You will get rich by using other people’s experiences, time and money – there is no doubt about that! Learn how to use leverage to your advantage.
What is leverage?
Leverage is something you use to maximize the result you are after. Most of the time when people talk about leverage it is linked to finance. A normal situation when an individual would use leverage is when you get a mortgage to buy a home. You have your part of the money, called down payment (10-20% normally), and then the bank will loan you the rest. This gives you leverage as with that loan from the bank, you can now buy a much more expensive home than you would otherwise have been able to afford, had you only used your own money (more on this later on).
You should learn how to use leverage as often and as much as you possibly can, provided it is done in a fair manner (nothing criminal of course) and with limited risk (in case things don’t turn out as you were anticipating). If you do this purposefully, you will achieve significantly better and much faster results than otherwise so you should pay attention!
Leverage can be used in all kinds of situations but in this post I will focus on how to use levereage within the top three areas; experience, time and money.
How to use Experience as leverage
Most people don’t think about experience as something you can leverage but the fact is that you can totally immerse yourself with information from someone who is extremely successful and learn all about them. What they do, what they have done, what mistakes they have made, the key reasons for their success etc. Just use the information available such as interviews, texts, books, podcasts etc.
The amount of things you can learn this way over a very short period of time by just learning and modeling the best in your chosen field, can save you a decade!
There are so many examples of this and for sure someone else has already done most of the mistakes you have done and/or will do in the future. The key is to not look at them as mistakes but as learning points and make sure you don’t do the same mistakes several times, instead you have to learn from them! The other crucial part which can save yourself a decade or more is by learning from the ones who are already successful at what you want to do. It might be in the industry you are currently in or even a completely different one but by learning from others who are successful you will be able to make progress so much faster since you can just model what they have done. This means you don’t have to try all the things they might have done and failed at!
Learn from them, be inspired by them, be motivated by them and gain momentum by “using” them!
The absolute best part of this is that you can spend as much or as little time as you want with these role models (at least if they are famous) as there will be so much information available online. You can spend time, tapping deep into their brain every day without spending a dollar!!
How to use Time as leverage
Time is finite and the only resource we can’t get more of so we must make sure we use it wisely!
This is definitely an area where we want to learn how to use leverage. Time can be broken down in so many subcategories but the most important thing to understand (and let sink in) is that we all just have 24 hours per day. So if you can use your time in a more effective and efficient way, you will be able to achieve so much more!
This means that you should always know the outcome you want and then use the strategy which will take you there in the quickest possible way (without messing with the quality!). It might mean that you should outsource some of the things you currently spend your time on, hire someone else to do the tasks for you or just find the absolute best way of getting it done (my post on the 80/20 rule might help you do just that)!
One example could be launching your first website. Even if it is very easy to do that today with all the different templates available, you should first ask yourself whether or not to do it yourself or if outsourcing it to someone else is a better alternative. A professional will most likely be able to do a much better job than you and in a much shorter time. That time you now have at your hands could be used to provide valuable content to your site which might be more efficient use of your time. Again, should you then write/create the content or should you just outsource that to someone else too?
It is easy to see that every day we have the possibility to “waste” our time, doing things which we should have someone else doing so that we can use our time better. Some will outsource as much as they can and leave themselves to be the spider in the web making sure it all works as planned (similar to a project manager). Some people want to be involved in the details of everything (lack of trust maybe…) which rarely works out in the long run and there is also a risk of it leading to stress and burnouts:(.
Personally I always try to understand “enough” about most things as I love to learn but I am also very happy to outsource because I really hate wasting my time! The main difference might be if there is something new which I think will be useful for me long-term, then I will want to learn more about it so that I can leverage on that knowledge in the future. On this note, the idea around a mastermind group pops up, check out my post on that topic here.
On the other hand, if you keep outsourcing everything it might mean missed opportunities because you don’t understand the different parts or areas of your business and how they work (or don’t work) together. To get synergies, you need to understand how different systems and tools can work together for maximal impact. At the same time I would personally find it a bit sad if someone just outsourced every single area of the business because that would probably mean they are not doing the things they enjoy. This is also why I am writing all blog posts on this site myself as I want to make sure I keep the personal touch. This will always be the case unless I think someone else can add more value on a specific topic and still let the content come through in a genuine and authentic way to you.
How to use leverage: Money
It is pretty straight-forward, you can grow your business (or your money) much faster if you have more money at your disposal. The easiest example is to look at the process when you are buying a house, so let’s look at the below scenarios:
A house is priced at 500 000 USD and you have to deposit 20% which equals 100 000 USD.
The additional 400 000 USD you borrow from your bank (you pay interest on this loan).
If in 10 years, your house is sold for 1 million USD, you pay the bank their 400 000 USD and you have 600 000 USD (not taking any amortization nor taxes into account to keep it simple).
Basically, your 100 000 USD investment has grown to 600 000 USD and that is because of leverage (the mortgage)!
Had you insted bought the house without a mortgage for the same amount, 500 000 USD and then sold it for 1 million, your gain would also have been 500 000 USD.
But there is a significant difference between the two alternatives. In the first example, you invested 100 000 USD and after having sold the house and paid back your mortgage, you had 600 000 USD in your account. This was on an investment of 100 000 USD. When you didn’t use a mortgage, you invested 500 000 USD and made 500 000 USD. This was on a 500 000 USD investment.
The sigificant difference is the use of leverage. With a smaller amount of your own money (100k instead of 500k), you made the same amount of dollars in return!
To make this example even clearer of the possible impact of the use of leverage, let’s assume the following:
If you had the 500 000 USD on your bank account and used 100 000 USD for the house. Hopefully you also invested the other 400 000 USD just as wisely as the first. If you did, you would now have 500 000 USD * 5 = 2,500,000 USD!! This would have been the case, had you bought five houses instead of one! So you see the power of leverage and what it can do to your investments, if used wisely.
BUT had house prices gone DOWN instead, let’s say by 100 000 USD and you had five of them. Then all your 500 000 USD would be gone if you had to sell those houses at that time, so there are clearly risks involved as well!
This is the principle for how to use leverage within finance and it can have a massive impact as demonstrated in the above example!
Just remember that you also have to make your installments (amortizations and interest payments if it’s a mortgage) which means cash-flow out.
Very few people have made themselves rich without leveraging money at some point. For instance, Mark Z. at Facebook didn’t have money initially so he had to use someone else’s money! Then he has leveraged technology like crazy and continue to do so. Elon Musk at Tesla is raising money all the time and they both have companies valued at billions of dollars.
Just be smart about how you do it and when you do it but make sure you do it!
Actions to take:
- Learn from the best – read my post on Brainwashing
- Set your visions and goals – no goals means nothing to leverage!
- Modeling – immerse yourself with your role models
- The 80/20 rule – use it for even more leverage
- Learn how success comes by implementing these habits
- Money – learn it all and use it to your advantage, just click here to get started!
If you learn how to use leverage wisely, you will be amazed about what you can accomplish in a very very short period of time. Just make sure you understand it and know why and how to use it. Be particularly careful/thoughtful when you are leveraging money as it can backfire massively if used incorrectly, but use it wisely and you will become rich!