The Power of Leverage

Introduction

I recently thought of a "sad" fact. Suppose I keep to current lifestyle and succeed in increasing my networth by an average of $100k per year from both savings and investments, I would still need 10 years to reach $1 mil, or 30 years to reach $3 mil! While the millionaire goal is achievable, the speed is slow. That's the motivation for me to write this article, which took me quite a few hours!

So, how is it possible that there are people who managed to achieve the multi-millionaire status while young when they are not the the soccer players in EPL, the basketball slam dunkers in NBA or any of the hot celebrities?

The answer is leverage.

To the ultra super conservative, leverage is a word to stay away from. They fear it, they despise it, they condemn it. They think it is risky. And that's likely to be because their idea of leverage is primarily in terms of money.

However, leverage is not risky when managed well. The chinese proverb below best describes what I think of leverage: 水能载舟，亦能覆舟. Literally, it means that water can both carry a boat and sink a boat. Similarly with fire, it can both be useful and harmful. It all depends on how you use it. The power lies in the hand of the one wielding it.

Success in any endeavours can be accelerated by using leverage. You could be successful without making use of leverage, but it means you have compromise the level of success, speed, and time necessary to get to each level.

I mean, can you imagine a one man show running a MNC or a big business?


What can we leverage on

There are many things we can leverage upon to accelerate our path to financial freedom. Some examples I have in mind:
(i) Money
(ii) Time
(iii) Expertise and credibility
(iv) Emotions
(v) Technology

Of course, one could leverage on their charm, beauty, parents, home, many things, but I shall not touch on those here.



Leverage on Money

Leveraging on money/cash is very commonly used in today's world. Whenever we buy a house, a car, a condo... or whenever we use CFD, play forex, make use of Share Financing, play warrants/options... we are making use of money leveraging.

Even for businesses, when they source for venture capitalists, go for IPOs, they are in a way making use of money leverage.

The key to leveraging on money is to make more than the interest on the borrowed money. Of course, whether one will succeed will depends on one's strategies, acumen, meticulous planning, hard work and ideas.



Leverage on Time

All businesses and MNCs leverage on the time of their employees. As mentioned in the blog post on why get a job, the salary an employee gets is always less than the value he/she creates. In a way, the employee's time is leverage upon.

Business owners will never grow big without making use of this leverage as their time could be spent much more productively on the more important aspects of the business. Mathematically, isn't it better to spend $2k/month to hire a secretary to file the documents and spend that same amount of time generating an additional $5k/month?

"I rather have 1 hour of 100 people's effort than 100 hours of my own effort", someone (whom I forgotten) once said.



Leverage on Expertise and Credibility

Individuals can make full use of this leverage to propel themselves up. For example, for me, I propel myself up in the tuition arena by leveraging on my years of experience in tutorign students. I leverage on my credentials and I will get testimonials from my students as well to further leverage on my credibility.

Businesses can make full use of expertise and credibility leverage as well. The tuition centre I'm teaching in makes full use of this form of leverage. They leverage on the expertise and credentials of tutors like me who had years of experience coupled with wonderful and rare qualifications. The centre owners themselves do not know how to teach tuition at all, yet they are running the centre successfully.



Leverage on Emotions

Leveraging on emotions can mean leveraging on your own emotions, or other people's emotions, to your own benefit. You could make use of emotions to spur yourself on to achieve greater things. You could also make use of the emotions of others to do things to your benefit, i.e. impulse buying, motivating your workers, giving good customer service to enhance customer loyalty, etc. The Chinese proverb 激将计 describes this well.



Leverage on Technology

This blog is a real life example of leveraging on technology. Technology, or rather, the internet, is so prevalent nowadays. I can reach out to many people over the world without travelling. An added advantage is that what I want to say, what I want to converse out to world, can be typed out on this blog, and continue to get shared around the whole even when I sleep.

Amazon, Google, Facebook, Youtube, Ebay, are companies that made it big by leveraging on the power of the internet technology. So did many successful internet marketers and full-time bloggers.




Real life example of the power of leveraging

Look at Donald Trump and his Trump Tower, and multi billion real estate business. Did he use his own money for the whole building? No way. He leveraged on other people's money. In addition, he leveraged on the experience, expertise and credibility of architects and engineers for the blueprint of his projects. He leveraged on the time of construction workers to build the building. He leveraged on the motivation and drive of his employees. Finally, he also leveraged upon technologies like Media to market himself (via The Apprentice).

Did he over-leverage? Perhaps, as seen by the fact he almost went bankrupt before. But that's not the key here. Without the power of leverage, he would not have achieved what he has in his lifetime. There's a direct correlation between the amount of leverage and the speed to achievement.


Conclusion

When we do things alone, and without leverage, we will have to rely on our own time, contacts, money, experience, credibility, emotions, expertise, etc. It's like splitting yourself into many portions and this will hinder and slow down your path towards achievements and successes.

Leverage is a powerful tool to leverage upon :) If you can embrace leverage as a strategy or tool, you will find that you will not need to be everything to everybody anymore.