Leverage is one of the most basic and important topics one needs to understand in order to obtain true wealth, but unfortunately, it is a topic that most people can’t comprehend. Leverage is used by everyone, every day, and most people utilize it without even knowing it. Many individuals leverage their time to earn money (“a job”) and then leverage their money to enjoy time (“a vacation”). The issue many have with leverage is that they utilize it with limited resources – only those resources they can procure themselves. True wealth is obtained when one starts to leverage the resources of others, in other words, other people’s time, money and efforts.
There are some people that take offense to the above statement. They feel that if they leverage the resources of others, that they are “using” them and that it is immoral. I don’t know where this belief stems from as leverage is a completely neutral term. It is in the way that people utilize leverage that it is either hurtful or beneficial to all parties involved. In fact, leverage becomes most powerful when it is beneficial to everyone.
For example, I have a maid. There are many reasons that I have a maid (not the least being that I don’t really enjoy scrubbing toilets), but the main reason is leverage. At my job, I earn a certain amount for every hour that I work or bill out to a client. So, for any given waking hour during the day, I have two options… I can either spend the hour working to earn more money, or I can spend the hour doing something fun that I enjoy. Please don’t take this as a statement that I don’t enjoy my job, as I do, but please use it as a point of comparison – I can spend any given hour either working or having fun. Now, I know for a fact that I earn more per hour than what I pay my maid. Let’s just say that I pay my maid $25 per hour and I earn $100 per hour (sample figures only). If I were to choose to clean my own house instead of working, then I would in essence, be losing $75 every hour, because, though I would save the money I would be paying her, I would be losing out on the $100 I would earn working. I could also clean my house during the weekend for example, but then I would be using my “fun” time to do something I certainly don’t enjoy, and I highly value my “fun” time, much more than the $25 I pay to my maid. So in essence, I have leveraged the skills and time of my maid to either earn me more money, or to earn me more enjoyment. Now from the stand point of my maid, she is earning a healthy wage, and is happy to work. It’s a win/win situation for everyone – a beneficial use of leverage.
Let’s take the example further. As I stated, leverage is everywhere. What does every CEO of every corporation do? They leverage the time and effort of their employees in order to earn more money. What does every stock investor do? They leverage the resources of other companies to (hopefully) earn more money for themselves. People go to restaurants to leverage the expertise, time and efficiency that the restaurant provides so that they can enjoy dinner without having to cook it themselves.
Leverage is inescapable. It is all around us. Understanding the concept of leverage, and applying to your own benefit (and hopefully to the benefit of others) is what separates those on the path to success and wealth from others who will never have true financial freedom.
