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Leverage |Financial Leverage|Definition|Application of Power Leverage in Wealth Creation Context

Updated on March 14, 2013
Luxury mansion
Luxury mansion

Flush of young tycoons are flooding the 21st century market place. Luxury yachts, mansions and limousines are becoming a norm as younger and younger people become millionaires and billionaires in very short span of time.

How do they do it?Power of leverages.

We shall soon find out in this hub. Exciting huh! Hold on tight and we rock and roll.

Now more, than ever individuals are coming to realize the power of leverage and how to use that to amass greater wealth. It is therefore necessary to define leverage and explore its application in real life situations. Quit precisely, we want to discover how leverage is used in the context of wealth creation.

What is leverage by the way?

Let’s take some accepted definitions of leverage. Leverage in the financial context refers to a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.

Do you really understand the definition above? I guess a economics students would do better than most of us.

Now let’s take the word down to its everyday usage and try making a sense of out it. First off all, leverage is defined myself made millionaire and author of the Rich Dad Series Robert Kiyosaki as “Doing more with less effort”

So in the wealth creation context, how do we define Leverage? It is creating more wealth with less effort. Seeing anything? Let me give this example to unclog the smog in your mind.

Take for instance an author who sells his books online with Amazon. It take some marketing skills that can be learnt. Once he masters the skills, he can then sell his books to million internet users, something he would take so long to achieve offline.

See, I am a more practical guy. I not the text book kind of guy. I understand the power of words and emphasize understand the words we use every day. In the world of finance, not understand WORDS can cause you huge losses and pains.

How to leverage makes rich become richer and poor become poorer

This may sound like repetition but again, repetition is important as it keeps the mind working and eventually gets accustomed to content presented and then it expands in context. What is content and context Ian? Content is what you learn and context is how you perceive things. Give you an example. If you go to college, you learn about business accounting. That is content. But if you attend a wealth creating seminar on how to think and grow rich, you are challenged to visit the way you have been thinking over the years and to think beyond or dream big. This is context. In other words, your context is your reality. Now if I tell you can make $1 million in a year, you would I am crazy. Why? Because your context or reality only allows you to accept that you can only make, say, $60, 000 per annum.

Over a decade of study of wealthy people have thought me lots of powerful lessons. One is in the way they think. That is they have expanded their context or reality. They think big.

In the financial world, there is possibility of using other people’s money (OPM). No. I don’t mean you go and still or corn other people and get their money and become wealthy. There are better and legal ways to do it..The rich take calculated risks. One is to get good debts and invest in properties. Robert Kiyosaki made his fortune by getting good debt and investing in real estate. Ray Crock, the owner of McDonalds said one time that though he sells hamburger, his business in real estate.

Again, these methods need more education. Take time to educate yourself. Learning is the key to success. Learn as if there no tomorrow. You also have your mind to be used as leverage to use it while you are alive. You don’t want to die and add to the graveyard as Dr. Myles Munroe said. Dr, Munroe asked “What is the richest place on earth? He answered himself in his book “The Pursuit of Purpose” that grave is the riches place on earth because of unused potentials. You don’t want to be just a number don’t you? Then please wake up and use your mind. It is the best leverage you have.

Some Examples of how Leverages are used

I would give you an example here. Think of two people. Say John and Marry. John wishes to buy car for $7,000. John has some savings in his account so he goes to the banker and asks for a loan of $7,000 to buy his car. The bank willingly gives him the money. John is seen the next day driving around his flashy car. Marry on the hands decides to forgo her desire for a vehicle. Instead, she goes ahead and applies for a $20,000 loan and buys a rental unit and puts on rent. After 5 years, john ends up with a old car and Marry is still earning money from her rental units. She used the leverage the rich use. She used OPM to but her property and grow her wealth.

To the person who wants to be rich, Marry is the example to follow. In actual fact, rich people delay the gratification. They would rather go for the big fish then the small one every one go for.

What brings in money to your account and what takes it out

Its helps here to understand what bring money into your account and what takes it out. The terms are ASSET and LIABILITY. The banks say your house is your asset. I find it quit impractical. Asset is something that brings money into your account right? Does your house bring money into your account or take it out? You think about it and decide for yourself.

Liability on the other end takes money out of your pocket. So you can now compare, what brings money into your account and what takes it out. It’s not only in wealth creation sense. Assets and liabilities can be found in relationships as well. Does your partner add value to your relationship by being supportive and understanding, loving and caring or takes value and passion out of your relationship by being negative, ill-mannered and self-centered? You think about it?

Some friends are with saying goodbye to for the good of both of you.

Leverage is a huge topic in itself to explore. I did all I could to give you a practical understanding of the term and its applications in the context of wealth creation.


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    • profile image

      samo 3 years ago

      Great Article. Property is the best in png still. Take advantage!

    • Ian Dabasori Hetr profile image

      Ian D Hetri 4 years ago from Papua New Guinea

      Thanks ib master. happy hubbing

    • ib radmasters profile image

      ib radmasters 4 years ago from Southern California


      I agree with you.

      In addition, the people and businesses would be more productive if we abolish the Income Tax, and the US Internal Revenue Code.

      Replace is with a National Sales Tax.

    • Ian Dabasori Hetr profile image

      Ian D Hetri 4 years ago from Papua New Guinea

      It is ib rad masters. All the taxation systems across the globe in every governments have been designed for the government to earn. For some countries, tax is the major income earner for the government. In my country Papua New Guinea, tax is killing wage earners. I read that in Australia, same thing is happening. Don't know about US and New Zealand in terms of tax. I'll find out soon.

      What we ordinary people need to understand is that there are three types of income and they are taxed differently.

      1. Earned Income-from your job or business (highly taxed)

      2. Portfolio income-from paper assets like stock (next highly taxed)

      3. Passive income (Least taxed)

      I totally agree with you that there is very little chance of becoming ultra-rich with wages alone. You have to have some kind of business or investment apart from you job...

      By using the leverage of our mind, technology and networks, we can spur growth in business and investment and grow our personal wealth...

      Thanks all.

    • ib radmasters profile image

      ib radmasters 4 years ago from Southern California

      I understand the leverage part, but how does someone become a billionaire with our current tax system.

      If the income was wages, there would be no chance at all of acquiring wealth even if your wage was tens of millions of dollars. So the only reasonable explanation is the income tax system is flawed.