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Some are more outdated while others take advantage of newer trends.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. 🙂