Leverage

Many people build their wealth by owning their own home. While they most likely sought out a house as a place to live that wasn’t throwing their money away at rent, what a home is for most people is a leveraged financial instrument. If you put down a 20% downpayment then your house is offering 5:1 leverage. When a house that cost $300,000 required a $60,000 downpayment goes up in value 3%, you just made $9,000 on a $60,000 investment, which is 15%. That’s the leverage, of course it ignores the cost of interest and realtor fees if you were to try to get that money out. However, the point still stands. A significant amount of people gain wealth this way by buying a home, yet at the same time, many of them wouldn’t use 5:1 leverage in the stock market, which is why I say some people don’t realize it.

However, what are two other forms of leverage you can develop in life:

  • Where you work you could develop documentation, standards, values, and best practices that as long as not proprietary allow you to be the best employee, manager, director or any other position possible and when looking for another position you can bring this documentation you already created along with you.
  • You can develop an audience. You can take time to share things that relevant and valuable to the audience so that you can keep your access to them, opening up opportunities to you.

The thing about these pieces of leverage, you’re not going to come by it unknowingly like the person who purchases a house needing a place to live without understanding the financial repercussions of it entirely. These two require you to be intentional.