Most people fail to become rich because they fail to use leverage. They work for their money, and only earn money per hour they work. Then they put their money into a bank account or mutual fund and because they only use their own money to invest they hardly make anything. If you want to become rich then you need to learn how to get rich by using leverage.
Leverage is basically doing more with less. The more leverage you have the more you can do with less. For example, if I have $10,000 and I just invest my own money and earn 10% per year then I will earn $1,000, but if I leverage my $10,000 by using someone else’s money and I can earn 10% on $100,000 then I can earn $10,000 per year or 100% return on investment. If I use none of my own money then the leverage is even greater and the return on investment is infinite.
In order to become rich you need to master the art of leverage. There are 3 major forms of leverage that you should learn how to utilize if you want to become richer and richer, instead of poorer and poorer. The less leverage you use to longer it will take you to become wealthy. I am not saying that you cannot become rich without using leverage, I just know it is easier to get rich by using leverage. If it wasn’t for leverage I would have little or no chance to become rich.
Leverage #1 – Other People’s Money
This is one of the simplest and best forms of leverage. Everyone knows of this form of leverage because everyone knows about buying a house using the banks money. You are leveraging the banks money in order to be able to purchase a property. In order for the privilege to use their money you pay them interest on their money. This can be very expensive if you are trying to pay off your own house, but if you leverage the banks money and someone pays the interest for you (through renting the property from you) then they are ultimately buying your asset for you.
Using other people’s money is great as long as you are not the one paying the interest. If someone else is paying the interest then this is a great form a leverage. It could be your customers or your tenants paying the interest, but as long as you are not paying for it then it doesn’t cost you anything to leverage other people’s money. You then can buy an asset that you wouldn’t have been able to afford otherwise. This makes you wealthier than you ever could have been by yourself.
Leverage #2 – Other People’s Time
Most people go to work and they use no leverage at all. They get paid a certain amount for every hour that they work. They are limited to the amount of income they can earn because they can only charge so much per hour and they can only work so hard. Rich people on the other hand have other people working for them. Instead of working for money, they have other people working to make them rich. They might have 20 employees making them rich meaning their leverage is 20:1, they might have 1,000 employees making them rich and their leverage is 1,000:1. Using other people’s time to make you rich is something you need to do if you want to be ultra rich. If you want to be average then you can become fairly wealthy working for a wage. But if you want to be ultra rich you need other people working for you.
In the not so distant future I will have accountants and tax strategists working full time just for me. I will also have writers and marketers working full time for me, making me rich. I don’t have to work, I just have to pay them to work for me. As long as they earn more for me than I pay them I can hire as many people as necessary. Meaning the more people I hire the richer I can become.
Leverage #3 – Technology
With the invention of the personal computer and the internet it is possible for almost anyone to become rich without requiring a lot of money. Technology is great leverage because it works for you 24 hours per day and it is a lot cheaper than hiring someone to work for you 24 hours per day. You can also reach people all over the world by using the leverage of technology.
One of the best forms of technological leverage is the internet. I have a variety of websites on the internet that work for me 24 hours per day. At any point in time people can go to my website and sign up for my free email newsletter or they can buy a product from me. It is like having a store that is open 24 hours per day that anyone in the world can come and buy things from me. This is great leverage for me as I can work once to create a website and then for the next 10-20 years (or more) it can work for me and earn me money. Even better I can leverage someone else’s money to pay for someone else’s time so they can create the webpage for me, then I earn money for years to come. Obviously you should know what you are doing before you start using leverage that heavily but it gives you an idea of the endless possibilities of leverage provided by technology.
So if you want to become rich then you need to begin to learn how to master the art of leverage. The better you are at using leverage the lower your risks and the higher your return can be. To put it simply the better you can use the leverage of other people’s money, other people’s time and technology the quicker you can become rich with a small amount of money.