The Principle of Leverage And How To Use It In Our Life

Updated: May 28, 2021

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 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?

leverage

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, especially for starting entrepreneurs, many fall into the trap of self-employment.

It’s common to see excited and hopeful individuals who started a business that 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.

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20 comments

  1. I remember the lever and fulcrum too. How simple machine works… We can also use this principle in other things like what you said; and in delegating our time and efforts.

  2. If I may, I will add a humorous & true story from the early days of my marriage to Beautiful Bride. My night time gig I brought with me to the Philippines to stay busy and earn a regular income is option trading (mostly selling) on US option exchanges. Beautiful Bride continued to do what she had been doing for nearly two decades, plying her craft as an academic writer, producing papers of all types for students around the globe. She also will custom write a thesis, a dissertation, help you prepare your defense as well as do multiple regressions and statistics. Some of her work has appeared in peer reviewed journals when she wrote papers for top researchers ready to publish.

    In our early budget discussions, BeartifulBride suggested we live on the smaller “salary” and bank the larger “paycheck” for the future. I agreed but by the end of week one, I had to break down and be honest with my new wife when she asked ” how do you do that?” She was referring to my income from a few simple trades that I closed out each Friday night-Saturday Morning near the end of the US trading day. I happened to be in the middle of a great run and my weekly option sales were awesome. BB says she “does not like the risk of the stock market” and since there are no options trading offered yet here in the Philippines, she knew very little about options.

    I had to tell her the truth and began to explain the power and leverage of option trading. She is a fast learner and soon appreciated how a trader may control 100 shares of a stock or an ETF with an inexpensive option contract. She likewise was impressed when she learned that I can create an steady income by selling one option contract against each 100 shares I own to capture the THETA decay (time value) in the short term contract then rinse & repeat every week of the year. We soon adjusted our budgeting arrangement and Beautiful Bride forgave me for playing a joke on her for most of one week. YES, leverage, when used correctly, is a beautiful thing!!!

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