Leverage

Leverage give you freedom. Leverage is anything you can do to multiply your efforts. People often don’t become rich based on their own efforts alone. No matter how hard you work or how smart you are, “the whole is bigger than the sum of its parts.”

We all face limitations. There is a set amount of hours you can work each day. Even if you wouldn’t need to sleep nor eat, still you would have only 24 hours each day like everybody else. What establishes the difference is how effectively (leverage) you use your resources. What resources are we talking about? What resources do you have? These resources are: money, time, efforts, skills, and knowledge among others.

It is as the saying goes: “Poverty is a big effort that produces small results, while wealth is a small effort that produces big results.” You learn to use leverage since you are born. We are constantly learning new ways to do things better. We strive to find methods to produce bigger results with less efforts. When it comes to making money though, many individuals has no clue about how to use leverage to their advantage.

Whether you own a business or you work for someone else, if you do it all on your own or said another way, if all the money you receive is directly proportional to the efforts that you make, then you are not using leverage. It is hard to attain financial freedom this way. It is almost impossible.

The funny thing is that there exist many different ways to use leverage to your advantage and not only one. By just using a few methods you could notice the amazing difference. I will show you some techniques here, but I am sure that there are many more.

Other People’s Money (OPM). Let’s start with this one. You have probably heard about it before. Let’s imagine that you are selling e-books on the Internet. You may pay for advertising. For example you could invest in Google Adwords to reach many new clients. You can also buy banner impressions or invest in many other advertising strategies that exist today on the Internet.

On the other hand, what if you join an affiliate program and instruct your affiliates to market your product through Google Adwords as well as the other paid marketing strategies you have discovered. Many of them will probably give it a try just to diversify their advertising strategies. This is a good example of how to use leverage to your advantage. You are using their money in some way.

This is great, because you neither force them nor deceive them to do it. They are doing it voluntarily, so you are doing nothing wrong. You are just leveraging your resources. You have a specific amount to invest on advertising, but you don’t know how much others would be willing to invest marketing your product.

It is true that in this case you will have to pay them a portion of the profits that your affiliates generate, but think about it this way. If they would have not invested their money to market your product, you would have not made any profits at all. So, it is more than worthy to pay them some commissions for their cooperation.

This is just an example, there are many more. Let’s say that you want to own several rental properties but you don’t have the money to acquire residential real estate. What can you do about it? If you can convince a group of investors to invest on your project, you wouldn’t need many of them, or large investments from every individual investor to accomplish your goal. People often do this by starting a REIT – Real Estate Investment Trust.

These kind of organizations work more or less like this. Someone comes up with a creative real estate investing idea. They register the organization with the appropriate authorities. Then they start collecting funds. They build the houses, apartment buildings (realize the project), once the properties start producing profits, they share the profits among investors according the amount every one invested on the project.

This is an example of what we explained above. “The whole is bigger than its parts.” We can do nothing alone. We get stuck. But when we start pooling funds and efforts with some other people, things start to change. Often to be successful in a new venture or start up doesn’t require large investments nor many people. It is just a matter of getting together with people who have the right attitude. “Attitude makes a world of difference.”

You can use other people’s money without meeting them nor even getting to know any of them. Affiliate marketing is a way to indirectly do this. If you let affiliates promote your products on the Internet (whatever you are selling) you don’t know if they are investing money to promote those products or spending time on it. Whatever they do, when you see the results, you know that you are using leverage to your advantage.

You can use systems, machines, etc. You use leverage every day any way, so it should not be difficult for you to apply the concept to your businesses. For example, when you use a pencil sharpener to sharpen your pencil, your online accounts to pay your bills, a fork to eat, a knife to cut a fruit, all these are forms of leverage that you probably use everyday.

Leverage is also knowledge and an education. If you are going to school to get more knowledge and get a better paid job, then you are striving for finding ways to do more with less and to be more effective.

One of the limited resources that people have is money. If you can convince people to cooperate with part of their resources to help you achieve a goal, then you will be using this technique. This is what companies do through The Stock Market after all. They pull funds from many investors to realize specific goals and increase the overall value and revenues of the company.

There are many ways to use other people’s money to accomplish a specific goal. Just use your imagination. You can also use Other People’s Efforts – OPE. Probably you have heard this one too. Anyway let me give you a few examples.

You can hire people to perform many tasks of your business for you. This doesn’t mean that you need to have active employees. For example, you may sell intangible products online. Let’s say that you sell e-books. You may write a couple of books yourself and once those products start producing profits, you can use part of those profits to hire ghost writers. These ghost writers may write more e-books for you for a reasonably low price. Then you can multiply your profits that way.

You can acquire tools, software, machines that help you advance faster and increase your profits while reducing your work. These are all examples of how leverage work. It is pretty much common sense but I think this is one of the most important key aspect to acquire more wealth and be more effective in the business world.

Sometimes people get stuck. First they work for someone else for a long time. Then they decide to work for themselves, but they do not realize that their business is now their new job. They have a job mentality not a business mentality. This is where the passive income and residual income concepts of my other articles of this series come in.

You change from being an employee of yourself or someone else to be a business owner that receive passive income when you start using leverage to your advantage on your businesses. Without leverage it is next to impossible to become rich.

Most rich people did it by leveraging their efforts through systems, machines and other people. If you have employees on your company listen to what they tell you. Some of them may give you ideas that could make a big difference. I always analyze the feedback I receive from people even if it is negative. As long as it makes sense I give it a thought.

Remember that leverage is anything you can use to multiply your efforts. This is one of the most important aspects on your path to riches and financial freedom. Whenever you get stuck ask your self: How can I leverage my efforts here so I can achieve more with less? That answer often makes a big difference!