Leveraging money certainly is not a new concept. The idea has been around even before the concept of money itself. People converted their labor into goods and leveraged the goods to acquire other goods. When you work for wages you are basically doing the same thing. If you are a carpenter you trade your skill for money and the contractor uses your finished product parlayed with other people's skilled work as a leverage to get a profit.
Leveraging money can be used in many ways. One of the most simple ways is to lend money for percentage. When you deposit money into a savings account you get a percentage back from the bank for their use of it. They pay you a percentage on your money and in return they lend the money, say to the contractor for a higher percentage. You can also go the the contractor and lend the money for a higher return, circumventing the bank.
Retailers leverage money by buying goods at wholesale and selling at retail, which produces a profit. If you are going to invest your money by trusting it to a business consortium; investigate the background of the people involved to assure the safety of your money. Don't listen to the get-rich-quick schemer, always look at past projects and the return he/she has generated.
Be Faithful To The Program
No matter if you are buying and selling, trading labor or investing, you must be faithful to the ten percent rule. Remember from the last lesson? Ten percent of everything you make is yours! This is your nest egg, your ace in the hole. This money must be leveraged for gain. It's a simple matter of budgeting. Maybe you won't be able to buy that new sound system, or you will have to drive a cheaper model car, but you will be laying a foundation for you and your loved one's future. You will be ready when the children are ready for collage, because you took the steps to prepare for the future. You are a responsible person of vision as you have recognized your duty to yourself and your loved ones. Ten percent; in many places you pay that much in sales tax. Tax yourself, and use that tax money to leverage your way to wealth and security.
Second: most important leverage of money is in Insurance. That's right insurance, life and health. Term life is simply you lending money to the insurance company for a certain return. When you are young the insurance company will pay for your money because they know the odds of you dieing is low. As you grow older the odds increase and the payback is less, so goes the name “term insurance”. You can either ride out the term and use your accumulated interest to help pay your payments or cash out and invest the interest gained. The important thing is, your benefactor gets paid because you covered any mishap that might befall you.
The Earnings Are Automatic
If there were a thousand dollar bill attached to this article, could you start today and between now and the same time next year, double that amount? It takes a little skill but it can be done. Starting with $1,000.00, at the end of the first year, your investment has grown to $2,000.00; at the end of the second year , $4,000.00; at the end of the tenth year, you will have accumulated wealth amounting to $1,024,000.00. now your financial performance goes into high gear. The technique has been the simple on of investing your money for a given return over a given period. You have yet to apply techniques of OPM or external leverage.
Let's look at an example of using OPM to increase money. The example begins with $1,000.00 investment and assumes you make no personal cash addition during the ten year growth period. The amount grows at a 35% rate. However, in this instance, you will borrow against your net worth and amount equal to it, in other words, you borrow $1,000.00 against your initial investment of $1,000.00, and then invest the $2,000.00. at 35% yearly. The cost of this loan is, let's say, 8%.
Assuming that you have $1,000.00 to begin with, you then borrow another $1,000.00 which gives you a working capital of $2,000.00. the first year's earnings, at 35% then amount to $700.00. From the total of working funds plus your 35% return, that is $2,000.00, or $2,700.00, you must deduct 8% interest paid and the repayment of OPM. These deductions total $80.00 and $1,000.00 respectively, leaving you a year-end net worth of $1,620.00.
It's For Your Benefit
Remembering that you will not add any more of your own money to your investments at this point, you will now take that $1,620.00 and project earnings for the second year, again borrowing an equal amount to give you investment capital of $3.240.00. by adding a 35% return to this amount, and then deducting interest and repayment of OPM, your second year net worth will grow to $2,624.00 For the third year, you will borrow an equal amount, giving you working capital totaling $5.248.00. Continue this projection for ten years, and you'll find that, from your initial investment of $1,000.00, your net worth has grown to $124,386.00 by simple reinvestment and the use of OPM.
Do It Today
In the next chapter we will discuss leveraging OPM or Other People's Money more in depth. Always remember nothing will happen if you don't get started in paying yourself 10% of your earnings. Ten percent for investing in a more secure future is a small price to pay. Don't delay, pay yourself a personal security tax and put it to work.
Happy Trails
Donald Yates, Former Director of Business and Leadership Development for Imperial Research, is now retired but continues to assist young people in engaging life through self discovery, Life course planning, intuitiveness and fulfillment. Learn how you can build a powerful organization of your own. To learn more, visit
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