These unfamiliar words grabbed my attention.
It’s a German expression that translates to – “Even small animals produce manure.”
Meaning, even small things can add up to big things.
Every little bit counts.
I was invited to an entrepreneurship learning day last week and the focus of the learning day was CASH.
We were diving into important financial numbers in business – it’s fair to say I was in my element.
But what surprised me was all these other successful entrepreneurs who made WAY more money than me either didn’t know their numbers or they were afraid of looking at them…
That blows my mind.
I always thought business owners and entrepreneurs would be guns with numbers.
It’s a good reminder never to put anything or anyone on a pedestal.
The facilitator for the day, a German single Mum & entrepreneur (who I’m interviewing on the podcast next week) used the German expression to add weight to one of the key teaching points from the day.
‘The power of one’ – how multiple 1% changes can produce outsized results.
In the context of business, by making 1% changes to variables such as:
- Increasing your prices
- Increasing your volume
- Decreasing the cost of goods sold
- Decreasing your overheads
- Reducing your debtor days
- Reducing your stock days
- Increasing your creditor days
You can create BIG changes to your cash flow and overall financial health.
The same is true for your personal finances.
Let me share a simple example to highlight just how powerful 1% changes can be to your wealth creation.
How 1% Improvements can Fast-Track your Wealth
Let’s say there is a couple who earn a combined after-tax income of $180,000 per year. Their fixed expenses are 60% of their after-tax income and their variable expenses are 30% of their after-tax income.
This leaves them with 10% of their income they save & invest each year.
They put this money in an investment account with a 5% ROI per year.
Base Case:
After-tax Income (partner 1) = $100,000
After-tax Income (partner 2) = $80,000
Fixed Expenses = 60% = $108,000
Variable Expenses = 30% = $54,000
Savings per year = $18,000
Investment account = 5% ROI
After 10 years assuming nothing else changes, the wealth they would accumulate in their investment account would be worth $255,722.
After 30 years, it would be worth $1,273,694.
Not bad hey?
Now let’s look at what happens if they adopt the 1% rule by:
- Increasing their income by 1%
- Decreasing their fixed expenses by 1%
- Decreasing their variable expenses by 1%
- Increasing their investment returns by 1%
1% Improvements:
After-tax Income (partner 1) = $101,000
After-tax Income (partner 2) = $80,800
Fixed Expenses (down 1%) = $106,920
Variable Expenses (down 1%) = $53,460
Savings per year = $21,420
Investment account = 6% ROI
- Their total income would increase by $1,800 per year
- Their fixed expenses would reduce by $1,080 per year
- Their variable expenses would reduce by $540 per year
Therefore, their available cash flow would increase by $3,420 per year.
This means each year they would be putting $21,420 into their investment account instead of $18,000.
And their investment account is now giving them a 6% ROI instead of a 5% ROI.
Now let’s see how these small 1% improvements impact their long-term wealth creation.
After 10 years assuming nothing else changes, the wealth they would accumulate in their investment account would be worth $320,693.
After 30 years, it would be worth $1,816,452.
Therefore, these small 1% improvements would result in a 25.40% increase in their investment account after 10 years.
After 30 years, it would result in an extra $542,758 – a 42.61% increase in their investment account!
