Annual Report: Income, Expenditure, and Net Worth Gain

Here are last year's number for comparison. Compared to last year we spent more than twice as much (even though we were only spending as a couple for the last 4 months of 2007) and did more saving in retirement accounts and less in non-retirement accounts.

Looking at 2007, we brought in $50,773 in after tax non-investment earnings not counting retirement contributions. We spent $55,582. So we spent $4,809 out of investment earnings. Expenditure was very high due to the last 4 months of the year being our expenditure as a couple and the move to Australia. Still we managed to keep about $17,000 of our investment income, which is more than twice as much as needed to compensate for inflation.* I also made $1,667 in contributions to my Roth IRA account which came out of after tax income. After taking this into account, our net gain in non-retirement accounts ** was $31,870. Reported net worth in these accounts increased $49,543 due to the addition of Snork Maiden's $17,672, which was merged into the accounts at the end of August.

Total retirement contributions were $16,244 including the Roth IRA contribution. Pre-tax earnings on the accounts were $10,635, taxes $1,002, and gains due to the rise in the Australian Dollar $15,263. These sum to a total of a $41,140 gain in retirement savings in US Dollar terms.

At first glance all these numbers look very healthy, both on their own and compared to last year. But expenditure is steeply up and I only expect it to be a little lower this year. And so much of the contribution to net worth growth came from the rise in the AUD which actually makes us poorer in Australian Dollar terms. That is unless we were to cash in our AUD gains, buy USD and the AUD would then fall back again. I'm not going to make a big bet like that but plan to continue to move towards having a smaller allocation to related investments. My next post will be the final part of this annual report, laying out our current asset allocation.

* I took away the tax credits from core investment income and then subtracted the spending from investment income to get this number. A quirk of my accounting is that investment income is shown pre-tax and other income is shown after tax. Other income is the sum of all after-tax non-investment income and net tax refunds. The tax credits on investment income include for example U.S. tax on dividends that is being deducted at source now that I live in Australia. I count the pre-tax dividend as investment income but as I don't receive the part that is deducted as tax I need to enter a line for tax credits in the accounts in order to find actual saving and net worth change.

** I don't call them "taxable accounts" as the earnings in Australian retirement accounts are taxed, though at a lower rate than regular income.