Need help understanding these numbers? Visit our first monthly income report for more information. Or you can (and we recommend that you do!) start at the beginning and read through all of the Income Reports.
Our Goals for October were:
- Grow the equity base of the businesses by $2,200
- Grow our share of earnings from equities by 1% (For a new monthly total of $253 passive income)
- Work no more than 20 hours.
- Our total income goal (both active and passive) for September is then: $2,453 or an hourly rate of $123 per hour
How Did We Lose Money This Month?! (Spoiler Alert: We Didn’t)
We’ll get to all the details in a minute, but I wanted to clarify something with this income report: In reporting these numbers, we became stuck between a rock and a hard place.
It all comes down to transparency. We want to give you the most genuine view of our business possible. As you are about to see, we decided that it was better to report a big red loss this month than to set up a potentially slippery slope in our accountability.
Besides, in the business world, you will have losing months. It’s a fact of life and it’s no big deal. The road will be bumpy. If anyone says otherwise, they’re not being honest with you.
Without further ado, here’s what happened:
Online Earnings
Amazon finally got our inventory checked in, shelved, and ready to sell. Everything is accounted for and we are ready for the holiday season.
October was (and often is) a bit of an underwhelming month. Prime Day is nice, but the rest of the month people just aren’t shopping. Most of our audience is waiting for Black Friday and Cyber Monday at this point, so our lines of gifts don’t move very fast. Our consumables and staples sales remain steady.
All in all, a boring month.
So how did we manage to lose money?
We didn’t. But we started to spend more on our business.
See, the numbers we report here represent what you might call Free Cash Flow. It’s the money that is left over after we take our salaries and pay our overhead. It’s the amount that we have successfully invested back into the business in the form of assets that actively earn more money.
Normally, it’s very straight forward: We use that cash to invest in inventory. We then sell that inventory for a profit. On average, we know that we earn about 20% return on these inventory-investments per month in the normal course of business (meaning, if we buy a widget from the manufacturer for $100 dollars, we will earn $120 from selling that widget, after our overhead costs, within 30 days).
When we ‘grow our equity base by X dollars’, it means that we have invested X dollars in such a way that it will immediately (within one month) increase our profits.
For the first two weeks of October, this was the case. We were actually ahead of our goal, and we had already met our investment goal (more on that in a second). So the fundamentals of the business are fine. We are actually doing great…
BUT about two weeks ago we began moving money to a new area of expansion for our business (an area that we’re not quite ready to unveil yet). We moved all of our free cash from October to this new expansion. Our inventory levels will not grow this month (and probably not next month either) and that is exactly the way we want it right now.
So why don’t we include that money in this income report?
Because the things we are buying now are not going to earn us money now. We have every confidence that will eventually create a very meaningful amount of cash flow, but we cannot predict when that will be. For the time being, it is best to treat that money as lost.
It simply would not be right to tell you we ‘grew our equity base by X dollars’ if we are not actively earning a return on those investments. Our inventory did not grow. Our cash balance did not grow. When our spending from this month does increase our earnings, we’ll report it then.
Remember: Here at 3MM, we do not consider anything to be an asset until it actually earns money. Reporting that money as equity growth would be just as dishonest as if we had used it to buy a new car and called it a business asset. When we upgrade our computers, we don’t report that here because the computers don’t earn us money. The same is true when we buy toner, paperclips, or post-its. Many business owners (both small and very large) would fudge the logic to deem anything to be an asset. That’s not how we do business.
That being said, when our purchases this month do finally come online and start earning money, then, and only then, will their earnings make it into these reports. I expect (using the very scientific method of blindly guessing) that to be 12-18 months from now.
Earnings for October: -$87
Hours Worked
THIS was the great triumph of October! Even including our expansion plans, we managed to work just under 10 hours this month (combined)!
I’m not sure we can manage this again (yet) so I’ll keep our goal the same for next month.
Our goal for next month: We will work no more than 20 hours (combined).
Passive Income from Investments
Our goal for October was to increase our passive earnings from investments to $253 dollars, which we did!
But then we didn’t.
We usually buy shares of VOO right after the first paycheck from Amazon hits our bank account each month, and October was no exception. So we did, briefly, reach our goal.
But then the Covid-related earnings slump continued. We are in the middle of earnings season and a whole bunch of our individual stock holdings released less-than-exciting earnings figures. We are now (after all those earnings disappointments) sitting at $247 in passive earnings per month.
Am I worried that earnings (and our passive income) are falling? Not at all.
The good news is that the price of the S&P 500 is falling as well. Why is that good news? I can now buy passive earnings cheaper than I’ve been able to in quite a while. For the last few years, I’ve been content to earn 3% on my investments. But now I get the chance to buy into 5 and 6%!
So when our next Amazon paycheck comes through (in about two days) I’ll be buying into a better-than-average return on my investment!
*See Getting our Fair Share for an in-depth explanation of what we mean by this section and why it’s important to your investing psychology.
Total Online and Passive Income
Total online and passive income for October 2020: $160
Because we each worked 5 hours, this means Leslie and I each earned $16 per hour
Our Goals
Because we technically failed to reach our goals, and because we are not expanding our inventory or our assets this month, we will keep our goals the same.
Our goals for November:
- Grow the equity base of the businesses by $2,200
- Grow our share of earnings from equities to a new monthly total of $253 passive income
- Work no more than 20 hours.
- Our total income goal (both active and passive) for September is then: $2,453 or an hourly rate of $123 per hour
Find out if we met our goals in the Income Report for November 2020.
