One of the ways to wealth, which also happens to be one of my favorites, is by using the art of leverage. Leverage, in the context of wealth-building, is the use of other people’s money (OPM), which is the best money, to increase the potential return on an investment. It’s like having a financial multiplier at your disposal which allows you to potentially accelerate your wealth journey.
One of the most compelling advantages of leverage is its capacity to increase returns. When you utilize borrowed funds alongside your own capital, you maximize your potential to achieve significantly higher returns than if you were to rely solely on your own resources. This means that for every dollar of your own capital, you can control a larger pool of assets, which can lead to substantial gains.
When it comes to wealth-building, diversification is a must and leverage can play a pivotal role in this. Instead of putting all your financial resources into a single investment, you can use leverage to invest in a mix of assets like stocks, bonds, real estate, and more by using borrowed money to invest.
For example, if you invest $1,000 of your own money and borrow an additional $1,000, you can potentially control $2,000 worth of assets. If the value of the assets increases, you earn a return on the entire $2,000, not just your initial $1,000. In doing so, you’re not overly dependent on the performance of a single investment, which can help stabilize your overall portfolio.
Leverage can also offer notable tax advantages. The interest paid on loans used for investments is often tax-deductible. This essentially reduces the effective cost of borrowing. For instance, if you have a mortgage on an investment property, the interest you pay on that mortgage can be deducted from your taxable rental income. This can lead to a significant boost in your after-tax returns, enhancing your overall profitability. Additionally, you can consider using leverage as a safeguard against the eroding effects of inflation. When you invest in real assets like real estate using leverage, you not only benefit from the potential increase in the asset’s value over time but also from its ability to counteract the diminishing value of currency. This provides an additional layer of security for your wealth-building efforts.
Business owners can also take advantage of leverage by using loans or credit lines to expand their operations, purchase inventory, or invest in new ventures. The aim is to generate enough revenue to cover the cost of borrowing and achieve a profit as they leverage their way to wealth.
The fact of the matter is, leverage is a powerful tool in the wealth-building journey. It offers the potential to multiply your returns, diversify your investments, and even provide tax advantages. However, it’s imperative to approach leverage with a well-thought-out strategy and a clear understanding of the associated risks.
Inside the Profit Jumpstarter Wealth Accelerator Program, we teach you how to navigate these risks as you implement the tailor-made strategies we design specifically for you to help you build your wealth in the way that works best for you. With careful planning and a disciplined approach, leverage can be a key component in accelerating your path toward financial independence and long-term wealth creation. It’s worth taking full advantage of, consider leveraging your way to wealth.