In May of 2020, we decided to start posting some metrics about our businesses. We did this in part because reading the income reports of other bloggers is what gave us the courage to try out this blogging thing in the first place. This is a kind of pay-it-forward post.
We also did this because it holds us to a great deal of accountability. Each month we will update you with a sort of journal of the goings-on of our 3MM businesses. These reports, then, force us to keep better records, to make better decisions, and, most importantly, they keep us from getting lazy. It’s one of the reasons blogs are profitable, even when they don’t make money. When we set goals here, we’d better reach them. Because we know you eagle-eyed readers are going to call us out if we don’t!
And finally, we did this because Warren Buffet does it. Of course, when he does it, he is addressing millions of readers worldwide and talking about billions of dollars…. But his letters have taught me more about running a business than any other single source. It’s one thing for a professor to tell you what you should do, it is quite another (more valuable) thing to see good business practice in action. Hopefully by reading these reports you absorb more ‘what-to-do’ lessons than ‘what not-to-do’ lessons.
Below each metric is a brief explanation our reasoning.
With that out of the way, let’s get on with the report…
Online Income
In May, the equity base of our side businesses increased by: $1,514
We define ‘equity base’ as: (Inventory + Cash – Short-term (ie credit card) Debt – Monthly expenses – what we take out as our salary). Basically ‘equity base’ is the current, at the time of writing, value of our online businesses. If there was an emergency and we had to liquidate the businesses, this is the amount we would get.
The number we are reporting here does not tell you how much our businesses are worth. It tells you how much that worth increased over the last 30 days. It is the amount of money that can either be reinvested in the businesses or invested in a broad-market fund to reach our one-million dollar goal.
Basically, the businesses grew by $1,514. Of that $1,514, $600 went into VOO (our favorite investment, explained here) and the remaining $914 was re-invested in expanding the businesses. We took no cash out for anything besides our 3MM plan.
Our goal for June is to increase our equity base growth by 10% or about $150 (for a total June increase of $1,665). We expect the $914 reinvested to make this possible.
Passive Income from Investments
Our estimated share of earnings from equities we hold was $248. See Getting our Fair Share for a full explanation of what we mean here.
In short, this is the passive income generated by the companies of which we are part owners either directly through shares of stock, or indirectly through a mutual fund or ETF. This money is not delivered directly to us in the form of cash (though some of it is through dividends) but is instead kept within the company to grow its earnings and (usually) its market value.
We consider these earnings every bit as ‘real’ and important as cash-in-hand, more so because as long as this income stays inside our shares of stock, it grows tax-free. Taxes are only paid on these gains when we sell the stock. These are the most efficient earnings we can get.
Our goal for June is for our share of earnings to increase to at least $250 (an increase of 1%). This puts us in line with our long-term goal of growing our passive income by 12% per year.
Our goal of growing our passive investment income by 1% per month or 12% per year is purely arbitrary. We know that the broad market averages an increase in market value of 12% per year, not counting inflation. So we figure we would try to match that. Half of our passive income will come from us. Half will come from organic market growth. The goal doesn’t matter. Having a goal is what counts.
Total Online and Passive Income
Total Online and Passive Income for May 2020 was ($1514+$248) $1,762. Almost three times our $600 goal!
At this rate, our passive investment income will meet our desired standard of living in 20 years.
Our goals for June:
- Grow the equity growth of our online businesses by 10% or $1,700
- Grow sales volume of online store by 10%
- Grow our share of earnings from equities by %1
Find out if we met our goals in the Income Report for June 2020.
Or head back to Income Reports
