To help you understand leverage, I want to explain to you how Todd Tressider defines it.
Todd Tressider’s Six Forms of Leverage
Borrowing to invest is a form of financial leverage, but there’s more to the leverage subject than just that. I interviewed Todd Tresidder of FinancialMentor.com back in episode 296 and I've also read his excellent book The Leverage Equation. In it, he talks about six forms of leverage, of which financial leverage is the first. The other five are:
Time Leverage: We only have so many hours in the day and there’s no way we can make any more time, so making the best use of that limited resources is essential. We do that by using other people’s time to make more than 24 hours available to us in each day.
Technology Leverage: We can use technology to speed up tasks that might otherwise take us time and effort to achieve.
Experience and Knowledge Leverage: We can’t possibly know or do everything, and there will always be people better at a certain task or more knowledgeable in a certain area than we can ever be.
Being able to tap into other people’s expertise is a valuable form of leverage, and anyone who reads this book or listens to my podcast are leveraging my 20-odd years in personal finance to improve your own knowledge. Anyone who has ever asked a question or sought a recommendation on Facebook has also made use of this form of leverage.
Communications and Marketing Leverage: If we’re in business, there are tools available now to allow us to reach far more people than has ever been possible before.
Network and Relationship Leverage: Having a network of friends and contacts enables us to reach and benefit from their own networks, thereby increasing our own reach and potential benefit.
In the next post, we'll look at how to use the first four of these to improve your financial situation. The last two are specific to those who are in business, and so for those people, read Todd’s book. If you missed part one, you can find it here.
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