When I worked as a software engineer in the 1990s, I didn’t know much about money and investments. My job paid well enough that I could save, partly because I was living like a college student, living with roommates in a rented apartment. I worked long hours because there was a lot of work, and I thought that was how to get ahead. Work hard, get salary increases, save for retirement. Everyone I knew just did that. On my software teams, we thought about systems, repurposing work, process improvement, and automation. Why did we do that? To get more done and be better at our jobs. Not necessarily anything to do with wealth building.
I mention this example for two reasons related to wealth building. First, we all use different kinds of leverage at work and at home. We use systems and process. We rely on experts or third-part services. We find shortcuts to save time. All these ways and many other ways give us leverage to get more done with less of our own time and energy. Second, we look for leverage when we have a specific problem to solve or goal to achieve, but if we don’t know the tool or technique, we might not find it and use it or apply to other areas of our lives.
As introduced in the previous post, one secret to building wealth that’s hiding in plain sight is leverage. The simple way to understand financial leverage is it’s a tool that helps you turn a small amount of your financial input to a larger amount of wealth output. You’re getting more wealth than you can get with your own money alone.
Most of us know at least a little about financial leverage, for example, getting a mortgage to buy a house. You may not have the capital to buy a whole house. (Or you might, but you decide to finance it anyhow.) With a loan, you can control an asset that’s worth more than the amount of money you put in.
But there are many kinds of leverage. Todd Tressider, one of my wealth building mentors, discusses 6 different kinds of leverage in his book called, The Leverage Equation, How to Work Less, Make More, and Cut 30 Years Off Your Retirement Plan.
Financial
Time
Technology and systems
Communications and marketing
People
Intellectual
Later, in my real estate business, I needed leverage in all these areas to make my projects work. However, I didn’t start by looking for leverage opportunities. I learned how to do projects, and it turned out that I needed leverage to get the projects done because I didn’t have all the money, all the knowledge, or all the skills. In fact, for me the most useful leverage was meeting people who knew how to get things done because they had done them before. A real estate agent helped me find a house. A specialized lender helped me get a loan to pay for the purchase and rehab costs of a fix-and-flip project. My mentor helped me make sure my rehab budget made sense. Contractors helped me complete the remodeling work.
Leverage is one of the major ways to get ahead. Tressider’s book describes six categories of leverage. Any one or a combination of those could be useful on your journey in life, your career, and your wealth. The more you learn about some of them, looking for ways that others use them creatively, the more you expand your knowledge and skill for bringing more leverage into your life. Wherever you are on your wealth journey, you may be able to do more and go faster if you can find ways to add or combine leverage.
Ask Yourself Where You Could Use Leverage?
Sometimes what’s needed is to recognize that where you are in your life and wealth journey have little or no leverage. For example, in my software engineering career, I focused on leverage for performance in my job, but none of that leverage contributed much to my wealth creation. My investments at the time were sitting in mutual funds, ravaged by inflation and market volatility (which I didn’t understand then).
I’m not suggesting a career change just to get leverage. The insight is to recognize that if every part of your life, career, and wealth have little or no leverage, then it is harder to get ahead. If you can see that your career or your investing has limited leverage, you are seeing the reason your progress may be slower than you want. That discovery reveals the possibility that if you learn more about leverage, you can bring more of it into your life.
Now, I know this doesn’t connect all the dots for your journey. Leverage is one kind of tool that comes in many forms, and we still need to figure out where and how to use it effectively and safely. When you take stock of your career and your wealth so far, where are you using leverage? It can be a real fork in the road to make new choices with leverage possibilities in mind. If you’re not seeing leverage opportunities, then keep talking to people who are achieving what you want to achieve. Keep exploring so you can get more ideas and see more patterns about ways people use leverage. Over time, you will find ways to bring more of it into your journey.
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