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The Power Of Leverage Will Make You Rich
Author: Emlyn Scott  | Posted: 21-05-2008 | Comments: 0 | Views: 13 | Rating: (202)  (?) 
It is absolutely necessary to use leverage if you want to become wealthy. In fact you need to use massive amounts of Leverage. The more leverage you use the more leverage you need to use. Before you think that I've lost the plot and only recommending that you borrow money until you drown under the weight of debt, let me explain myself clearly.
A common misconception is that leverage refers only to borrowing money (also known as gearing). Leverage is so much more than just borrowed money. In fact there are 7 forms of "leverage" and the more of the seven that you use and the more you use them the wealthier you'll become.
What is leverage?
Leverage is the ability to control a lot with just a little. It gives you the ability to utilize more than just you. Through leverage, you can effect change much more rapidly. Leverage equals speed, or velocity. The more leverage you have, the faster your journey to wealth.
The 7 forms of leverage
So what are the seven forms of leverage? Well, they are:
1. OPM (Other People's Money)
2. OPT (Other People's Time)
3. OPW (Other People's Work)
4. OPE (Other People's Experiences)
5. OPI (Other People's Ideas)
6. Scalable Production & Distribution
7. Scalable Customer Base
Let's briefly look at each of these in turn...
OPM:
OPM or gearing is simply the use of debt. It's what you put in the liabilities section of your personal balance sheet.
Why use gearing? Can't saving make you rich? The only way saving alone will make you wealthy is if you have a very good income, very low expenses, and the tenacity and ability to save over a long period of time.
For example, if you're 25 and plan to save until age 65 (40 years) and can manage to put away $650 per month and achieve a 5% compound return after tax on your money, you'd have a retirement pot of almost $1 million. While this is commendable, it's certainly not clever and takes an extraordinary amount of time and effort. Also, while $1 million may sound like a lot it really isn't, especially in 40 years from now. In fact, with 3% inflation your $1 million will be worth about $300,000 and produce an annual income of about $21,500 in today's money. Not a very wealthy retirement!
If you want to become wealthy you need to save hard and use money from other people to move you to your goals faster. OPM lets you buy assets earlier, at a faster rate, and control a larger amount than saving the whole amount. These three characteristics of financial leverage enable you to become wealthier faster.
If you saved $10,000 per year and borrowed at 90%, after one year you could buy an investment property that cost $100,000. If you waited until you saved $100,000 then it would take you 10 years and the price of the property would likely be much much higher.
It's generally true that "you need money to make money." However, it doesn't need to be your money. OPM allows you to fast-track your wealth creation program.
OPT:
There are numerous companies, small businesses and individuals that will sell you their time. These range from laborers to professionals specializing in a particular field.
I have an accountant, lawyers, insurance broker, mortgage agent, and so on. I use all these people, as they save me time and money. They save me money because they free up my time to make more money, and their knowledge helps me.
OPW:
This is similar to OPT, but now you employ people to leverage their time. Bill Gates applies enormous OPW style leverage. He leverages the time and effort of 65,000 staff. OPW (and OPT) essentially allows an individual to capture the time and effort of many. It allows you to produce quickly what you couldn't produce in one or more lifetimes.
OPE:
One of the best resources or leverages available to you is the experiences of others. It's an enormous waste of your time and totally unnecessary to try and learn everything you need to know by trial and error. You can learn from the experiences, knowledge and mistakes of others.
This may be via a mentor, OPT, OPW, books, seminars, CDs, school, college, etc.
There's no point learning by trial and error what someone else has already learned and can impart to you.
OPI:
This generally refers to learning and copying good income-producing ideas. Franchise and networking businesses are testaments to the power of OPI - learn a proven method and replicate it yourself.
The process of wealth creation is the ultimate use of the leverage of OPI. The system of wealth creation is the same today as it was yesterday, last week, last month, last year, last generation. Sure, the technology changes and systems become refined and improve, but the fundamentals don't change. The process is tried, tested and works every time without fail. You just have to learn it and diligently apply it. No trial and error. No wasting your precious time. Just OPI.
Scalable production and distribution:
Can your product or service be easily scaled for production and supply? A book can be easily scaled as it can be printed as many times as demand requires. Compare this to face-to-face teaching which isn't easily scalable. Can a book be easily supplied anywhere? Well until the Internet came along it couldn't. Now it can be bought and distributed easily via the post to anywhere. But that's nowhere near as easily produced and supplied as an ebook, which is just bits of information that you can instantly download from anywhere in the world.
Scalable customer base:
A restaurant or a corner store doesn't have a scalable customer base. It can only service customers in its local area. People from all over the world may want your product or service but if they don't know about you or can't get to you then it's as if they don't exist.
Let's look at the dot com companies of the late 90's. The internet gave companies a true global customer base for virtually no cost. Their potential customer base was highly scalable, which is why they were so highly valued. The problem was their production and distribution was not highly scalable as they still had to deal in physical products...they were very old economy after the "sale". People forgot this. Those companies that dealt in non-physical products had both scalable production & distribution and a scalable customer base. These are the real new generation companies that the internet truly empowers. You probably recognise a few of them - Google, Yahoo, Ebay, E*Trade, Facebook, and so on.
With leverage, you're not alone. You can tap the strengths of all the resources you need around you. You can vastly multiply the effectiveness of one person. Through leverage, systems of production and sales can run and grow independently of the inventor or owner. Leverage allows you to create systems that run themselves. Leverage is essential to create wealth. Those who want to become wealthy or are on the wealth path must focus on understanding, mastering and fully utilizing leverage.
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Article Source: http://www.articlesbase.com/finance-articles/the-power-of-leverage-will-make-you-rich-421750.html
About the Author:Emlyn Scott is the founder of Rich1Percent, investor and wealth creation author. He is a wealth creation and finance expert with 4 post graduate qualifications and has amassed a multi-million dollar investment portfolio.
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