I often get asked by friends and clients on how to get started on the road towards financial freedom. I would like to share with you the most basic wealth principle in finance for which those who surely understand the concept, understand its significance in making money. That is….Leverage.
Leverage allows you to build more wealth than you could ever achieve alone by utilizing resources that extend beyond your own, thereby removing any restrictions by your personal limitations. Simply meaning, using something to your maximum advantage.
We can use leverage in the following ways:
Leveraging Finances
Essentially, using borrowed capital for an investments and expecting the profits made to be greater than the interest payable. People use leverage money so that they are not limited by their current resources when making an investment.
In finance, companies maintain a the ratio of capital to debt value of its common stock at 70:30. Hence, they leverage their 70% capital with a debt of 30%. In Forex trade, traders leverage their capital for trade at ratios of 1:500 for instance, meaning for every dollar invested, they borrow up-to 500 times that investment.
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Leveraging Time
Time being the most valuable commodity, its makes sense to leverage it to get the most out of it. Time is money and as such we leverage time, by employing other peoples time so that we are not limited to 24 hours a day in work. Companies leverage employees time to maximize on investments made by the principle.
Leveraging Knowledge
We use the knowledge and expertise of others to accomplish that which we want to accomplish. As such, we put into use others peoples talent, expertise and experience so that we can utilize greater knowledge than we can possess.
When it comes to personal finance, my clients leverage my own expertise and experience, to achieve that which they desire in life. Bottom-line, leveraging knowledge its merely taking advantage of something to the maximum.
Model your life to take advantage of the resources around you. If you are not using leverage, then you are working harder than you should to earn less than you deserve – which will not make you wealthy in the end. For every amount you earn, you could potentially be earning up-to 10 times or even more using the power of leverage.
So do not blindly stumble through life doing what 95% of the population is doing. You can model successful people who are already where you want to be and the use information at your disposal such as this article to take advantage of various shortcuts to your financial destiny.
Happy Leveraging!