Leverage is a springboard for wealth creation. It’s a concept that creates more wealth and time by capitalizing on other people’s resources. A lot of people think that leverage only means borrowing money. While this is one avenue, there are many more, such as using other people’s time, network, skills and the systems they’ve created.
In one of my favorite books, Wealth Secrets of the Affluent by Christopher Jarvis and David Mandell, the authors explain the importance of leverage: “Without leverage, people would have to do everything themselves…Leverage frees you up to do the things that are most important, most profitable, or most enjoyable to you.”
I love their point about how leverage can free us up to spend more time to do things that we enjoy and are most profitable.
By having your own business where you can use other people’s skills to profit, and by taking that money and investing it into other businesses via the stock market for even more profit, you use leverage and, therefore, increase your chances of becoming wealthy with less effort.
But leverage goes beyond business. You may not realize it, but you’ve already been using leverage in everyday life. If you’ve ever hired a babysitter at $12 an hour so you could stay at work longer, where you get paid much more than that per hour, then you’ve used leverage.
If you have a 401(k) or IRA and have a money manager overseeing the account, then you’re using leverage. You also may leverage other people’s skills and time when you have someone else wash your car, clean your house or groom your dog. Basically, you’re using another person’s skills or time so that your life is a little easier.
We can apply leverage beyond a dog groomer or the basic money manager. The beauty of leverage is that, when engaged properly, you will find that you have more money with less work. And isn’t that what we all want?
The following are types of leverage that you can use to increase your wealth and, as an added bonus, have more free time:
Who you know can make a huge difference. They may be able to help you directly or introduce you to someone who can. In other words, you can leverage personal connections. If you have a business, you can use other people’s contacts and exposure to market yourself. Let them connect you to other “movers and shakers” as well as get the word out regarding your work.
Another person can help you reach your goals by giving you more customers, introducing you to a person you end up forging a business relationship with, or give you a tip that really changes the outlook of your business. Knowing the right people can escalate your net worth—and not knowing them can decrease it.
In order to find the “right” people, you have to go where they are—whether that’s in person or online. Take a moment to think about where “your crowd” is hanging out. For example, if you have a B2B business then, naturally, you’ll want to go to business networking events in your area to meet other business owners. But you will also want to be active on LinkedIn, and other business websites.
Of course, you can also connect with people through Instagram, Facebook, Pinterest, YouTube, Twitter and more. The nature of your business will determine whether you should focus on connecting online, in-person or both.
Also, don’t count out social events. Sometimes, you can make just as many—if not more—sales and connections in social groups as you can business situations. I’ve personally had more success going to social events than business because the people at social events generally aren’t trying to get your business in return!
For example, if you sell insurance, you might have more luck joining a tennis or golf club then going to networking events.
Once you’ve made some connections, don’t just think about how you can get something out of these people. Yes, your goal is to leverage your connections but in order for that to happen, you need to ask yourself what you can do for them first. Can you help them solve a problem, introduce them to someone else who can help them, or just be a good friend?
When you’re authentic and have established that you’re someone another person can trust, then you can ask them to help you out by helping spread the word about your business, introducing you to one of their connections you’ve been dying to meet, buy a product from you, or enter into a business deal.
Financial leverage is associated with financing; it involves getting money from other people so you can “expand your reach.” You have probably heard by now the acronym for this—OPM, which stands for “other people’s money.”
The idea is that you access outside funding so that you’re not limited to just your own funds. This allows you to buy things that you normally wouldn’t be able to afford—things that make you more money, like starting a business or buying rental properties.
If you’ve ever purchased a home and borrowed money to do it, then you used this type of leverage. Without the bank’s financing, you wouldn’t have been able to buy the home. The same applies if you have borrowed money to purchase a car, go to college, etc.
Financial leverage is used all of the time in the business world. Companies issue stock shares in order to raise money. They then use that money to grow the business.
If you want to take advantage of financial leverage to grow a current business, you can use any of the following ways to get funding:
- small business loans
- getting grants
- accessing crowdfunding on sites like kickstarter.com and indigogo.com
- asking for donations on sites like gofundme.com
- angel investors
- venture capitalists
- personal loans
- purchase order financing
- vendor financing
- borrow from family and friends
When it comes to leveraging via loan, having a plan in place—including exactly how you would use the money—as well as understanding the exact terms of the loan is key.
I like what Kim Kiyosaki, the wife of Rich Dad, Poor Dad author Robert Kiyosaki, wrote in her blog article titled “Can I Borrow Money for Stock Trading?”: “Rich Dad philosophy is to borrow money once you become educated, not before.”
I completely agree. When it comes to taking on any kind of loan as leverage, you have to educate yourself first—and then proceed carefully. Debt can weigh you down and keep you up at night. But if you do your homework and have a solid business plan in place, it can be the best thing that happened to your business. You’ll be able to expand much more and at a much quicker rate since it can give you the funding to hire outside help.
If you want to maximize your wealth creation, you will need to delegate to others and use their time and skills to get more done.
The biggest example of time leverage is hiring employees and contractors to do work that is at a lower rate than what the total job is worth. This is a type of arbitrage that benefits your employees or contractors (because they need the work) and you as well, since this is the main way your business produces profits.
For example, if you can bill a customer at $60 an hour for work you do for them, you should try to find someone who can do that work for your business and pay them, say, $20 an hour.
You can do the same with products. If you can have a product made for $10 and sell it for $30, then you possibly have a successful business on your hands.
In a sense, you become the intermediary. You find the work—or offer the product—and then pass it on to another person who is your employee, contractor or manufacturer and then send the completed work or product back to the customer for a profit.
Your job as a business owner is to focus on the bigger picture and oversee the project. Steve Jobs did this when starting Apple. Jobs never wrote a line of code but instead, led the programmers in the right direction to create top-notch products. To make more money, you will need to be the leader and let others do the “grunt work.”
Leveraging other people’s time and skills goes beyond our careers. You have already used leverage outside of your business many times. When you use a mechanic to fix your car, you’re leveraging this person’s knowledge and expertise. The same applies if you hire an accountant to do your taxes, an attorney to handle your legal matters, a real estate agent to show your house and so on.
You hire them because they know more about a particular matter than you do. It also saves you a lot of time and headache because imagine trying to get all of the knowledge and licenses they have to handle these types of transactions yourself!
While you’re building your fortune, it can be difficult to decide which types of skills and knowledge from other people you should spend your money on. Do you hire another marketing assistant or graphic designer? Do you get a full-time, in-house assistant or save some money by going virtual?
You might consider hiring additional staff if you are:
- spending valuable time on doing basic admin tasks, such as answering phone calls and emails
- spending a lot of your time doing tasks that you’re not good at or don’t enjoy
- constantly working long hours
- getting regular, negative feedback from customers
- in a state of rapid growth with your business
To figure out which type of assistance you should spend your money on outside of work, try writing down three things that you don’t enjoy doing and that take you more than 30 minutes to do each week. Now find a way to get that help that’s affordable for you so you can spend your time and energy on growing your business and managing your investments.
Apps, platforms, software, procedures, manuals and other preformatted systems help save us time by automating processes that would otherwise take longer to do. All of us use systems and technology in our everyday lives to save time.
For example, using the web to research a problem or connect with others is accessing technology; enrolling in an online class that will help you further your career is accessing both a system and technology.
The role of utilizing systems and technology for wealth creation is huge and depends largely on your personal goals. You can use them to educate yourself so you’re better informed when making business and financial decisions, create automation in your own work and personal life and more.
How can you use systems and technology to make your life easier and your work more productive? The world is constantly coming out with new options for all of us. If you’re not sure where to look for the latest in what can help you, check out business and tech magazines.
Also look at the websites of other successful businesses in your field. What do they use?
You can also watch YouTube videos on the topic of your business. A lot of YouTubers will mention tools they use. (Just be aware that sometimes they are getting paid by another company to do so!)
The real payoff of implementing leverage is that it frees up your time to focus on the things that are going to give you the biggest pay-off—whether that’s personally or financially. If you try to do everything yourself, you won’t have time to go on that vacation, indulge in a hobby or even just have dinner with friends and family. You will also slow down the growth of your business.
What big action can you take this week to engage in the concept of leverage? Try finding a new use of leverage that you haven’t used before: such as looking into getting a business loan, hiring a contractor to do some of the work you’ve been doing, or finding an app that will automate a business or financial process for you.
There will be upfront work involved but in the long run, the payoff can be huge in growing your net worth.