The Role of Leverage in Creating Wealth

Some things look a lot more complicated than they are.  Creating wealth for instance.  Because there are some fundamental truths and principles that once you understand, simplifies the process greatly.  Let’s explore a couple of them…

You work for money, or money works for you.

You work eight hours as a plumber, so you get paid eight hours.  If you’re like most people, you take that money you received for those eight hours and you spend it all.  Might be for necessities, might be for pleasure, but you immediately trade that money for something else you want more.  (And if we’re being honest, if you’re most people, you use credit cards and actually spend more than you were paid.)  If you’re not like most people, you work for those eight hours, get paid for them and spend some of that money.  But you also hold back a portion and put it in some type of investment that produces income.  Now you have some money that is working for you, not the other way around.  Do this smart enough for long enough and you can create true wealth.

Harness leverage to escape trading time for money.

This is pretty simple really.  If you have to trade time for money, you’re at a great disadvantage.  This is also the subject of one of this week’s podcast episodes.

Sure, some people on a salary get wealthy like the CEOs of companies like Disney, General Motors or the NFL.  But for most of us, we simply don’t have enough productive work hours to trade that will produce true wealth.

You’ve got to harness the power of leverage.  Leverage, like compound interest, is one of the great wonders of the world. 

If you have the right talent, you can leverage time.  If you can write a song like Ed Sheeran, you can record it once and get ongoing residuals for a long time.  If you have the creative genius of J.K. Rowling, you can write the Harry Potter series once and the books keep selling over and over.  Writing a software program is similar.  In these cases, the “product” you create has either a marginal cost of reproduction, or no cost for reproduction, so you can invest a finite amount of time for an almost infinite amount of return.

Likewise, with the right talent, you can leverage money.  You can buy a million dollars worth of real estate with only $100,000 cash.  You can place money is solid investments and grow it.  You can bring investors into your startup and grow it to create equity for both you and them.  All of these actions create leverage.

You can even leverage your labor.  If you simply work your hot dog cart in Manhattan, you don’t really have leverage.  But if you have six hot dog carts and get other people to work in them, you can create leverage.  I have a friend with a factory that employed 300 people.  He built a new factory with triple the capacity, and it only requires 12 people to run it, because he has integrated so much technology to do functions that used to require manual labor.

Most of you know I’m a big proponent of leveraged sales (a/k/a direct selling or network marketing).  That’s because you can leverage your time, money and labor.  You develop a team of people who sell to their customer base.  They develop other resellers.  If you do a great job putting a duplicable system in place and training your team, you can get residual overrides on the volume produced.  You might only recruit and train 20 people, but get overrides on the business produced down the group by 10,000 people.  (This is the subject of my new book which is released today.  If you’re in that business, or considering it, please order a copy.)

I like all of these options and practice as much leverage as I can.  As an information entrepreneur, I produce content that provides leverage.  I have regular investments and real estate which provide me leverage.  And I lead a team in leverage sales to produce yet more leverage.

It’s worth some serious reflection on both these items.  Are you working for money exclusively, or do you have money working for you?  And how much (if any) of your income is coming from leverage – versus trading time for money.

Love to see your comments below.

- RG