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.
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.
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.
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.
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.