From The Desk Of:

Justus Meyer,
Port Elizabeth, South Africa

Leverage

"How to multiply your effort
and win back your time."

What is "Leverage?"

There are quite a couple of different definitions for the word "leverage," especially when it relates to financial matters. Generally, it could be any one of the following:

  • Reinvesting borrowed money
  • or multiplying your own efforts by investing in the effort of others.

A "lever" allows you to lift something that you would not normally be able to lift - it increases your ability and allows you to accomplish tasks easier than you normally would. This is basically what financial leverage is about - it gives you a way to accelerate your quest to financial freedom.

Reinvesting borrowed money

Also called "margin buying," leverage is accomplished by borrowing an amount of money at a certain interest rate and then reinvesting that money in financial instruments that will yield you returns at a higher interest rate.

The benefits are fairly obvious - you are making a profit with money that you do not really have. On the other hand, the risk is quite high as well - if you make a loss, you actually have to pay back the interest on the principal amount, along with the principal itself.

Multiplying your efforts

Being a business-owner allows you to employ others for certain tasks. This sets you free to focus on developing your business, but the most important benefit is that it allows you to earn for the effort of more than 24 hours per day. In fact, you can earn for as many hours as you have employees.

Diagram of employees: Who does the work?

In the diagram above, you (the boss) earn a salary based on the efforts of five of your employees. They, however, only earn from their own efforts - each for eight hours per day. You might be earning much less than they do per hour, but it all adds up in the end - and your income does not have a ceiling, like theirs does.

Obviously, you are limited to how many employees you can afford and how many you are willing to employ. Sometimes having employees can become a bit like running an adult day-care center - you have to keep productivity up, keep them motivated and deal with the daily clashes that can happen around the work-place. It is a fact of life that where there are human beings working towards a common goal, there will be issues to deal with.

Diagram of employees: Who has leverage

The problem with this model, is that it is not entirely fair. Yes, your employees get compensated for their efforts, but they do not get the chance to have leverage themselves. Even if you promote one of them to be a manager and pay them a bonus on the efforts of those they are managing, they are still limited by the fact that they cannot hire any new employees themselves.

Leverage in Real Estate

An improvement on the conventional model (from a business-perspective), is the way that the Real Estate industry goes about it. Usually, the owner of an agency is called the "principal". They take the risk of setting up and promoting the brand of the agency; and provide their agents with office-space and the tools to make their job easier.

Traditionally, the agents would then use these tools to go out and make sales, of which the principal then takes a cut. It is more-or-less fair for all involved, because the agent has the relative security of the agency and its brand; and the principal is compensated for taking the risk in the first place, as well as for the amount of time they spent in training their agents.

The benefit to this model is that the agents get paid on their performance - the higher the price of a property, the more they earn. That means that the associated costs for the running the agency are smaller than running a conventional business. However, the agents still do not have leverage - in fact, the only way to get leverage, would be to open up their own agency... And if one of your agents leaves to open their own agency, you have just created a new competitor - not only that, but you trained them as well!

Leverage in Network Marketing

Network Marketing takes leverage to a whole new level. In fact, Network Marketing is the only way to give everyone involved a fair chance at leveraging themselves and their efforts.

Diagram of employees: Leverage in a small network

Nework Marketing allows you to recruit others, who then have the same opportunity of recuiting others for their own networks. However, because anyone that is involved is seen as an independent contractor and not an employee, they get paid based only on their performance and the performance of their networks - not just for showing up, like an employee would. That means that you never have to pay any salaries - they build their own incomes! Your expenses stay minimal, but your growth potential is unlimited.

What that essentially means, is that the leverage-model offered through Network Marketing, gives you access to potentially exponential business-growth. There is simply no other business-model on the planet that can offer you that!

Diagram: Exponential growth through leverage

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