How To Use Look-Through Earnings To Make Better Decisions

2017

Starting net worth: $26,000

Income:

Leslie: $29,000

Ben: $29,000

We were putting about 50% of our income into VOO and other broad market accounts (including retirement accounts through work.)

Our psychology toward money shifted entirely. At this point, the whole thing has become a game of capturing the most earnings as possible, reinvesting them, and keeping as much money working for us as possible.

Here is the last missing piece of the puzzle: “Look-Through” Earnings.

It’s a concept Buffett coined and it is amazing at helping you control your investing psychology when markets crash.

He says that the real metric to watch is not the stock price, but the earnings the business generates.

The name of the game, then, is to create a portfolio that maximizes the amount of earnings you get from your investments.

So we began to track our share of earnings from the companies we owned, as well as individual investment returns for opportunities opened by the online store. This lets us invest in the highest returns possible during any given month.

We are happier and healthier and more secure than ever.

We are maxing out the online store, It becomes the first stop for new income, we invest as much as possible in inventory (until we have more than our sales volume will allow) then the rest goes into buying investments (mostly VOO).

I should mention that the store is extremely part-time. This is the point that, if we wanted to, we could go to the bank and get a small business loan and turn it into a full-time job.

Why don’t we?

We don’t want a full-time job. We want to spend more time with our daughter, not less. Besides, we built this business without any meaningful debt, and we want to keep it that way. It lets us sleep way better at night. And it gives us more freedom to just stop working if we wanted to.

Assets

Equities @ Cost: $38,000

Cash/Equivalents: $12,000

Ending net worth:

$50,000

On to 2018 ($50,000 -$87,000)

Back to Income Reports

Closing Thoughts

I no longer have the spreadsheets we used to track our data from this period, but I believe that our “Look Through” earnings were around $25,000 by the end of this year.

That includes investment earnings, and all income from our jobs and storefront over-and-above our expenses.

Buffett’s goal for Berkshire Hathaway is to grow his Look Through earnings by 15% per year.

So why don’t we try to do the same thing?

For more details on how we structured our business, or fit the work of running an online store into our busy lives, check our guides:

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