The media seems to categorize the use of leverage with some sort of evil deed but whether it’s a corporation or individual, leverage is part of our lives like turkey is for Thanksgiving. It’s not necessary, but having it benefits everyone. Like so many products that some dislike (credit cards come to mind as another example), don’t always blame the arrow when you miss the target.
Good Use of Leverage
Instead, use leverage wisely and you might just come out ahead. Below are a few areas where good use of leverage can propel us into the road of success and prosperity.
- Buy a Home – Mortgages are the most commonly talked about form of leverage. You will be hard pressed to find any first time home buyers who can pay all cash for their first house, so using your down payment as leverage is actually not a bad idea as long as you don’t over stretch yourself and buy a property that you cannot comfortably afford.
- Our Power as Customers to Get Better Treatment – The customer is always right, or at least so they say. Never ever take advantage of someone else but demand to be treated appropriately or just take your business somewhere else. Always make sure everyone in the relationship know that you are the decision maker in the transaction and you will be happier every time.
- The Competition – This is the heart of comparison shopping. Remember those advices that tell you to use a quote from another company to start a bidding war? It really works!
- Your Expertise – You already know what you learned so why not teach someone else and earn a side income? How about offering a service part time? For example, Peter from Bible Money Matters uses his design talents to help design logos for others. Follow him and earn some money on your own too.
- The Internet – We already have access to it everyday so why not leverage that access to save more money? Coupon sites give great deals and Google is an awesome place to find out what other people think about different products.
- Your Time – Just because something takes time doesn’t mean it can’t be beneficial. To-Do Lists and planning are all ways to leverage your time to free up more time.
- Services – Can you leverage your cell phone and turn it into the only phone service you have? Since you have Internet and so many shows are available online, could you cancel your TV subscription?
- Lack of Total Transparency – When I was in an elevator during my visit to China, I saw a little TV that showed ads the whole time. I thought it was a brilliant idea but what my friend told me was even more interesting. Apparently, the company that made them started out by leveraging the lack of communication between advertisers and building owners. On one hand, they told advertisers that they have all these locations and buildings lined up that want to install the TVs. On the other, they told the building owners that advertisers are already lined up to have ads displayed. They got around the “chicken or the egg first” problem without actually trying to answer the question.
- Your Assets – Think about subletting a room out to supplement your income. You may even be able to rent out your huge DVD collection. Don’t let the last word of this post stop your imagination.
Leverage Can be Bad Too
The minute you abuse anything is when disaster usually starts. Here are some uses of leverage that you absolutely need to avoid.
- Our Power as a Supervisor – Overworking your employees just because they need the paycheck is not a good use of leveraging the situation. Gain respect by first respecting others and understand their needs because everyone is more productive long term.
- Needy Customers – In fact, customers are not always correct. Just because you are the decision maker doesn’t mean you can do whatever you want. Again, show respect.
- Excessive Risk – Whether it’s buying too much house or borrowing money to speculate on stocks, don’t risk too much or else you may lose everything.
Leverage can work in your favor or it could destroy you. The outcome is up to you.
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{ 6 comments… read them below or add one }
I wish the term of leverage in debt and investing were changed. Using leverage essentially gets you something for nothing – imagine using a crowbar to pry open a piece of wood instead of your finger nails.
When you use leverage in investing you assume a greater amount of risk, so it’s not the same. This is a technicality of course, but the term does imply a false sense of something for nothing.
While the non-financial type of leverage also changes the situation and therefore the risk (when using a crowbar, you risk breaking it, hurting yourself etc), I totally agree that we should use a different word to help people understand that leverage is powerful but very dangerous when it comes to money.
It is certainly a nice read. As an investor, I totally agree with the comment from the weakonomist, exposing the danger of using possible leverage with investing.
I think most people don’t really take advantage of their power as a customer. It’s not so much to get more but it’s more about not getting less! Great read!
I take a lot of risk when I invest in the stock market because I invest in penny stock, but I use my own money not borrowed money. I think it’s ok take a lot of risk when you are young when it comes to investing. You either make a lot of money at a young age or lose the little money you have (you still have many years to gain the money back).
Nice of you to mention these other forms of leverage on a personal finance blog when we automatically think financial leverage. One form of leverage that I’ve come to really value is the leverage of networks. The people you know can be a tremendous asset.