The Power Of Leverage: How The Rich Accelerate Their To Accelerate Your Gains

Leverage is possibly the most significant tool available for maximizing gains. Everything we do takes time or money, any very often- it takes both. Take for example your normal job. You need to go to work each day to earn money to cover your basic needs, all the boring items like food and shelterthat you need for you and your family. If you want to earn more money, you could take on a second job or you could maybe do a few hours overtime.

The problem though, is that this will mean that you have less free time available with your family. Because time and money in this set-up are both limited, there is no way to increase both- you can do either one or the other. There is a see-saw and you need to find a balance between the two extremes to suit your lifestyle.

But some employers will allow you to work overtime: extra hours are often paid at a higher rate than your normal salary. So if for example you normally work a 40-hour week at $10 per hour [=$400 per week], then you take on 2 hours of overtime each day at double-time [$20 per hour]. Your weekly workload is now 50 hours, but you now receive $600 for that week, or $12 per hour. You have traded a small amount of free time to increase your entire salary.

The problem with this scenario is that overtime is generally only available in lower-paid jobs, so it is not possible to become rich by working overtime. And, of course, you have lost 10 hours of free time to enjoy. By working for an employer, the time-money equation is always limiting. The relationship between the two is linear. Even if you worked for the entire 168-hour week and never slept or ate, you would earn only as much as your hourly rate allows.

Now imagine a scenario where you need to free up some extra time to spend with your family, or go mountain-biking, or to meet friends for coffee. Let’s say that you spend 2 hours each day doing housework, mowing the lawn or cleaning the car. Now if you could pay someone else to do those chores, you will free up that time. Yes it will cost you money, but the trade off can be worth it if you use leverage.

Look again at the scenario above. You are now worth $12 per hour. If you pay someone $5 per hour to do your chores, that’s $100 each week. You now earn a net $500 for your week. You work an extra 10 hours for your employer but you’ve freed up those 10 hours at home by employing someone else. The result is that you now earn an extra $100 AND have time with your family.

Think one step further and it is likely that by employing a specialist to wash your car and mow your lawn and clean your house, it will be done more quickly. You do not need to pay for 2 hours labour- it may take only 1 hour. Now you can leverage time AND money.

In internet marketing, entrepreneurs usually work in a solitary environment, and it is easy to make the mistake of ‘doing it all yourself’- maintaining a website, writing a blog, advertising, replying to email, writing sales copy, managing a budget. This isn’t only difficult; it’s downright impossible- there simply aren’t enough hours in the day. Some of these tasks are simple to learn and to do yourself and it is indeed useful to have a basic understanding of how to perform these tasks. But there are experts out there, whom you can call upon to leverage your time and money. Your time is the most precious commodity. The scale of monetary limitations can expand and shrink as cashflow changes, but time is constant, you cannot make more of it. You need to make more of it AVAILABLE, by leveraging other peoples time so that you have the time to MANAGE your business.

In business, corporations often find that carrying a certain amount of debt is advantageous if they are able to borrow cash at a low rate of interest. Say for example, Ecorp produces woggles, whatever they may be, each with a net value of $10, and a huge untapped market with a high demand for woggles. If Ecorp is able to borrow extra capital at a financing cost of say $1m to produce 1m extra woggles, then they can sell those woggles for $10m and pay the financing costs of $1m, raising profit by $9m, a gearing ratio again of 1:9. Financial reports often talk about leverage ratios

Another example of leverage is where investors in stock and commodities markets trade on margin, often geared at a 1:100 ratio. There are various mechanisms they can use to do this such as trading futures contacts and spreadbetting, both of which can carry a high level of risk if a trade moves against the investor, but by controlling the level of risk and having solid strategies to identify the correct markets and moving in and out of trades successfully, traders can realise a huge profit for only a small initial capital outlay.

Power-Leverage
In real-estate, the wealthy use multiple types of leverage to increase their gains over time and use an automated strategy to earn residual income. Say an investor has $100,000 to invest in real estate; she could purchase a property outright and let the property to a tenant who will cover expenses such as maintenance charges and generate a small monthly income of maybe $500. After 1 year, the property will probably have appreciated by about 10% or $10,000. The overall gain for the year is $16000 or 16%.

Now imagine that the investor used the property as collateral to secure a mortgage on the property. Most banks will lend up to about 90% loan-to-value, so she will only need to use $10,000 to ‘buy’ the property but the bank will let her use $90,000 of THEIR money to invest in the property. That’s a gearing ratio of 9:1, which effectively gives $10,000 the earning power of $100,000. Now there are additional expenses to pay, such as mortgage interest. If the investor wishes to free up more time, she may employ a letting agent and other professionals to handle all aspects of the business, but these expenses should be covered by the rent collected.

After the same timeframe of 1 year, assuming the same capital appreciation of the property, the overall gain for the year is only $10,000 as the rental income was used to cover additional costs. But the initial investment only used $10,000 in capital so the gain is a staggering 100%. Now look at the bigger picture and the investor could have used the entire $100,000 upfront to secure exposure to a $1m property market to double her money and generate a handsome income of $100,000.

The beauty of this system does not end there. After that year of capital appreciation, the investor can now take back 10% of the new property value, i.e. $11,000. The initial investment has been recouped and anything earned from that point forward is pure profit, with little risk. The initial stake can then be re-invested in other ventures and the system can be repeated over and over. Once the system is set up and duplicated, it runs without any input from the investor- it acts like a pipeline for pumping money. The property market is not guaranteed to appreciate at 10% each year but for the past 10 years or so, these figures are perfectly relevant for demonstrating the principle of leverage.

In summary, by leveraging other people’s money, time and skills, it is possible to accelerate gains way beyond those possible by working harder.

In MLM, the business strategy is propelled forward by duplicating the efforts of each entrepreneur at each level of the business. In this way, the marketer is able to grow his own stake in the business in order to reap the rewards of the work of others. The world’s first billionaire, oil tycoon J Paul Getty, is famously quoted as saying

“ I would rather earn 1% of 100 peoples efforts than 100% of my own efforts.”

Getty was clearly aware of the impact of synergy- the principle that the whole is greater than the sum of its parts. A team of different individuals with complimentary skills is far more valuable than a team of one. If you are able to recruit and train 100 individuals in your MLM business, and decide one day that you want to stop working at it, you will actually find it very difficult to stop making money. The money will continue to flow due to the work of those below you. That’s why Getty was rich.

Recruiting 100 individuals may sound unrealistic and daunting, but not when leverage is employed. By leveraging the work of others to recruit individuals below them, the number of individuals in your downline can grow exponentially. Most MLM structures pay to a depth of up to 5 layers below you. So if you recruit only 5 individuals who then recruit a further 5 and so on, after 5 levels you will have an empire with 3,905 members, all generating income for you.

A similar example demonstrates how viral marketing enables you to disseminate information on the grapevine to reach an enormous number of individuals. By leveraging the principle that people like to pass on interesting information, whether it’s just gossip or a life-changing secret, we can encourage this organically using targeted information to reach the masses. For example, an internet marketer may write a free eBook containing marketing material to distribute over the internet. Imagine he sends it to 2 individuals each month who each then passes it on to 2 more individuals each month.

After 1 year, over half a million readers have seen the eBook, and that’s based on only sharing the eBook with 2 individuals each month.

The final type of leverage is that of utilizing the best skills and technologies available to you in order to increase the value of your venture. Trading skills and technologies is hugely beneficial because it is very cost effective, saves everybody time and money and helps to form the relationships and joint ventures that are paramount for driving business. If there is one element that rules over all business principles, it is the development and nurturing of relationships- without relationships, there are no markets and without markets there are no opportunities.

How can you use leverage in your business and your life?

Article Source: Main Articles

The author is an internet marketer, specializing in MLM, online marketing, article marketing and list building. For access to more articles like this one, visit the author's site at www.residualncome.ws/index.html To generate a new unique article and submit it to hundreds of directories, visit www.jetspinner.com/?thankyou-page=747

This article may be reproduced wholly or in part without written permission provided the byline, resource area, and any hyperlinks remain in order to give proper credit to the author.

Internet search engines and directory listings are imperative to your sites existence and success. Submit Your Website to the Searchen Networks directory and search engine to achieve authoritive inbound links.

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5