The Leverage Equation Read online

  In the third scenario, you decide to get more aggressive by re-leveraging the equity in your house every five years over the same 20-year period, by buying additional properties, assuming the same 10% down and 5% growth. For example, at the end of five years you’d have roughly $60,000 in equity to re-leverage into a $600,000 property. Rinse and repeat every five years and you’d have four properties valued at roughly $6.7 million, for an extraordinary return based on your initial investment of just $20,000.

  Accelerate the re-leveraging interval to every two years and the ending value jumps to $56 million; or lengthen the interval to every 10 years and it drops to less than $2 million.

  However, always remember that financial leverage cuts both ways. Using the same three examples, a 30% downturn in property values six years into the holding period wouldn’t faze the cash buyer in scenario one, would destroy all the equity in scenario two, and would give scenario three a negative net worth and likely destroy a lifetime of wealth building. The greater the financial leverage, the greater the risk of failure and the thinner your margin for error.

  So how much financial leverage fits your wealth plan and is consistent with your goals? Is it scenario 1, 2, or 3 (or something in between)?

  2 – TIME LEVERAGE

  My philosophy is to always find the smartest people you can. Hire people smarter than you.

  – Donny Deutsch

  Time is limited. You can’t make more of it. You can’t save it. You spend it every minute you’re alive, and you never get to know how much of it you have left.

  The only question is: What do you spend your precious time on? Everyone gets the same 24 hours in a day, and we all have the same final destination when time ends. The countdown to that destination never stops, until it does.

  There’s no question time is your most precious resource; yet, isn’t it amazing how most of us treat time as if we’re blessed with an unlimited supply?

  How will you maximize the value of your time given that it’s scarce? In this chapter you’ll learn how to leverage time to help you realize your full potential in this lifetime.

  WHAT’S YOUR TIME WORTH?

  Knowing the value of your time is important because it affects what you spend it on. Your hourly rate shows you which activities you should personally complete and which activities should be eliminated or leveraged away through outsourcing because their value is below your hourly rate.

  The reason you’re not making as much money as you’d like is because you haven’t increased the value of your time to the level you need in order to make that much money.

  How you think about your time and how you value it will largely determine the financial results you produce with that time, because if you don’t value your time, nobody else will either.

  4 REASONS DELEGATION IS YOUR NEW BEST FRIEND

  One way to increase the value of your time is through time leverage. It’s the principle of delegating tasks to others so their time is completing the task rather than your time.

  There are four main benefits to time leverage:

  You get more done faster.

  You get stuff done without using any of your own time, thus buying you freedom.

  You get lower value (but still necessary) activities done by someone else so you can focus on just the highest value activities that will accelerate progress and profits.

  You disconnect your income from your limited time so it can grow beyond an hourly rate.

  Leveraging time is an important skill to develop because it’s a mistake to try to do everything yourself. Businesses hire employees because no boss has all the skills and time necessary to perform every function in the business.

  Unfortunately, most people don’t think in terms of time leverage, and this causes them to work in a linear fashion trading time for money. When money gets tight, they work harder or they work longer hours.

  The goal of time leverage is to release your income growth from the boundaries of time. With time leverage, the amount of income you can create is limitless. As long as each increment of time leveraged (through an employee or business system) accrues excess value to you, then the more time you leverage, the more money you’ll make.

  Time leverage can also save you time by replacing your work time with someone else’s services, thus giving you more personal time. For example, you can use time leverage to buy back time from mundane activities like mowing the lawn, shopping, or cleaning the house so you can spend it on activities more important to your fulfillment, like family, friends, personal growth, and travel.

  There’s nearly always someone who is better at a specific skill or more qualified than you. Your goal is to identify those high value tasks that only you should complete, which is that rare intersection of activities where your unique skill set overlaps high value tasks that absolutely require your personal genius. Everything else should be delegated so you can focus your limited time where it has the greatest value to move your wealth forward.

  For example, if you’re a real estate investor, it might make sense in the early years to manage your own properties when cash flow is tight and you need to learn the landlord business. But at some point, your real estate business will cross a threshold where time spent on the minutiae of paperwork, leasing, and maintenance distracts you from higher value activities like networking for deal flow, making offers, arranging financing, and completing due diligence.

  Stated another way, landing one smart deal because you were focused on high value tasks could pay for all your property management and overhead in perpetuity. Unfortunately, too many real estate investors miss that opportunity because they’re working on the plumbing.

  That’s why I don’t clean my house, mow my lawn, or maintain my cars. I’m actually really competent at those activities, and I could save a bunch of money if I did it all myself. The problem is I don’t enjoy any of those tasks, and others can do them better than I can. More importantly, they’re not the highest and best value for my time because I can make more than the cost of those services by dedicating the same time to growing my business.

  In other words, I don’t hire help because I can afford it. I hire help because it makes me wealthier and happier.

  WHY FRUGALITY IS A LOW-LEVERAGE STRATEGY

  This is one of the challenges to the frugality path to wealth that’s popularized by many of the FIRE (financial independence retire early) blogs on the internet.

  Their strategic focus is nearly always frugality utilizing the conventional unleveraged financial plan built around spending less and saving more from earned income: the “spend less – save more” framework. There’s nothing wrong with this strategy except that it’s extremely limiting because you can end up working as hard at saving money to keep expenses down as you would just making the money in the first place. It’s a low-leverage strategy that’s totally acceptable if your values align with a belief structure that finds minimalism satisfying.

  However, an equally valid alternative is what I like to call “Fat Fire.” It’s built around an alternative planning framework based on making more through leverage and losing less through risk management: the “make more, lose less” framework. Again, there is no right/wrong judgment in this discussion. It has absolutely nothing to do with claiming that one path is better than another. Instead, it’s about expanding awareness of the tradeoffs in each approach to financial freedom, so you can decide what best fits your values and life goals as you design your wealth plan. One approach is low leverage and limiting; the other approach is high leverage and unlimited.

  The key is to make a conscious choice that fits your individual needs. Either path can deliver financial freedom, but the process and the outcomes will be radically different.

  HOW PRODUCTIVE IS YOUR PRODUCTIVE TIME?

  Another important point about time leverage is how success is created at the margin. Typically, 80 to 90 percent of your time is used just to get by in life, leaving just 10 to 20 percent to produce something truly
extraordinary with the little time remaining.

  In other words, the daily requirements of life, like sleeping, bathing, eating, preparing meals and running errands, chew up much of your life. Talking on the phone, checking your web stats, clearing email, organizing your desk, and creating social media updates are all maintenance activities that distract you from what I’ll call “productive time.” The truth is, most of your day is spent on maintenance activity, leaving little productive time to move your life forward.

  I’m not saying these maintenance activities should be eliminated entirely because they’re an essential part of a full and healthy life. Instead, I’m simply creating a clear distinction about what productive time is and how relatively few hours actually get dedicated to real productivity.

  The only time you’re “productive” is when you do the work that directly leads to your goals, or you leverage someone else’s time to do the same. Productive time directly grows your business and revenue. This includes product development, marketing systems, sales, and creating business systems that further leverage time. In real estate, it might be analyzing deal flow, making offers, arranging financing, and completing due diligence. The exact activities that qualify as productive time will vary from business to business.

  Finding productive time requires focus; otherwise maintenance activities will expand to fill all your available time. You must prioritize productive time or you won’t have any. It doesn’t happen on its own.

  This problem is illustrated by studies of Fortune 500 CEO’s showing that the total productive time in their day is something close to 30 minutes, depending on the actual research study.

  This leads to two startling conclusions that can change your life and change what you’re able to produce with your scarce time resources.

  The first principle is that success is created at the margin. For example, one of my rules from coaching clients on wealth building is: if you want to know how long it will take for someone to achieve any goal, just look at how much of their time they dedicate to that goal. Notice how similar that is to our definition of productive time.

  The unfortunate truth is you likely have very few productive hours in each day to dedicate to achieving your goals. That’s why recapturing a wasted hour here and there by redirecting it to productive use is so valuable. You’re not just adding one hour to an already long 10-hour day for a 10% incremental improvement. Instead, adding one productive hour could literally double your productive time, because your long day only has one other productive hour in it. That’s why success exists at the margin of time. Doubling your productive time by one hour might 2X or 4X your results, which could be life changing. In a moment, you’ll learn six strategies to help you do this.

  The second key principle about productive time is how business systems, and developing standard operating procedures for employees as a business system, can be the most productive time of all because that’s how time literally multiplies itself.

  HOW EMPLOYEES AMPLIFY YOUR PRODUCTIVE TIME

  But before I explain employer time leverage, I need to make a key distinction between tasks versus processes because one is dramatically more productive than the other.

  When you leverage employee time, you’re investing in your business to produce an outcome that has greater value than it costs you. You’re paying to get something in return. It’s an investment, so like all investments you want to maximize gains and minimize losses. You do that by focusing on process.

  Your goal is to progressively advance your productive time from working in the business on projects and tasks, to working on the business by developing systems and processes that increase your time leverage.

  Systems are created for business activities that recur on a regular basis – a process that repeats over and over again. Whereas projects are one-offs, goal-oriented activities with a specific beginning and end.

  For example, when I spend two days of work training an employee on a business system that she will implement half-time for the next two years, I’ve literally bought a year of productivity for two days of my time. So it’s an example of a high-leverage activity.

  Notice how different that is from asking an employee to complete a specific project. Delegation of single tasks leverages time, but the effect is linear. It’s limited because once the task is completed, you then have to repeat the cycle by identifying the next project, setting new metrics for success, and training the employee for the next limited, specific outcome. Once that project is completed, you do it again and again, with each project requiring a chunk of your time.

  However, delegating an entire operating procedure so the employee can work independently on an ongoing basis is highly leveraged. That means your goal in time leverage is to identify work processes that can deliver a constant stream of value.

  The more you can delegate and train employees in work processes, treat them well, and give them the space to express their true talents, the more leverage you’ll see for your efforts. The key is to properly match the job requirements with the knowledge and skills the employee brings to the table so as to achieve maximum productivity.

  Of course, this only works when your employees share your vision and values and possess a strong internal will to do better, to contribute more, to stay focused on results, and to grow in efficiency. Employees must have this emotional intelligence or their value will be limited.

  The idea is to always hire up by finding people smarter and better than you for any specific skill set, because they’ll get more done and save you time. Be ruthlessly selective upfront because you either put the time into getting the right person, or you put in the time later when you get rid of the wrong person and then try to find and train the right person all over again.

  “Steve Jobs has a saying that A players hire A players; B players hire C players; and C players hire D players. It doesn’t take long to get to Z players. This trickle-down effect causes bozo explosions in companies.”

  – Guy Kawasaki

  As team leader, you must be constantly vigilant that everyone is contributing forward momentum to your team to maximize the value of time leverage. One bad apple can hurt the output and morale of the entire team.

  Winners like to work with other winners, so the wrong people will cause heartache and frustration for the whole team, potentially resulting in your best people leaving to find a stronger team they can attach to and rise with.

  That means you must be vigilant to make sure everyone you leverage pulls their weight by delivering unique contributions to the team goals. Anyone that hinders the growth of the entire organization should be swiftly removed and replaced. It’s better to find new leaders than risk losing your best people because of a negative team member.

  SYSTEMS AUTOMATION: THE ULTIMATE TIME LEVERAGE STRATEGY

  Finally, the last step in time leverage doesn’t involve anyone’s time at all because you replace human time with automated business processes that run 24/7 for many years into the future.

  Setting up automated business processes can deliver the greatest leverage of all. For example, I developed an automated opt-in procedure for my website at FinancialMentor.com that builds relationships by delivering value to my new visitors. The automation provides huge leverage by converting them to subscribers and later to customers without me personally sending a single email. This system does the work of many employees at a fraction of the cost by running 24/7 with unlimited scalability. You can test it for yourself here: https://financialmentor.com/free-stuff/free-ebooks; or you can surf the site and notice all the different ways you are incentivized to subscribe. There are free courses, books, calculators, PDF downloads, resource guides, and other incentives – all operating 100% on autopilot to give value by building trust and relationships with new subscribers. It’s an entire business system.

  Compare that to producing a presentation that I might deliver one time to a single group of people. They both qualify as leverage, but the sales presentation is a project tha
t gives a linear return on my time because it must be repeated over and over, with each instance consuming more time to deliver only linear value. Both sell products and both are productive time, but the project is limited while the process is highly leveraged.

  6 PRACTICAL TIME LEVERAGE STRATEGIES

  Depending on your personal situation, one or more of the following strategies may accomplish the time leverage you need.

  Hire an assistant. In your business, outsource the mundane tasks that you don’t enjoy so as to free up your time and allow you to focus on the projects that specifically require your unique skills.

  Hire an employee. Then delegate tasks to them.

  Hire a freelancer. Don’t need a part-time or full-time employee? Delegate a task through Upwork or any other international, online, freelancing network.

  Use an online calendar and scheduling system so clients can book their own appointments and manage their schedule independently without you having to invest your time or effort. I use https://appointlet.com, but there are many acceptable alternatives including https://calendly.com. My online appointment system automatically syncs to my calendar at zero cost, and the only thing I do is update availability once every three months. The time savings of not having to coordinate calendars through multiple emails to schedule each appointment is extraordinary.