Last week I was featured on MyOwnAdvisor.ca by its creator, Mark.
It was a great privilege to share my financial independence journey with his readers.
One of the most useful skills I’ve explained in the interview is the ability to use leverage. For long time readers of this blog, you already know I’m very fond of financial leverage. But that’s only one type of leverage. There are many more.
Some are more outdated while others take advantage of newer trends. So in today’s post I’d like to share the last part of the interview detailing all the different ways you can use leverage to create prosperity, especially in 2022 and beyond.
Leverage As A Mental Model
You can think about anything in the world through the lens of leverage. The purpose of doing this is to work smarter, not harder.
Normally you get paid 1 time your regular wage. Maybe 1.5 times if you work overtime. But imagine getting paid 10 times, or even 100 times for putting in the same working hours. 😀
Here are a list of ways you can multiply your productivity using leverage.
This is the oldest leveraging method in the book. People were leveraging labour thousands of years ago. That’s how the pyramids were built.
Instead of doing all the work yourself you hire other people to help you build and produce faster. This is how businesses start.
Facebook would not be such a large company today if Mark Zuckerberg didn’t hire other engineers to help him grow the platform.
Instead of writing blog articles yourself to earn $100 per post. You can outsource your work and pay someone else $50 per post. All you have to do is the editing and formatting and keep $50 for yourself. Find 10 people willing to write and you can make $500 instead of $100.
Human labour is the most common way for this type of leverage. But you can also use animal labour like they still do in many countries.
As an introvert this is my personal favourite because it doesn’t require people skills. I can simply use other people’s capital to invest and increase my own investment returns. I bought my first condo using 17x leverage. The value of the property has went up by roughly 100% since my purchase. But my unrealized profit sits at about 1,700% thanks to using other people’s money.
Expertise or Specific Skill
You might have skills or knowledge that put you in the top 1% at something. It doesn’t have to be related to your career. Once you discover what that is you can look for ways to monetize it and change the trajectory of your financial life.
Similarly you can leverage the expertise of other professionals to help you. For example I used a knowledgeable real estate agent to buy my home. She is an expert at negotiation and knows the seller’s mentality. She even spoke to the head listing agent to convince her to get the sellers to agree to my terms.
Without my agent’s help I would have paid at least $50,000 more than my actual purchase price. A good professional is worth their weight in gold.
Consulting is another service to leverage. You pay consultants a fee. But you often get many times the value in return from their service.
The final way to multiply your output is to leverage technology.
For example if you use a chainsaw, you could probably cut down 10 times as many trees as simply using an axe.
But at one point in history an axe was a much better tool than anything else at the time.
New technology is simply a tool that is not yet widely used by the population.
In today’s world, most new technology revolves around computers and the internet. If you learn programming you can leverage your software skills in any industry to create digital tools for others to use.
Perhaps you have a very particular set of skills. Don’t be taken by surprise if others want to learn from you. Maybe you can offer an online course and sell it to millions of people around the world instead of giving individual lectures to a limited audience each time. The democratization of technology means anyone can become a creator, an influencer, an entrepreneur.
You don’t need to implement any of this right away.
But just being open to the possibility of using leverage can increase your future income potential when the right opportunity comes along.
Of course leverage necessarily comes with added risks and responsibilities. With labour, your employees may end up costing you more than the value they produce. With capital, you may lose other people’s money or struggle to pay back the debt. And new technology may fail, or even backfire if used incorrectly. This is why before implementing any kind of leverage, you first have to be confident in your ability to make excellent decisions.
If you have good judgment, can make rational decisions, and find a way to use all 4 types of leverage, then you will become very wealthy and retire early. 🙂
Speaking of retirement. If you haven’t watched it yet, in my latest video here I explain the best way to drawdown your portfolio once you retire.
It includes information on which types of investment accounts to withdraw from for maximum tax efficiency.
It also details whether or not you should delay taking CPP and OAS. 🙂
Random Useless Fact:
Human history was filled with violence. But the 21st century has been mostly peaceful. 🙂
My attempt at labour leveraging have not worked out so far.
The neighbour in front of me pays to get his driveway cleaned.
I have mentioned to him several times that he could use his spare time to help me clean mine. I’ve tried all kinds of reasoning from it would be good for his health to the value of exercise as well as the pleasure of helping neighbours with their arduous tasks all to no avail. LOL
Haha, I don’t know man. Maybe if you offer him some food he’ll come around. 😅
The concept of leverage is really how we get things done efficiently as a human race. The one point I’ll mention is it’s one thing to have the tool and it’s another thing use well and efficiently (I’m sure somewhere out there a woman has said this about another “tool”). If you think of leverage as a lever you want to be sure you’re getting effective usage out of that lever. As a dentist I’m often sold on ideas from sales people that a certain tool is “essential” and I’ll make copious amounts of money if i just buy this tool or take this course. All too often I see people who buy equipment and don’t get good usage out of it. If you buy a $100,000 lever (equipment) the damn thing better be working pretty well non-stop daily. No sane person would go borrow $100,000 line of credit at 8% and buy a Canada savings bond at 0.2%. No sane person would go borrow $800,000 and buy a house with $100,000 down and leave the house vacant with the doors unlocked and no heat on. But in business this can happen all too often: too many employees, not the… Read more »
I hope no women is saying that about any tools I know, lol. I hope you had a good year in 2021 with a 6 figure net worth increase. 😄
That’s a very insightful point. Just because you have a lever doesn’t mean you’ll use it effectively. It’s like when people spend money to buy courses but then don’t take what they learned and use it in the real world. Or business owners hire people, but don’t give them the right tools to succeed.
I think leverage is about finding synergy and efficiency, and by doing so you become more productive.
Being able to exercise good judgement ought to be the first priority. Once someone can demonstrate this consistently, they can slowly add leverage into their lives with a higher chance they’ll use it effectively. 🙂
Sadly, I’m not as committed to doing NW spreadsheets as I once was. I did well income wise in 2021 and added a MURB. Investments did ok and I even thought about buying a few shares of stock! But still in real estate 100% for now, I know it’ll be smart to diversify soon. Likely should look at hiring some financial planning help soon too.
After re-thinking my laziness I decided to do a net worth sheet for the first time in about a year. I dropped any cars/boats/snowmobiles (personal property) but have included house equity. I was pretty shocked that I’ve managed to hit 2.07M. It’s been growing slower the past few years but I’ve also been not keeping track very well.
Wow, that’s a huge milestone. Congrats. 👏👏👏
Yet another thought-provoking post! As you know, I’m a huge fan of financial leverage. However, I never really considered all these other forms. I’ve used the expertise of others and new technology, but have yet to leverage the labour of others to earn more. That’s something I’ve always found challenging!
A lot of times we use leverage without realizing it. When we blog we can reach and connect with thousands of people all around the world. This is leveraging a piece of technology that our parents didn’t have access to. 🙂
I have not leveraged labour yet either. Practically speaking this basically means running a business and employing other people. I think this naturally happens when you’re really good at doing something that the world wants, and the demand is so high that you can afford to outsource the more menial tasks and focus on what you do best.
As A|W mentioned above, not everyone can make good use of leverage even if they have it. But I think you’ll know when it’s the right time to use leverage (of any type) when implementing it feels like a natural step forward in your journey, and not forced. 😀
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Technology is by far the greatest form of leverage. doing 10x stuff within 1x time. More output , lesser input, lets us enjoy life.
All about that efficient use of time. 🙂
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