Building Wealth With Leverage

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Today let's review how to build wealth with leverage.

Leverage allows you to:

• Work smarter not harder.

• Reach money goals faster.

• Leave fulltime work sooner.

Unfortunately, using leverage to build wealth isn't taught in school.

Trading Time For Money Is The Norm

At an early age we're taught:

• Go to school.

• Find a good job.

• Trade time for money.

But there's only so many hours in a day.

And you don't want to spend all your waking hours working.

So, how do you get ahead?

I thought about this a lot when I was younger.

Eventually I realized...

You copy successful people.

You do the things that's worked for them.

Working in private client banking gave me time to observe successful people.

To learn how they use leverage to build wealth.

The definition of leverage is:

"Using a small investment or borrowed funds to gain a high return."

Most people think you need a lot of money to invest.

In some cases that's true.

But not always.

Let's break down the 3 ways (assuming you don't have a lot of money to invest):

1. Investing in Stock

For decades the stock market has been a way to turn a small amount of money into a large amount.

You're leveraging money, time, and compound interest.

Investing $125 per month in an S&P500 index fund over the past 40 years has turned into a million dollars.

Here's the math:

The S&P500 has gone up 11% per year on average the past 40 years.

It's how $125 a month became $1M.

Einstein called compound interest "the 8th wonder of the world" for good reason.

$1 invested in the S&P500 has doubled every 8 years on average the past few decades.

For more on compound interest or the S&P500, this may be helpful:

The Power of Compound Interest (from $60k to $1M)​ 

2. Investing in Property

Real estate is another way people turn a smaller amount of money into a larger amount.

It can be a faster way to build wealth if you don't want to wait 40 years.

You're leveraging money, time, and debt.

Most people think you need a 20% down payment to buy property.

The reality is, most first-time homebuyers don't have a large down payment.

When buying property in the US, you can put:

• No money down

• 3% down

• 5% down

Many people go the small down payment route.

It's one of the most appealing things about real estate.

You can control a large asset with a smaller amount of money.

It's what attracted me.

Over a 12-year period, I bought 7 properties.

That sounds like a lot.

But looking back, it was a slow and steady thing.

1 property every 2-3 years.

I bought the 1st place with no down payment.

And I bought the place I'm in now with a 3% down payment.

Some people say that's risky.

I get it.

It's not for everyone.

But, it's worked well.

Home prices in the US have doubled every 14 years on average since the 1990s.

I bought most of the properties via house hacking.

Here's more info on that if you're interested:

How to Buy Your First 3 Properties​ 

3. Starting a Digital Business

If you don't want to leverage stocks or real estate to build wealth, an online business is something to consider.

It can be the least expensive of the three options.

Building a business used to be viewed as "an expensive, hard thing" with a lot of risk.

It can be.

But that's changing.

Since the 2020 lockdowns, many people have taken to the internet to start inexpensive 1 person businesses.

I've been on this road myself for 8 months now.

Some people choose to write online via social media and others do videos.

The whole idea behind a digital business is to:

• Make connections.

• Share your unique skills.

• Offer products or services.

Here's a comparison:

Example 1: A traditional business

If you open a coffee shop downtown.

You'd have to:

• Rent a building.

• Buy products to sell.

• Pay employees to show up.

Before opening you'd likely spend tens of thousands of dollars.

Once open, there's likely 5k, 10k, or 15k people in the area that are potential customers.

Example 2: A digital business

If you start a 1-person online business.

It's unlikely you'd need to:

• Rent a building.

• Buy products to sell.

• Pay employees to show up.

You just need an internet connection and skills people are willing to pay for.

You're also not limited to a certain area like a downtown coffee shop.

You have access to millions of people free via social media.

This newer concept is often called "digital leverage".

For more on different ways to make money (including an online business), this may be helpful:

The 3 Levels of Wealth Creation​ 

Conclusion

There's a popular saying by a well-known copywriter Joe Karbo:

"Most people are too busy earning a living to make any real money".

It can feel that way when you're working a job...

Like you're just getting by.

Investing in stock, investing in property, or starting a digital business part-time are ways to build wealth outside a job.

Ways that can help you leave fulltime work sooner (if you want to).

That's all for today.

See you next week.