What is leverage? What does it mean and why do a lot of finance experts use this term often? How important is it when it comes to money, business and wealth?

I first encountered this term in my high school Science class when we were studying about simple machines. That day, we talked about seesaws, fulcrums and pivots. In principle, a lever allows you to use less force to lift or move objects. We may not know it, but this theory is applied in a lot of the everyday objects we use such as scissors, bottle openers and even doors.

With regards to money, we can likewise use the principle of leverage to accelerate our financial goals. When properly understood and intelligently applied, leveraging will allow us to earn more with less work. So how do we do it? How do we use the principle of leverage to help us gain personal and financial freedom?

In a broad sense, we can apply the principle of leverage in everything that we do in our life. We can start on a personal level and leverage on our mind. The fact that you are reading this article shows that you are already doing that. Simply put, we should learn to invest in ourselves. Read books, attend seminars, join communities and expand your knowledge. By doing so, you will acquire more skills and talents which you can use to efficiently and effectively do more.

Of course there is financial leverage. In general, it simply means using other people’s money and making it work for us. The value, utility and purpose of this type of leverage is probably the fountainhead of wealth. When we simply rely on our own capability to save money, then it will take some time before we can invest and accumulate wealth. But by utilizing our resources and assets to acquire good debt (an investment debt that creates value), then we can expect exponential growth on our money.

There is also what is called resource leveraging. Others may refer to it as the power of collaboration. In business, specially for starting entrepreneurs, many fall into the trap of self-employment. It’s common to see excited and hopeful individuals who started a business which eventually closed after less than a year simply because the person got tired of running it on his own. Put controls in your business and learn to employ other people to work for you. Explore partnerships for your business and always consider using the aid of other individuals and experts to help you plan your actions and accomplish your tasks.

There are other forms and other ways to apply leveraging in our lives. I leave those for you to discover and ponder. Just remember that the principle of leverage is a powerful tool we can use to get ahead financially in life. As a famous quote from Archimedes would say, “Give me a lever long enough and I could move the world.”

Leverage on your mind further by subscribing to Ready To Be Rich.

———
Photo courtesy of mistermoss