The Leverage Equation Read online

  PRINCIPLE 4: TIME FREEDOM

  Quick exercise: jot down what percentage of your day is spent trading time for money.

  Now, how much of your day is spent creating leveraged growth?

  If you want to know how long it will take you to become financially independent, just look at how much of your day is spent trading time for money versus how much of your day is spent creating leveraged growth. The greater the proportion of time dedicated to leveraged growth, the faster the path to your goal.

  You can apply that rule to both of your primary resources – time and money – but time is really the driving force.

  For example, just imagine if you were never going to die, thus giving you unlimited time. You wouldn’t need leverage because you could eventually satiate your desire for anything in the world. The smallest savings rate would eventually compound to a magnificent fortune, given unlimited time. That fortune could buy anything you desired, and any goal that mattered to you could be achieved, given incremental progress over an unlimited amount of time.

  The fact that time is limited is what sets the deadline (literally!) that makes the financial acceleration through leverage so incredibly important to the quality of your life.

  Think of leverage as the science of creating sources of income that aren’t dependent on your time.

  Successfully applying leverage releases you from certain time limitations so you can pursue fulfillment.

  Leverage is the tool you use to buy back your life by achieving financial freedom faster, so less of your life is spent on money pursuits.

  The successful application of leverage gives you the freedom to do what’s important to you in life and what aligns with your deepest values… without worrying about money.

  IN SUMMARY

  The reason leverage is so important is because your personal resources (time and money) are limited. If you had unlimited time and money, leverage would be unnecessary because the purpose of leverage is to overcome those inherent limitations we all face.

  Most people limit their financial growth by engaging in a reciprocal exchange of their limited resources. They trade their time for money, or they trade their money for a limited return.

  Eventually, you run into opportunity cost limitations where you can’t trade any more time to produce any more money because you’re already working as much as you can tolerate. There has to be a better way….

  Leverage is how you overcome all of your personal limitations, including your primary resource limitations of time and money. Leverage gives you access to more time and money than you personally possess, so you can produce greater results faster using less of your own time and money.

  EXERCISE: TIME TRACKING 1

  This is a fun and revealing exercise.

  One of my favorite ideas is that if you want to know how long it will take you to become financially independent, just look at how much of your day is spent trading time for money (or just pissing money away) versus how much of your day is spent creating leveraged growth.

  Mark a calendar into 30-minute increments and track it for two weeks. Label each 30-minute increment as dedicated to leveraged growth, or not.

  This practice is eye-opening because it will literally reveal if you are fast-tracking or slow-tracking your wealth plans.

  Worksheets for this exercise (and all exercises for this book) can be downloaded absolutely free at https://financialmentor.com/free-stuff/leverage-book).

  Are you spending the bulk of your time dedicated to leveraged growth strategies, or are you doing other things? The answer to this question will be a major determinant of your financial outcome in life.

  GROW WEALTHY BY PROVIDING VALUE AND SOLVING PROBLEMS

  All life is problem solving.

  – Karl Popper

  What if I told you that leverage can even help you take care of your kids for date night? I’ll explain that in a minute. The point is: it’s not always about making money.

  Sure, financial independence is an incredibly valuable goal, but some people remain uncomfortable pursuing leverage because they feel like they’re using people or asking for a favor.

  We’ve all been “used” by someone before, and it’s a lousy feeling. Nobody wants that. Which is why leverage done right is the opposite because it’s about helping and giving to others.

  You know you’re helping and giving to others when you can answer “yes” to the following two questions:

  Are you giving more value than you’re taking?

  Are you solving a problem for the person being leveraged?

  If you answered “no” to either of these questions, then you’re likely more focused on what you want than what the other person wants. Your plans will be experienced by others as manipulative.

  To understand how this works, you must shift your thinking from the reciprocal exchange model, where you trade time for dollars, to trading value for dollars – because value can be provided in many different ways.

  PRINCIPLE 5: GROW WEALTHY BY PROVIDING VALUE AND SOLVING PROBLEMS

  Your goal is to figure out how to give more value and solve more problems by asking the following two questions:

  How can I give more of my unique skills and talents to benefit more people?

  What are all the different ways I can give more value so that my plans are clearly in the other person’s best interests?

  The common thread to all of these questions is “giving more.” That’s how you benefit everyone you do business with so nobody feels used.

  Think of it from the other side of the table. The only reason someone welcomes your plans to leverage their time and resources is because it benefits them. People do what is in their best interests, so your goal is to design leveraged wealth plans that provide greater value and solve problems for all involved.

  For example, I negotiated the purchase of a 102-unit apartment building using none of my own money. The purchase price was significantly below market value. In addition, the loan package I assembled was difficult to negotiate but added value to the property and cash flow for the new buyers.

  In exchange for negotiating the purchase and loan, I received 10% of the property, or 10.2 apartment units, without using any of my own money. I didn’t even have to run the deal after the close. All I had to do was organize it and close it, and in return, I received ten apartment units for zero out of pocket and zero additional obligations.

  The seller was happy because I solved a problem for him. The building had issues that made it complicated to negotiate and close. He was old and sick and needed it out of his estate for personal planning reasons; and he was extremely wealthy, so the price wasn’t his primary concern. It had already fallen out of escrow three times, so he sold it to me at a severe discount because he believed I had the skill to close the deal and solve a problem for him.

  The investors were elated because I gave them more value than I took. They got access to a property that they couldn’t have bought without my skills and that doubled their money at the closing table.

  I leveraged the investors’ money and solved the seller’s problem, and both the seller and the buyers leveraged my network, real estate knowledge, negotiation skills, and business skills. Everyone involved in the transaction benefited.

  At this point you might be thinking: “This leverage stuff is easy for you, Todd, because you have all that financial knowledge.” But these principles are universally applicable and aren’t just limited to finance and real estate.

  My wife and her friends leverage each other for affordable and trustworthy childcare. When my kids were small, the various moms took turns watching each other’s children while the other mom ran errands, exercised, or just caught her breath for a while. The kids happily entertained each other on these play dates, so the women got more done while spending less effort and money and they got better childcare as well – plus it was great socialization for the kids. Everyone benefited.

  This network of moms also leveraged each other
’s contacts. If one mom knew of a good babysitter, and the other was in a bind for date-night, the network would come to the rescue. If another mom had a great experience with a house painter or handyman, suddenly that guy got booked solid as his name worked through the network. Again, everyone benefited.

  That’s the beauty of leverage properly applied: it not only builds wealth for you; it also helps and gives to others in the process, so everyone is better off. As you develop these skills, you’ll achieve greater success with less effort, and you’ll help your friends in the process.

  IN SUMMARY

  One of the keys to mastering leverage is to break free of reciprocal exchange limitations resulting from the false belief that all you have to give is time or money. What people really want is value, and they will gladly give you their time or money if you can deliver enough value. In addition, there are an unlimited number of ways to give value.

  The key to giving value in every transaction is to make sure you’re giving more than you’re taking, or to make sure you’re solving a problem for the person that’s worth more than the price they pay for the solution.

  Your goal is to give more – more of your talents, skills, experience, insights, network, resources, and anything else you can share. It’s a tremendously satisfying way to build your wealth because your financial growth becomes a measure of how much you’ve given to others.

  EXERCISE: IDENTIFY POTENTIAL LEVERAGE POINTS

  The purpose of this exercise is for you to identify your high-value skills and knowledge that should be leveraged.

  The example I gave showing my high-value leverage points included my financial knowledge and my coaching experience. It’s an unusual combination of skill and knowledge that can deliver great value to people and should be leveraged to help more people solve more problems.

  What are your high-value leverage skills and interests that can result in you massively growing income and wealth as you succeed? Commit them to writing.

  The point is to think in terms of developing a big-win game plan. Don’t settle for mediocrity. Think in terms of how you can scale your knowledge and skills to deliver more value and solve more problems for more people.

  MAKE YOURSELF UNNECESSARY

  I’d rather have 1% of the effort of 100 men than 100% of my own effort.

  – J. Paul Getty

  You can’t leverage every aspect of your life. There are limits to this tool.

  For example, you still have to do your own pushups if you want to get in shape. The only person who can play the husband role with my wife is me (or we’re both in trouble). Only I can be a daddy to my children. Only I can take care of my health, write my books and courses, and interview for media appearances. I can’t leverage any of these activities.

  But the number of roles and tasks in your life that can be leveraged greatly exceeds the limited number of roles that can’t. Deciding which roles to isolate and leverage depends on your interests, and on the skills and resources you bring to the table. You must identify your strengths and your weaknesses to know what work is best completed by you and what should be delegated.

  For example, I have leveraged my financial knowledge over and over again in each business throughout my lifetime. That was unique to me, but yours will likely be different.

  PRINCIPLE 6: MAKE YOURSELF UNNECESSARY

  The principle you’ll apply is to identify which high leverage activities make sense based on your skills and interests. You do this by identifying what things you, and only you, must do. Then you have someone else do the rest – because you’ll achieve more, better, faster results through delegation and partnering. It also frees up your time and energy to focus on your strengths and gifts.

  For example, I’m the only one with the expertise to write this book and create my courses. But other people can edit, produce, and market those products. Other people can do accounting, answer certain emails, and do any other task that isn’t absolutely essential for me to complete.

  One of the great entrepreneurial mistakes is falling prey to what Chris Ducker called the “Super-Hero Syndrome.” It’s a self-limiting belief built around the cultural notion of self-reliance that you can do it yourself better, or easier, or cheaper. You can’t!

  If your goals are wealth and freedom, the only way you can have both together is with the help of others. If you think you can’t afford to get various types of assistance to accelerate your results, then you probably can’t afford not to, and the real holdback is simply not knowing how to do it right.

  You have to decide what your highest and best value is to the implementation of your wealth plan and then delegate the rest. If you can’t deliver more value than what an employee in your organization costs then you don’t deserve more than a normal wage because you have nothing worth leveraging. Harsh words, but it’s also the honest truth.

  You must identify the unique knowledge, systems, and abilities you can deliver that should be leveraged through employees and business systems to maximize the value you deliver to the world.

  You can’t know everything. My general rule is that if specialized technical knowledge is required, then it should probably be delegated. For example, all of my website programming and development at FinancialMentor.com is delegated to an expert who does nothing but focus on that skill all day, every day. Similarly, you shouldn’t write your own legal contracts or perform your own brain surgery. Professionals specializing in these skills will always know more about their field of expertise than you could ever learn.

  The point is you should only do what is absolutely necessary for you to do – where you are the required expert with the necessary skill. You’ll never be the best at everything, so let other people shine by demonstrating their expertise. Make yourself unnecessary everywhere possible so you can focus your limited time on those few areas where you’re truly necessary.

  IN SUMMARY

  Don’t be a super-hero and try to do everything yourself. It’s a fool’s game because when you’re the cog, then you’re the clog. There’s always more to be done than any one person can do. The more you try to do by yourself, the more you’ll just slow your progress and place a ceiling on how successful you can become.

  The smart strategy is to identify those tasks that only you can complete, and delegate the rest. Focus your limited time on the few activities where you’re absolutely essential. Let others shine by doing everything else, thus leveraging other people’s time to accomplish more while focusing your limited time on just the highest value activities requiring your attention.

  EXERCISE: TIME TRACKING 2

  Download the time tracking spreadsheet that is part of your free exercise workbook found at https://financialmentor.com/free-stuff/leverage-book.

  The purpose of this exercise is to identify and categorize how you spend your time, so you can pinpoint specific tasks that are either low value and should be delegated, or could be better performed by someone else with specialized skills.

  The idea is: you should only do what produces the highest and best value for your time and what matches your special skill set.

  Most people track their time using either an app on their smartphone or writing everything on a sheet of paper. The key is to tabulate all activities down to 30-minute intervals for at least two weeks.

  Which activities are low value?

  Which activities are high value?

  Which activities can you potentially delegate?

  What systems could replace certain activities?

  Can you identify activities where other people might bring more skill and experience to the work than you?

  Can you identify the activities where you, and only you, have the experience and skill required to complete the task and where nobody could be trained to replace you?

  Which activities are constraints limiting your success – things that would accelerate your financial results if they were leveraged?

  You will probably be able to identify many activities that cons
ume your precious time but provide little financial return. Some may be necessary, but you may be able to eliminate others. Also, look for tasks that don’t take full advantage of your talents. These tasks can usually be organized into standard operating procedures (SOP’s) and delegated to someone whose skills perfectly match the task.

  The way you do this is by examining items 1, 3, 4, 5 and 7 above as potential delegation targets. These are the obvious activities to get off your plate.

  Next, figure out how you can allocate more productive time to work on items 2 and 6. How can you design your wealth plan so those activities are your focus going forward?

  UPFRONT COSTS, BENEFITS LAG

  “Delaying gratification is a process of scheduling the pain and pleasure of life in such a way as to enhance the pleasure by meeting and experiencing the pain first and getting it over with. It’s the only decent way to live.”

  M. Scott Peck

  Imagine the acceleration and growth in your wealth plan when you have an entire team of talented people with specialized skills that are perfectly matched with the responsibilities they’ve been delegated – far more skill than you could ever accumulate in several lifetimes – and all working toward a common goal. That is how great success is achieved.

  But leverage like that costs money, and that’s one of the biggest challenges you’ll face. There is always an upfront cost that must be paid in terms of time, training, or system development before you can benefit from the results produced. And, of course, there is never a convenient time to incur those upfront costs.

  Employees and contractors are expensive. Software and business systems have upfront capital and training costs before they produce results. Your natural inclination when cash flow is tight is to conserve capital by doing it yourself, but this may be the exact opposite of what you should do.

  Using Financial Mentor as an example, my investment and coaching experience is unique and valuable. Rather than deliver it one-on-one to individual coaching clients, it makes good business sense to leverage that knowledge in the form of products, with the help of business systems and employees to provide the production, delivery, and support. The highest and best value I can deliver is to get that knowledge out of my head and organized into a product format so I can deliver more value to more people at a lower price point.