Today, you will learn Financial IQ #4 – Leveraging Your Money. This article is part 4 of Rich Money Habits’ review on Robert Kiyosaki’s book Increase Your Financial IQ: Get Smarter with Your Money.
To read parts 1 to 3 of the book review, you can checkout the following links.
- Increase Your Financial IQ Book Review – Part 1: Making More Money
- Increase Your Financial IQ Book Review – Part 2: Protecting Your Money
- Increase Your Financial IQ Book Review – Part 3: Budgeting Your Money
Increase Your Financial IQ Book Review – Part 4: Leveraging Your Money
According to Robert Kiyosaki, leverage, in its simplest terms, is basically “doing more with less”. It could be in the form of leveraging other people’s money like acquiring a loan for your house. It could be leveraging other people’s time by hiring employees for your business. Or it could be leveraging technology like putting up an online store to reach out to more people, 24 hours a day, 7 days a week.
Things to note when applying leverage:
- There are many types of leverage: leverage of debt, leverage of financial intelligence, leverage of technology and more
- Most investors have little control over their investments such as savings, stocks, bonds, mutual funds, index funds. Without control, the investment becomes risky.
- Higher returns does not mean higher risk. The key to minimizing risk is applying financial intelligence.
- Most financial advisors are sales people – NOT investors.
- To gain control of your investments, you need to take control of your own financial education.
- Leverage can work in two ways – it can work for you, or work against you
- Warren Buffet, the second richest man in the world, says “diversification is a protection against ignorance.”
Investing for capital gains vs investing for cashflow
Some people invest only for capital gains. Their motto is “buy low, sell high”. When you purchase a house for PHP 1 Million in the hope that you can sell it for PHP 5 Million after a few years, you are investing for capital gains.
Others invest only for cash flow. They want to receive a steady fixed amount of income every month. When you invest in Retail Treasury Bonds and receive a regular interest earnings, or invest in stocks that give dividends, you are investing for cashflow.
To invest for both capital gains and cashflow, you need to increase your financial intelligence so you can control the investment and increase its value at the same time provide a steady stream of income for you.
More tips on taking the first step to apply leverage
- Don’t let your problem of not having enough money stop you from becoming rich. Take that first step, make mistakes. Continue learning even if you fail. The experience will increase your financial intelligence.
- Start small and take baby steps. Take the time to read books, attend seminars and learn from great financial mentors before you invest.
- Dream BIG. Instead of living below your means, let your BIG dreams inspire you to learn and invest carefully to allow you to magnify your income and go beyond your means.
Rich Money Habits Review Notes:
Leverage is a very powerful tool. But it can work both ways. It can make you money or it can work against you. Be careful. I experienced the other side of leverage when I got into credit card debt. To know how I managed to pay for it, you can read my personal finance story.