How to Make You Richer? Using Leverage to Level Up Your Financial Freedom ScaleAugust 10, 2018
How to Make You Richer? In today’s society, many people believe that owning money makes them a rich person. But no! money alone does not make you rich. We all know people who work every day to make money, more money, but not richer. Many of them are only getting into more debt with the dollars they earn.
Wealth is more than just money. We can define wealth as the ability to prosper everything that one touches. Money can be an expression of wealth but it is not wealth. Indeed, you may have heard some stories about winning the lottery and have lost everything in a period of time and have become poorer than before.
It is obvious that money does not make you rich. So, how to become rich?
The first step towards wealth is to desire to become rich: the law of ardent desire. This is the first step, but desire alone is not enough, then you need to increase your financial intelligence to level up your financial freedom scale. Many people probably have the desire but it does not increase their financial intelligence. They are in a position where they do nothing and hope to become rich.
What is financial intelligence?
There are five types of Financial Intelligence Quotient (IQ)
- To gain more money – To earn more money, the royal way is to become an entrepreneur or investor. Emotions play a key role in your quest for this IQ. It is a form of emotional intelligence. If you are unable to control your emotions, you will be unable to control your money.
- To protect your money – You must protect your money against financial predators: Bureaucrats, brokers, bankers, lawyers, etc. Brokers and bankers are sellers before being advisors. It is your responsibility to train yourself to choose competent and serious people to work with. A seller is not necessarily a bad advisor.
- To manage your money – You are unlikely to be able to generate a budget surplus at the end of the month if you wait to see how much is left in your bank account. When you are going through a difficult time, spend for your enrich.
- To make your money grow – Lack of control over your investments is what makes you vulnerable to economic conditions. True wealth is not based on inflation. The value of a rental property, for example, is actually based on the rent paid by the tenants. You have to invest for two reasons: a grain in capital and in cash flow.
- To improve your financial information -You must follow the trends. We are talking here about long-term trends. Indicators such as demographics, history and its cycles should allow you to make the right decisions. It is not our assets that enrich us, but rather the information and what we do with it.
What is financial freedom?
To understand what financial freedom is, we will see financial statements together. Indeed, every human being on earth has some level of “financial condition”, or we can call it “Financial Freedom Scale”. Here are the four financial freedom scales that were identified:
- Financial dependence – Either you depend on the state (i.e., the government) if you do not work or depend on your employer who pays you a salary.
- Financial independence – You are no longer dependent on your work, you have created your company, you are no longer dependent on your former boss, but still dependent on your business.
In the 2 previous cases, your income is related to your time.
- Financial freedom – Your business, your investments work for you; your income is not related to your working time. You are no longer obliged to work.
- Absolute financial freedom – Your business, your investments, your employees work for you; your income is not related to your working time, you no longer work.
The “school of financial freedom” is a school where you do not have a teacher, you are your only teacher, it’s a school where you do not have to read the lessons and it’s yourself who choose your materials.
“Formal education will provide you with what to live on; self-education will bring you a fortune.” – by Jim Rohn.
Why should you aspire to achieve financial freedom?
The answer is simple: Every human being was created for a specific mission that the creator assigned to him, to accomplish this mission it takes time, And if you are employed, your employer will force you to work eight hours a day. You will not have much time to accomplish what you will like to accomplish.
Financial freedom allows you to no longer trade your time for a salary. It allows you to travel and leave wherever you want without worrying about your income. It will also allow you to do what you have always liked to do (sports, music, your passions…)
You must be free because you have been created for a purpose, so you must be free of your time in order to fully maximize on the purpose for which you have been created.
The truth is that if you are an employee, you will not fully realize what you were created for. Simply because you only have 24 hours in a day and if you spend eight hours at work, when will you achieve your goal?
How to achieve your financial freedom?
We should use leverage. Why are we talking about the importance of using leverage? Because the use of leverage is a major keys that will allow you to achieve your financial freedom.
The difference between people who are financially free and those who are not financially free is that the first category uses leverage, whereas the second category does not use it. So naturally you will ask me what is leverage?
What is leverage?
There are several definitions regarding leverage, but I’ll let you choose among them, the one that suits you best.
According to Wikipedia, “leverage is any technique involving the use of borrowed funds in the purchase of an asset, with the expectation that the after tax income from the asset and asset price appreciation will exceed the borrowing cost.”
In Finance, a leverage effect is a method of financing that increases the return on equity ratio of a company; in mechanics, a lever is a mechanical part that reduces the effort required.
Here is our definition:
Leverage is a mechanism (or technique) that allows you to easily and / or quickly do what you put more energy or more time to do.
Example of a leverage effect: The mortgage.
To buy an apartment of $300,000, you would have taken 20 or 25 years to save money while obviously continuing to pay your current rent, since you still have to stay in the meantime.
But the real estate lending leverage allows you to make a home loan today and start enjoying the property by paying back at the same time without waiting for 20 years. That’s the power of leverage.
The 5 main leverage effects
There is a multitude of leverage effects, we do not know them all but here are a few.
- Money of others – How does it work? This leverage is widely used in the field of real estate investing. You want to invest in real estate, you will see a bank, you make a mortgage, you buy your apartment, then you rent it and the tenant pays you a rent and you repay the monthly payment with the rent that you perceive. You are therefore building your assets with the money from the bank and your tenants (other people’s Money).
- Time of others – Anyone who is financially prosperous is using ADD. This leverage effect is widely used in businesses. It is often said that time is money; in fact it is false, because time is more than money. We all know that we only have 24 hours in a day, but a person who employs 10 people who work for her for eight hours a day, no longer has 24 hours a day but she has 80 hours (8 * 10) a day. This is the TDA.
- Work of others – The work of others is a bit like the time of others. On the other hand, here you can for example use the work of consultants or freelancers, if you do not have the time to do a job and want to delegate it. It’s a leverage effect.
- Experience of others – For example, I create my company and I hire an accountant to work in my company, what I just did is that I bought his five years of studies in accounting and also his 10 years of experience if he is experienced. This leverage is about hiring profiles that you need skills for your business when you do not have the necessary qualifications.
- Idea of others – The idea of others is often found in the principle of franchises: for a person who creates his business (e.g., KFC, MC Donald’s, etc.), instead of wanting to redo the wheel, you simply buy the license and this allows you to benefit from the credibility of the brand, the assistance of the franchise, etc.
In conclusion, I will simply say that people with financial freedom use leverage. You cannot succeed financially if you do not use the power of leverage.
Featured image credit: mytradingskills
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