifying my mutual fund portfolio, saving for another downpayment on a rental property.
• Debt Repayment – 690 – Consists of the student loan repayment and prepayment of Property #3 mortgage principle.
• Housing - 1,350 – Consists of Property #3 mortgage payment + HOA + Property Taxes + Electricity + Internet
• Life - 600 – All discretionary expenses such as eating out, getting haircut, buying clothes, etc…

Total is Gross Income of 6,950

I think overall I am doing okay. In a way the slices for Savings + Debt Repayment and part of Housing (the principle paying part) all go towards increasing my assets and lowering my liabilities and thus increasing my overall net worth. I probably could cut some fat from Life and Taxes, but it currently works for me and I do want good insurance and some fun in life.

Income:

• Salary (after tax) – 3,400
• Rental Income (no tax since negative cashflow) – 700

Total Income: 4,100

Expenses:

• Rental Costs (HOA of 276, mortgage loan of 870, property tax of 150, internet of 50) – 1,350
• Student Loans – 190
• Prepayment of Rental – 500
• Savings – 1,460
• Discretionary Expenses – 600

Total Expenses: 4,100

Basically the only difference in the budget is the promotion will increase monthly income by 600 after tax. This excess will continue to be funneled into savings (bumping it up to 1,460 from the prior 860 in the August 2009 Budget Breakdown) while keeping the other expenses the same. And yes, it has to be said… Fight lifestyle inflation!

Following the above monthly budget will result in:

• Savings of 1,460
• Prepayment of Rental of 500
• Pay off Mortgage Loan (excluding interest) about 475
• Pay off Student Loan (excluding interest) about 145
• Contribution to 401k (both mine and company’s) of 1,250

Total monthly increase of income/decrease of debt: 3,830

This results in increase of income/decrease of debt by 45,960 per year, which is 7,390 greater than the August 2009 Budget Breakdown number of 38,570. This reconciles to an average increase of about 600/month, which is precisely the promotion amount.

The one revision is that there was an error in the way I calculated my monthly salary. Previously I taken my bi-weekly salary income of 1,300 and timed 2 to get the monthly salary. However, since there are actually 13 four week periods in a year, I was shortchanging my monthly salary by about 200/month. Thus my revised salary is 2,800/month instead of 2,600/month. Hence, I should be able to increase my savings by another 200/month (2,400/year) to 860/month. This upwardly adjusts the total saved per year to 38,570 instead of 36,170. Overall, the total saved per month is 3,214.

It is important to note that the definition of savings constitutes either an increase in assets or decrease in liabilities. Here are the revised numbers in budget form:

Income:

• Salary (after tax) – 2,800
• Rental Income (no tax since negative cashflow) – 700

Total Income: 3,500

Expenses:

• Rental Costs (HOA of 276, mortgage loan of 870, property tax of 150, internet of 50) – 1,350
• Student Loans – 190
• Prepayment of Rental – 500
• Savings – 860
• Discretionary Expenses – 600

Total Expenses: 3,500

The net result of following the budget over a period of one year is:

• Savings of 10,320
• Prepayment of Rental of 6,000
• Pay off of Mortgage Loan (excluding interest) about ~5,500
• Pay off of Student Loan (excluding interest of 530/yr) about ~1,750
• Maxing out 401k of 15,000

Total increase of income/decrease of debt: 38,570

For this post I will expand the calculations to figure out my absolute expenses — expenses that don’t result in increasing assets or decreasing liabilities. Basically absolute expenses are those expenses that contribute to nothing, that disappear off into the ether, that have no useful meaning or purpose.

Absolute Expenses:

• House #3 (rental): 1,350 total XP – 700 rental income – 450 mortgage reduction = 200/month
• Student Loans: 530 interest/year
• Discretionary XP: 600/month

Absolute Expenses by year = (200 + 600) * 12 + 530 = 10,130/year

Now how does this piece fit into my gross income?

Gross Income Breakdown of 62,000/year:

• Savings Total: 38,570
• Absolute Expenses Total: 10,130
• Leftover: 13,300

Leftover constitutes 21.45% of my gross income and it covers Federal/State income taxes, FICA, HSA, insurance, and probably a multitude of other taxes such as employee compensation, etc…

My goal of creating a retirement income stream of 64,236 after taxes is lofty, but is it necessary? Do I really need 5,353 income a month? What is my purpose for attaining that and will I be any happier getting that amount as opposed to getting 4,000 or 3,000 or 2,000? So I decided to calculate what is my minimized expenses per month:

• House: [assume living in house #3 and it is already paid off]
  • HOA: 276 [covers insurance, water, gas, landscaping, trash, security]
  • Property Taxes: 150
  • Total: 426
• Car:
  • Insurance: 100
  • Gas: 150 [possibly much lower if retired]
  • Maintenance: 50
  • Total: 300
• Utilities:
  • Electric: 50
  • Internet: 50
  • Cell Phone: 30
  • Total: 130
• Other:
  • Food: 300 [covers groceries, eating out]
  • Misc: 200 [eg. haircut, clothes]
  • Total: 500
• Grand Total: 1,356

From these calculations, you can see that once I am retired my expenses won’t be that high. The only wildcard here is health insurance, which if Obama gets his way won’t be a problem. Even if there isn’t universal healthcare, I could get health insurance for about 600/month, not even breaking the 2,000 range. Either way, I don’t “need” the 5,353 monthly stream I previously calculated. I can retire earlier if I decide to no longer live a Supersized American Lifestyle and get by on a lower income.

Furthermore, do I really even need to live in a 800 square feet 2 bedroom condo or should I downsize that even further? The American lifestyle is all about trading up, but to what end? All trading up does is either create lots of empty space or even more clutter (if you can’t control yourself) and waste manpower/utilities trying to clean it up, light it up, fill it up. To me 800 square feet feels amazingly spacious right now and it is a humongous amount of space for a lot of people around the world (eg. in Hong Kong 400 square feet for two people is standard). Maybe I should trade down to a smaller space that has mobile capabilities.

Strangely, thinking about all of this gives me more excitement and hope for my future retirement.

• Budgeting is good for us and our checkbooks. It helps us save for the future. It helps us rely less on credit and pay less overall (interest pmts can end up doubling what you owe). We can create a fund for emergencies so that one major mishap won’t throw us in front of the bankruptcy courts. It gives us a better handle of where we are financially in life. It gives us a framework to live by so that we don’t end up asking ourselves “where did all our money go?” We begin to appreciate more the money we earned from our hard work. We no longer need to live paycheck to paycheck if we no longer overspend and start saving.
• Goal Setting is good for us and our future. We can end up accomplishing more if we set out S.M.A.R.T goals for ourselves. We feel a sense of achievement as we cross out completed goals one by one. It makes us really drill down and think what is really important to us and what do we really want to do in this life. It gives life a definite sense of purpose and a feeling that anything is possible as long as you set your mind to it. It helps you realize how fleeting life is and prevents people from just drifting. All great men and women in history had a great goal they set out and achieved. It makes you want to be great too.

But why do people not do these things if time and time again they have been shown to be effective tools in life? Some people say it’s too hard or they don’t have enough time or they don’t know how to do it. I say that nothing is too hard if you put your mind to it, you can always make more time if you look at the time wasted in your schedule (besides these tools help to make your actions more efficient and effective), and the Internet is a plethora of information, there is no excuse to say you don’t know how to do something, you can always learn.

One important thing though, it isn’t enough to just try to do these things once or twice, you need to do it over and over until it becomes marinated in your lifestyle and is almost second nature. That is when these things become really effective and you can see how your life changes for the better because of it. Doing them just once in a while is equivalent to eating healthy once a blue moon while the other 300+ days you dine at fast food restaurants. Not so effective right?

There are a number of other things that people should do but just don’t do. I fall in this trap too.

• Eating healthy
• Exercising
• Get more sleep
• Spend more time with family and friends
• Watch less useless T.V. shows
• Read more books

I need to start working on these things today…

Below is my current monthly budget:

Income:

• Salary (after tax) – 2,600
• Rental Income (no tax since negative cashflow) – 700

Total Income: 3,300

Expenses:

• Rental Costs (HOA of 276, mortgage loan of 870, property tax of 150, internet of 50) – 1,350
• Student Loans – 190
• Prepayment of Rental – 500
• Savings – 660
• Discretionary Expenses – 600

Total Expenses: 3,300

The net result of following the budget over a period of one year is:

• Savings of 7,920
• Prepayment of Rental of 6,000
• Pay off of Mortgage Loan (excluding interest) about ~5,500
• Pay off of Student Loan (excluding interest of 530/yr) about ~1,750
• Maxing out 401k of 15,000

Total increase of income/decrease of debt: 36,170

Things to Note:

• Discretionary Expenses of 600/month – Having a SO can be expensive >.>
• Savings of 660/month – This fluctuates depending on whether I spend more or less money that month with my SO.
• Other expenses (Rental Costs, Student Loans, Prepayment of Rental) – All pretty much fixed so there really isn’t much wiggle room.
• Income sometimes is greater depending on the month (due to tax rebate, work reimbursements, HSA reimbursement, etc…) so that is kind of flexible.
• Salary is after tax, after insurance, after 401k contribution, and after HSA (health savings account) contribution. That might be why my monthly salary is kind of low.
• I try to max out my 401k every year, thus my salary is limited by quite a bit.