LEVERAGE: QUINTESSENCE OF THRIVING BUSINESS SYSTEM

The Global economic recession and the expanding gap between the rich and the poor, made me concerned about it. And, I began digging deep into the matter, searching for 'Why'? After reading various articles, books, magazines, blogs etc. of many successful entrepreneurs, I came across a very common word "LEVERAGE". It would be quite familiar to you if you are a student of Finance. Yet, only just being familiar with it is not enough. Even though it occupies a substantial space in financial jargon, it forms a part of any rapidly expanding field. Finally, what I found that any person no matter of which country or profession may be, who is still doing better in this economy has understood this word and also know the way put it into use.

In the broad definition of the word, the word Leverage simply means the ability to do more with less. It can be broken down into two parts: lever-age, which means the age of getting work done through lever. When it comes to the subject of work, money and leverage, if you want to become rich, you need to work less and earn more. In order to do that, you employ some form of leverage. People who only work hard have limited leverage. If you are working hard physically and not getting ahead financially, then you are probably someone else's leverage.

If you have money sitting in the bank in your saving account or your retirement account, then others are using your money as your leverage. Leverage can be illustrated by a simple diagram below:

Person without leverage:

Person with Leverage:

Human have gained more of an advantage over animals simply because humans naturally seek more and more leverage. In the beginning, animals could run faster than humans, but today humans can travel faster and further than animals because they created tools of leverage, such as bicycles, bikes, cars, trucks, trains, planes etc. In the beginning birds could fly and humans could not. Today, humans fly higher, further and faster than any bird.

Leverage is Power

Animals tend to use their God-given leverage and are generally not capable of gaining any more leverage. That is why animals eventually lost their natural advantages over humans and humans took over the planet. The same thing happens when some humans are more leveraged than others humans. People with leverage have dominance over people with less advantage.

As humans gained advantage over animals by creating leveraged tools, similarly, humans who use these tools of leverage have more power over humans that do not. Boiling down to a single sentence "Leverage is power".

A bird utilizes its God given leverage as its unique leverage. Humans observed birds in flight, and then used their minds to discover how humans could also fly. A person who can fly from Bombay to Dubai has greater leverage over a human who only has a rowboat to get across the Arabian. Average people use fewer leverage tools than exceptional people. If you want to be rich and keep up with the rich, you need to understand the power of leverage.

We are fortunate to have more leveraged tools with an easy access and also at reasonable price, such as computer, internet, mobiles, cameras etc. The humans who can adapt to use these tools of leverage are the humans who are getting ahead. People who are not learning to use more and more tools of leverage are falling behind financially and working harder and harder just to keep up. If you are getting up and going to work only to earn money rather than working to gain some leveraged advantage in life, the chances are you are failing behind today. Never in history of the world have so many tools of leverage been invented in such a short period of time. The people who use these tools get ahead and people who do not fall behind just as the animals did.

People without Leverage work for those with Leverage

Throughout history, the people who have fallen behind are the people who fail to utilize the new tools of leverage created during their lifetime. And the people who fail to use these leveraged tools are the people who work for the people who do, and they physically work harder than the people who use the tools of leverage.

Just as we have more choices when it comes to types of transportation leverage, we have more choices when it comes to types of financial leverages we can use. The people who utilize the more leveraged financial tools get ahead financially. People who use obsolete, out-of-date, or inadequate tools of financial leverage put their financial security and financial future at risk. Today millions of people are utilizing the financial tool known as Mutual Fund to prepare for their retirement. While mutual funds are by no means obsolete, they are not the leveraged financial tools of choice of the more educated investor. If people want to retire young and retire rich then they may need to supplement their mutual funds with faster, safer, and more information-rich tools of financial Leverage.

But, finally remember to most powerful leverage available to human being since the beginning of human race and will last till its end is, Human Brain. It was, is and will be the most powerful lever irrespective of the technological advancement. So, never under estimate the power of your brain, keep adding valuable information to it and never sell it short dealing with trivialities.

Thank You.

CA Chandan Mundhra

India