Start achieving today on a micro scale

What is micro scale?

The old saying goes that a 'journey of a thousand miles begins with a single small step'. I would argue two points on the contrary to this statement:
  1. The journey begins with the intention to travel.
  2. Before the first step, preparation must me made for the journey.
A micro scale is a small step towards the small milestone.

Lets use the following scenario:

A mum who is working full-time would like to increase her income by an extra thousand dollars a month. To do this, she intends to start her own eBay business one day and run it one day a week(Intention). She sets up the eBay account, finds items around the house for sale, and begins to take photos of the items to list the first sale (preparation).
This is the beginning stages of the micro scale journey. They are:

  • Make a plan: Determine what it is you would like to do.
  • Prepare to execute the plan: Get their affairs in order to begin execution.
The next step is breaking down the goal into more realistic and achievable goals. $1,000 in extra income a month might be difficult for someone to achieve initially. This goal however, could be broken down into smaller goals similar to the following:

Month One: $1 income
Month Two: $2 income
Month Three: $4 income
Month Four: $8 income
Month Five: $16 income
Month Six: $31.25 income
Month Seven: $62.5 income
Month Eight: $125 income
Month Nine: $250 income
Month Ten: $500 income
Month Eleven: $1000 income (goal reached)
Month twelve: $2000 income (goal exceeded).

One can see how breaking down a goal into smaller monthly steps quickly becomes a highly achievable and obtainable goal, while building upon early successes to improve results each month.
How can I achieve on a micro scale?

So how can you begin to start achieving on a micro scale? 

Let's assume you want to start saving, and would like to have $5,000 by the end of the year.

Rather than trying to save $100 a week (as your budget is very tight), you begin by setting a goal of saving $10 a week for the first two weeks. 

During these two weeks you might review your budget and begin to reduce your expenses to begin to protect this regular contribution for the next twelve months ($10 a week for one year will see you with $520 at the end of 12 months, which is a more than one tenth of $1,000 already).

After two weeks you have reduced your expenses and are able to save $30 a week. 

Next, you decided to pick up two hours a week extra at your job, even though they don't pay overtime rates ($20 per hour x 2 assuming after tax). 

Savings is now at $70 a week.

Lastly, you decide you want to begin earning a very small income from a hobby outside of work. 

The plan is to one day run a part-time business. You find all the old items around your house and begin to take photos of them. Instead of buying things on eBay you begin to list your old stuff, a few items at a time.

These items start selling and you begin to make $25 a week profit. Revising your budget, you find a way to carve out another $10 a week bringing the total amount you can save up to $105, which will allow you to save from there on in $5,460 over the next 52 weeks. Goal Accomplished!

The steps for achieving on a micro scale are as follows:

  • Intention.
  • Breaking down into small actionable goals.
  • Achieving these small actionable goals.
  • Build upon previous successes.

The importance of a micro scale

There are many reasons why achieving on a micro scale is important, but the main one is that you begin to build momentum which can be further expanded upon. 

By building momentum, you build confidence in your ability to achieve your goals.

Micro scale results don't bring in huge profits at once, they accumulate over time. 

Saving $100 a week isn't a big deal to a lot of people, but in ten years time you would have $52,000 (not including the interest and other possible returns that could occur on this money during this time).

Don't start small, begin extra small and building your empire from the ground up on a micro scale.

Recession proof your life: Prepare the fortifications

I am continually hearing about the Global Financial Crisis (GFC) that countries (Australia included) are facing all around the world. 

One thing I have noticed however, is that the effects of the GFC have been having different effects on different people, and both on a macro and a micro environment.
The Macro Environment

On a macroeconomic level, the global financial crisis is taking a toll. 

Big businesses are cutting jobs, reducing anticipated profits, slicing budgets and working on becoming leaner companies to help get through the current climate. 

Controlling the repercussions on a macro level cannot be successfully achieved unless we take action on a Micro environment level.
The Micro Environment
Although I might have a different view from the text book definitions of 'Macroeconomics' and 'Microeconomics', for the purpose of this post I will be referring to Microeconomics as your personal life.
How has the GFC affected you in your life? 

Some people have lost their jobs, others have had to default on loans, others are struggling to get by. 

Why is this the case? There are so many questions that are not easy to answer.
While there is a lot of turmoil, I am observing a lot of people actually achieving more than they were prior to the GFC

People are now saving cash reserves, building 'Micro' businesses and paying off debt that previously would have been ignored. Others further still are beginning to position themselves for a transfer of wealth and will cash in on the chance to become rich. 

Some have found that while they have lost their job, they now have more quality time with their families which they had often taken for granted before.
To impact what is happening on a macro level, we need to begin looking at how we can impact the micro level (in this case ourselves and the way we act). How can we impact the micro level in our lives? 

Below is a list of things I am seeing the successful people around me begin to undertake which is helping them not only to survive through the GFC, but to actually prosper through this time:

  1. Setting new goals life-long goals.
  2. Paying off principle on loans and other debt.
  3. Building cash reserves in a form with high liquidity (savings, term deposits, etc).
  4. Increasing the leverage of time (using the 80/20 principle and other time management techniques) to being able to produce more sales, work more hours and decrease time that is not productive.
  5. Ceasing to purchase unnecessary 'wants', and focusing more on the 'needs' in life.
  6. Establishing additional income streams (I.e: eBay, blogging, new revenue models in a business, an extra job, overtime, etc).
  7. Reinvesting profits into themselves, their businesses and their education.
  8. Increasing their networks (both online and offline).
  9. Selling, eliminating and reducing marginally profitable deals.
  10. Selling unnecessary and old household items (either via a garage sale, eBay or to friends and family).
  11. Simplifying lifestyles (I.e.: partying less, going out on picnics and more 'affordable' outings).
  12. Exercising and focusing on their health (although gym memberships might cost money, most people can't afford to be sick during hard economic times, and want to improve their health to perform better).
  13. Starting to work for themselves (outside of employment, or instead of employment).
  14. Reducing expenses (selling bigger cars, changing insurance plans, negotiating bank fees).
  15. Saving any additional government contributions (I.e.: Spending bonus from Kevin Rudd in Australia).
  16. Deferring cost and time consuming hobbies and projects (temporarily).
I was listening to an interview earlier today with Steve McKnight and Mr. Peter Daniels on the current economic situation. In this interview Peter explained the importance of having a 'cash reserve'. Peter mentioned that the bigger his businesses become, the higher the reserve of cash becomes.
Peter also mentioned the importance on measuring daily how things are progressing using mathematical calculations on your finances (I.e.: Cash flow statements, P&Ls, etc.). Steve McKnight has covered this before on one of his old sites also (view the article here), and I think it is an important point.
How do you know if you are sinking or swimming if you are not monitoring and managing your progression? 

Should things take a downwards turn, what is your safety net to fall back on?

Personally, I tend to follow the advice of successful people. 

If it is good enough for the rich to build their cash reserves and to monitor their cash daily, while cutting expenses, etc. then it is good enough for me too.
Have you given thought to taking action to recession proof your life? 

How could following the observations of the successful people around you help you improve your current situation?

Focus on building an active income

Who says you can't have it all without a passive income?

All through entrepreneurship classes, business courses, personal finance books and more, there is a lot of toting about two types of income:

  1. Active income: income you earn from a job or being self employed.
  2. Passive income: income you earn from a system that does not require your presence to operate (ie: business system or rent from an investment property.).
Passive income is not always as easy as it sounds and takes time to develop. 

While a lot of people focus on gaining a passive income as fast as possible, I personally recommend focusing on gaining an active income first. 

My reasoning is as follows:
  1. Active income is steady: Working in a job is a way of guaranteeing that a certain amount of money comes into your bank account each week, which you can then use to pay bills and to begin building a savings account for investing.
  2. Active income provides access to loans: If you are looking at getting a loan to start a business or to invest in property, then you will need something to secure this loan against. Banks tend to borrow against earning ability and asset security more than anything else.
  3. You can network in a job: Networking with potential business contacts and colleagues can be done while making a passive income.
  4. Active income can increase: Depending on how you invest your time as an employee, you may be able to earn a pay raise, make extra commissions or potentially even end up with a share holding in the business you work for.
  5. Work time can decrease: While this is not possible in all jobs, some jobs allow you to work remotely, whereby you can begin to improve your time management skills and productivity using various tools and techniques.
  6. Learn on the job: What better way to learn about managing a business while getting paid by someone else to do it and not losing out of your own pocket if things don't work out.
  7. Study while working: If you are a student and are working part-time, you will still have time to study, allowing you to gain further qualifications and increase your future earning potential.
  8. Start a business part time: You can start your business in your spare time while working for someone else and begin to fade out of work (via cutting back hours and pay or by telecommuting and decreasing time commitment). Starting a business part time will take a lot of energy and effort on your part, but if it doesn't work out you still have a job to fall back on.
  9. Develop royalties at work: Active and passive income? Why not! A friend of mine at university has been working for a company where he just negotiated a big deal. As a result he receives a commission of $7,500. This commission however is being paid to him at $150 a week for the next 12 months. No more work required from the sale and he is now working in another job for an entrepreneur while developing a business plan for his own concept.
There are many more benefits but the important thing is this; Active income is good. 

Passive income is great too, but ideally a mixture of both is the best. 

Even Robert Kiyosaki, Tim Ferriss, Donald Trump etc. still sell their time speaking on the lecture circuits, consulting and educating others. This requires active time investment. They just receive a little more per hour than the rest of us do in active income.

What are you doing to earn an active income? 

How could increasing your active income be of benefit to you both in the short term and in creating a passive income?