power of leverage

power of leverage

How to Maximize the Power of Leverage to Grow Rich

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To create wealth you have maximize the power of leverage. There are three accelerators that can help you fast track your endeavor.

Acquire a Mentor

You can avoid making mistakes on the learning curve by finding a mentor who can guide you through the whole process. Your mentor has climbed the mountain—he knows the terrain and knows what works and what does not work. You can learn from the process and avoid making mistakes.

In addition, your mentor has systems. The most efficient facet of leverage is to transfer your mentor’s systems to your use. Learn from those systems and apply those systems to your business, real estate, stock market and internet.

Acquire a Team

Nature made us incomplete—we have incomplete knowledge and experience; we have to collaborate and build dream-teams to fill gaps in our knowledge and competence to succeed. Our teams can fill up our blind spots.

If you want accelerated leverage then find a competent team to help you. Your team will help you go faster. A 4X100 meter relay team runs much faster than an individual runner.

Your team can consist of people with expert knowledge in their respective fields. They don’t have to be your employees but should be available for advice. For instance, if you are a real estate investor your team will consist of your accountant, solicitor, and real estate agents who bring you deals, mortgage broker and your builder/ handyman. If these people are property investors, they will be able to give you better quality advice.

leverage

Before you start building your network, find your core group that will help you build your network. When like minded, joyful and success-oriented people work together, enormous energy is released. Try and avoid people with negative energy around them—they will drag you down.

Your core group or dream-team will provide the synergy to create an invisible force that will attract people to your network. 1 + 1 is, not 2, but 11. The sum of the parts is far greater than the whole. This is what your core group can help you achieve.

Jesus selected a core group of 12 men, and the world was never the same again. Their network and influence has lasted over centuries and continues to expand even today.

Bill Gates and Paul Allen collaborated to found Microsoft and became the richest men of all times. Larry Page and Sergey Brin founded Google that is used by millions of users and is presently expanding incessantly.

Facebook, which is the biggest networking platform of all times, was created by a team of four Harvard University students: Mark Zuckerberg, Dustin Moskovitz, Eduardo Saverin and Chris Huges. The examples that history provide are endless.

A core group constituted of an aligning team (that is not pulling in different directions) will always out-perform an individual. So, don’t try to do it alone. Build a core group first and then your network.

Loverage

Mike Littman coined the term ‘Loverage’. If you love what you are doing and are spiritually and emotionally connected with it, then success will come much easily. When your thoughts, mind, body, emotions and spiritual self are congruent you achieve unassailable heights.

Ask any sportsperson about their greatest sporting moments, and you’ll find them acknowledge that at the height of their achievement, their mind, body and spirit dissolve into a singular force. Do what you love doing and you will apply the ‘Loverage’ even without knowing.

Accelerated Wealth Creation Through Leverage

There is no such thing as a hundred percent leverage. It is a myth perpetuated by certain vested individuals who want to market their books and products. There will always be some financial, time, and effort commitment in the beginning. In due course, as the business or investment progresses, finance and time involvement can be reduced, and leverage increased.

The above arguments should not dissuade you from using leverage with prudence and intelligence. Leverage, without doubt, is the most important and powerful tool in the armory of wealth creators. However, it is of paramount importance to understand its correct usage before applying it in a fit of excitement. Initially, start applying small forms of leverage and as your confidence grows, you can increase the amount of leverage to one that you are comfortable with.

Even if you start applying a little bit of leverage in your life, you will be amazed at the results. Leverage is power, strength and intelligence.

Mark Victor Hansen and Robert Allen, in their book ‘One Minute Millionaire,’ provided a formula:

Leverage = Speed = Goals

This, in my view, sums up how you can use leverage to reach your financial goals within the shortest period of time. You can increase your returns from 5-10% offered by banks and financial institutions to over 60-70%, or even higher through leveraging.

Remember, without applying some kind of leverage, there is no possibility of creating accelerated wealth.

leveraging

Why Leveraging can Destroy Your Wealth and How to Avoid the Problem?

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Leveraging is a great way of creating accelerated wealth but it comes with a warning: if leveraging is applied incorrectly it can destroy your wealth equally fast.

The higher the leverage, the greater is the risk to your investment and business. At the same time, there is greater potential for profits. Leverage works both ways; it is a double edged sword.

Before applying leverage, you have to understand some basic truths about leveraging or things could go dramatically wrong and you can get yourself hurt and go bankrupt.

State of Knowledge

The financial crisis of 2008 was caused when excessive greed led people to use leverage without proper understanding of risks involved. The most important factor for using leverage correctly is your state of knowledge.

For instance, if you lack knowledge about finances or the business/investment you wish to start, there is no point in rushing to get a 100% finance in order to try making a no-money-down deal. Similarly, if you lack the knowledge of systems and how to set them up, there is no point in rushing to fully automate your operations. Same is true for any form of leveraging.

You should make a correct assessment of your financial, emotional and spiritual intelligence in any given situation before applying leverage as an instrument for accelerated wealth creation. Greed is the product of a lacking emotional and spiritual intelligence. Leverage driven by greed is the worst enemy of wealth creation.

Leverage is like a power tool that can make your job of wealth creation very easy but its improper use, without adequate knowledge or precautions, can cause you tremendous hurt.

There is a saying that, ‘It is never the investment that is wrong. It is always the investor who is wrong’. So, take the time and trouble to learn about the business or investment before jumping onto the bandwagon of leveraging for quick gains.

Market Conditions

In uncertain market conditions, when the outcome is not known or when the market is moving downwards, the amount of leverage should be reduced.

You could increase the leverage as you gain confidence, and when the market forces are moving in a positive direction.

leveraging

For example, in property investment, it is extremely easy to do ‘no money down deals’ if you have the right knowledge and the market is moving up. This is because even if you make a mistake, the rise in price of the property will cover your error. On the other hand, doing a low equity deal when the property cycle is moving southward then even a small error in your judgment will wipe out your equity.

If you are using leverage for accelerated financial returns, then you have to be very alert towards changing market conditions. If the market conditions deteriorate, then you have to take measures to reduce your leverage in time. People go bankrupt when they hesitate to act or foresee a developing situation. Reducing your leverage by selling some of your assets is no shame. You can always buy assets and increase your leverage when favorable market conditions return.

Age Factor

The amount of leverage to apply is also dependent your age. When you are young, you can risk applying high levels of leverage. This is because even if things go wrong, you have the time to recover and start all over again.

As you grow older, it is wise to reduce leverage even if you have become more proficient at applying leverage with experience. The last remark will, no doubt, be debated because there are many elderly people who are still young at heart and ready to take all kinds of risks in life. I, unfortunately, speak for the majority.

Risk Appetite

Before applying leverage, you have to access your risk appetite. This is because if things go wrong, then people with less risk appetite will start to panic and make incorrect decisions that can set them back by years in their financial growth and planning.

Greed

Greed is the biggest enemy of leverage. It is greed which makes us blind to applying leverage without appropriate knowledge, skills and timing. Before applying leverage, one has to develop checks and balances provided by spiritual, financial and emotional intelligence.

 

 

leveraging technology

Leveraging Technology to Make Money

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Technology allows us to do things with greater precision, more efficiently and faster than ever before. Today, computers can process data and calculate results that needed hundred and thousands of man-hours. Similarly, the internet can provide access to information that would have taken hundreds of hours to research and collate.

leveraging technologyEmails, modern telecommunications and internet have revolutionized communication. These technologies, when mastered, give leverage in terms of quality and speed of decision making— and they help save time and effort, thus resulting in huge cost savings. They are also impacting how we network, socially interact and conduct our businesses. To create wealth in today’s world, one has to master leveraging these new technological advances.

To use this leverage, you have to be open to technology and buy the best of what your pocket allows.

I was privileged to be able to hear Bill Gates lecture at a conference in the early nineties. He emphasized on the importance of computers in our lives, especially that little extra technological edge that our children receive in this competitive world. At the time I had a computer at work, but not one at home. I was planning to buy one, but the high cost prohibited me from doing so back in those days. I was continuously delaying my decision to buy—the prices were regressing with every passing month and I was waiting for the appropriate moment to buy.

After attending that Bill Gates lecture, I went straight to a computer store and bought a PC for our home use—it was the best decision I ever made in my life! That PC not only helped me leverage my time and knowledge, but also gave my children an opportunity to grow up with the technological edge.

Since then, I have developed a habit of upgrading technology at home and at work: computers, mobile devices, communication systems, access to fast speed networks, etc. Access to information and sharing it with your customers provides the best possible leverage, in terms of customer relationship, sales and profits.

I have given an example of information technology for the ease of understanding, as it affects our day to day life; there are many other machines that replace human functions more efficiently and at a much cheaper cost. For instance, robots are able to assemble cars with more precision and in much lesser time than human beings. The fastest growing companies on our planet are those that are making technological breakthroughs on a regular basis in their respective fields. Apple is one such company.

Technology leverages work only when applied productively. There are people who waste time surfing the net endlessly, playing video games, socializing or using it only as source of entertainment. Nothing wrong indulging in such activities because we all need to keep informed and entertained – the problem is when we lose focus and become obsessed with it and spend endless hours wasting time on on the internet.

Leveraging technology can be more effective than employing people. There is saying that machines cost lesser and give lesser trouble as compared to humans.

leveraging knowledge

Why Leveraging Knowledge Is Greater than Financial Leverage to Growing Rich?

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Perhaps leveraging knowledge is the greatest lever that a person can apply. Your wealth creating ability depends on what lies between the two ears. One has to develop financial muscles in the brain. Intellectual leverage is the most powerful leverage. I have seen entrepreneurs amass massive wealth with nothing more than an idea.

“Thinking is hard work. When you are forced to think, you expand your mental capacity. When you expand your mental capacity, your wealth increases.” – Robert Kyosaki

The fastest method to achieve intellectual leverage is to use ‘Other People’s Experience’ or OPE. It takes too long to learn on your own—become an apprentice and find a mentor. Learn from the experiences of those who have traveled the path.

Secondly, knowledge has become so complex that no lone individual can acquire all the knowledge one needs to grow rich. Wealth is created through knowledge or ideas of other people. One has to learn the art of using ‘Other People’s Ideas’ or knowledge. This may require collaboration, or buying the right expertise to cover any grey areas that exist in our knowledge construction.

We live in an information age where ideas can be converted into wealth with relative ease. It is very similar to Eisenstein’s theory wherein mass can be converted into energy. If you look at all the new billionaires like Bill Gates, Steve Jobs, Mark Zukerberg,  Jack Ma, Larry Page, Sergy Brin, Jeff Bezoz, just to name a few, they used ideas and knowledge of others to grow rich. Most of them used financial leverage but they grew super-rich mainly due to the leverage of knowledge.

What is needed by a wealth creator is the judgment—as to what knowledge is needed for a particular project and from where it can be imbibed at the cheapest price. Our world is full of specialists who do not know how to apply their knowledge to create wealth. It is wealth creators who leverage the knowledge of the specialist to amass great wealth.

You have to develop a keen eye for talent and look out for skillful people, because these are the kind of people who will make you rich. You have to leverage, and harness the intellectual strength and talent of these people. Intellectuals consist of professionals such as accountants, legal advisors, tax consultants, etc. They fill the gaps in your knowledge. Their intellectual strength helps you grow rich.

Microsoft Corporations grew mainly due to its ability to harness the intellectual strength of young computer whiz-kids on its pay roll. Do you know that Bill Gates never created a software on his own. He either bought or hired someone to create the software that made him rich.  If Microsoft can do it, why can’t you?

how to get leverage

How to Get Leverage in Other People’s Time and Effort to Grow Rich?

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All of us are born with different talents and proclivities. Some have a higher IQ, others are taller or better looking. But all of us have one thing which is universal, and that is time. All of us, without any exceptions, have only 24 hours in a day. It goes without saying that to be successful we have to leverage our time.

Most people look for job security rather than opportunity. They will sell their time, effort, resources and connections for a very low price. Wealth creators leverage the time and effort of others to generate wealth for themselves. This is the simplest form of leverage in labor intensive industries.

In fact, most businesses in today’s world are founded on other people’s time and effort.

“People without leverage work for those with leverage.“ – Robert Kyosaki

If you are an employee, your company is leveraging your time and effort to increase their profits. It may sound cruel but it is the truth. This has been happening since the dawn of civilization. It is high time you started thinking of breaking out of this cycle, and empowering yourself by using other people’s time and effort to build your wealth.

Free up your Time

You have to become a master at offloading routine jobs; to free up your time to concentrate on areas that are more creative and will help you create wealth faster. I am amused by people who are so self-efficient that they will not trust another human being even with the most mundane jobs, because they do not trust their competence. This is the sure route to stagnate.

To succeed and progress in life, you have to find people to replace your management and skillset in the shortest possible time frame.

You have to use the effort and energy of others to grow rich. This might be as simple as hiring someone to clean your house, mow your lawn, dry clean and press your shirt or hiring technical people to do your routine jobs at work. You should first write down and offload your bottom 10 routine activities (you don’t enjoy doing,) that take up your time and energy from productive work, which in turn, can generate revenue for you.

You have only 24 hours in a day. No matter how talented or efficient you are, you can earn only a limited amount of money if you are paid by the hour. With a 40 hour work-week you can, at best, work for only 2000 hours in a year (assuming you take a 2 week vacation time and work 50 weeks).

If you employ, let us say, 100 people in your business, your work output will be 200,000 man-hours and your income that much higher

“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.” – 

You can also benefit from a percentage of other people’s efforts and dramatically increase your income and freedom by learning to leverage your time.

“He who stands on the giant’s  oulders; sees farther than the giant” –

To apply this technique, great human and management skills are needed. If you lack management skills; a more practical and pragmatic approach is to outsource jobs that need co-ordination of human skills. In this way, you avoid the hassle of managing people.

financial leverage

How Applying Financial Leverage can Make You Rich

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Irrespective of whether you are a businessman or an investor, you need fund to grow. Everyone starts with personal funds, but these run out sooner than later. To create wealth one has to borrow from relatives, friends, banks, financial institutions or public ones. In other words, we have to work with ‘Other People’s Money’ or OPM.

The borrowed funds have to be productively employed to earn a higher return than the interest payable. Banks do this all the time. They borrow money from us at a lower interest rate and then give out loans to businesses and property mortgages at a much higher interest rate. They pocket the difference and create millions of dollars in profit.

To create wealth, you have to think like a bank. You have to use Other People’s Money to grow. Banks borrow money from you and pay you interest on the borrowed funds. They then loan the money at a higher interest rate to business people, fund real estate and consumer goods loans. Banks make money on the difference of the interest rate they borrow and what they charge to their customers. You can grow rich by applying the same principle.

Financial Leveraging in Real Estate

real estate investment

To explain financial leverage, let us see how it works in real estate. Let us say you buy an investment property for $100,000 at 10% down payment. This means that you make a down payment of $10,000 and borrow $90,000 from the bank. Let us assume that the rent from the property covers the interest and expenses on the property. If the value of that property increases by 7% over the year then the property would be worth $107,000. This would mean that your investment of $10,000 has earned a whopping return of $7000 or 70% yield.

This happens because you get to leverage not only on your investment of $10,000 but also on the borrowed amount of $90,000. There are sophisticated property investors who buy property with ‘no money down’ or very little of their own money i.e. they work on 100% borrowed funds. In this case, the return on investment will be infinity.

Good Debt and Bad Debt

Borrowing money and creating debt is good if the funds are utilized intelligently to create wealth through business and investment. The profits need to exceed the cost of borrowing. A debt created for consumption purposes: for buying luxury items such as cars, television, etc. is bad debt. Such debts take money out of our pockets and have to be treated with great caution.

Borrowing money is great if you buy investments that make you rich. It is bad if the borrowed funds are used for purchasing consumption goods like cars, boats, TVs, holidays etc that depreciate in value the day you purchase them.

Good debts make us rich. Poor debts make us go broke. The power of leverage in finance, when applied correctly, can make us grow rich exponentially.

financial leverage

How to Grow Rich Through Responsible Leveraging

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The power of leverage is perhaps one of the most neglected and misunderstood areas of an average person’s knowledge. One fact will become very clear if you are to study the lives of the most successful people around you; these people, without fail, apply the principle of leverage and use it to maximum effect in their life.

financial leverage

Archimedes used to say, “Give me a place to stand and with a lever I will move the whole world.” This illustrates the awesome power of leverage. Big doors swing on little hinges.

Leverage simply means ‘the ability to do more with less’. Leverage is the power to achieve a lot with little or no effort. Simply put, leverage is the key to building wealth.

To create wealth in large amounts, in little time, one has to understand and master the principle of leverage. Correct application of leverage breaks through the barrier of 10% growth/ yield. With leverage, we can grow at 50% or 60%, and even 100% or more.

Leverage, when combined with the principle of compounding, can create accelerated wealth. No great wealth has ever been created without using either leverage or compounding. Those two, when combined, together can explode your wealth. Let us examine how leverage works in the financial world.

Compounding + Leveraging = Accelerated Wealth

Robert Kiyosaki, in his book, Rich Dad Poor Dad remarks, ‘if you want to become rich, you need to work less, and earn more. In order to do that, you employ some form of leverage.’ (Kyosaki, 1997).

He further explains by saying, ‘People who only work hard have limited leverage. If you’re working hard physically and not getting ahead financially, then you’re probably someone else’s leverage.’

‘People with leverage have dominance over people with less leverage.’ In other words, just as humans gained an advantage over animals by creating leveraged tools, similarly, humans who use these tools of leverage have more power over humans that do not. Saying it more coherently, ‘leverage is power’.”

Types of Leverage

There are not one but several types of leverage that can be used to grow rich.

Financial Leverage

This is when you use other peoples money to grow rich. No one has grown rich with their own money. Sooner than later we all run out of money. You apply financial leverage when you borrow sensibly to buy assets that make you rich. The cost of borrowing has to be lower than the return from the investment or the leverage will not work.

Leverage of Knowledge

This is perhaps the biggest of all levers. No one is an expert in every field. Every endeavor in today’s world needs multi-disciple specialized to be successful. When you use your own and other peoples knowledge to projects to create wealth and be successful then it is termed as leverage of knowledge.

Leverage Other People’s Time and Effort 

No one has grown rich through their own effort. There are only 24 hours in a day and only so much work can be achieved during that period. By employing other people to do work you can earn from their effort. To apply leverage of other peoples time and effort you will need great management and human skills.

Leveraging Technology

Technology can make complex tasks simple and save hundreds to thousands of man-hours. It is also a lot cheaper for many jobs that humans perform. Cost-effective use of technology can create huge wealth in a very short span of time.

Leveraging Networks

It is not what you know but whom you know that counts towards your success in life.  You can make things happen if you know the right people. Your success is directly proportional to the people in your network with whom you have the relationship.