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.