I believe leverage is one of the most important skills to master for anyone serious about building wealth.  The most significant thing I’ve noticed about the wealthy people I know is that they are all masters at using leverage.  So, what is leverage anyway?  Let’s start out by looking at what Wikipedia has to say about a lever.  Wikipedia defines a lever as “a rigid object that is used with an appropriate fulcrum or pivot point to multiply the mechanical force that can be applied to another object.”

What I love about that definition is the part on the multiplication of force.  What a lever allows someone to do is to multiply their power beyond what they could normally produce solely by themselves.  Above all else that multi-millionaires good at, they excel at knowing how to multiply their power.  When it comes to creating wealth, power multiplication (i.e., leverage) comes in three basic flavors:

1. Money.  In wealth building circles, you’ll hear this form of leverage referred to as “OPM”, or “other people’s money”.  The most common form of money leverage in investments is the use of margin for securities and mortgages for investment real estate.  Other examples of money leverage include raising capital to start or grow a business, home equity and business lines of credit, peer-to-peer loans and even low-APR credit cards.
2. People.  Otherwise known as “OPT” (other people’s time) and “OPE” (other people’s experience).  In her mentoring programs, Loral Langemeier emphasizes this form of leverage.  She believes that building and leading a team is critical to accelerating one’s wealth building success.  This makes sense for a couple reasons.  First, progress happens much slower when all the work has to serialize through a single person.  Second, the work goes even slower still when you first have to learn how to be a CPA, a lawyer, etc. before you can actually do the work.  It’s best to hire out the work to experts so that one’s time can stay focused on revenue generating activities.
3. Systems.  Systems leverage comes in two flavors: automation through computer systems and through the definition of processes and procedures.  A simple example of systems leverage at home is by paying your bills automatically via a credit card or direct debit from checking. The systems at your bank and creditors are set up to do the work for you so you can get out of the business of writing checks and licking envelopes multiple times a month.  To illustrate process definition, think of a parent assigning household chores to her child.  One way to achieve “people leverage” would be to tell the child to do a chore every time the parent thinks of one.  Another way would be for the parent to define a weekly routine of chores that the child is then expected to follow on an ongoing basis.  By defining a set routine, the parent achieves systems leverage in addition to people leverage.  Business owners can gain similar leverage by defining roles, responsibilities and processes in their business.  Systems leverage is also a great way for an owner to turn his or her business into a passive income stream.  Michael Gerber and T. Harv Eker do great jobs at making this point.

Some people can become wealthy by just being a master of one of the above.  For example, many people have become wealthy in internet marketing by just being good at computer automation.  There are those who have become wealthy in investments by being great at OPM, and yet others who are excellent managers that have made their wealth by inspiring and leading their people to great achievements.

Which forms of leverage are you best at?  In what ways have you used the above three forms to multiply your results?  Share your experiences below.

Popularity: 44% [?]