Quick: what’s the first thing you think of when you hear the word “leverage”?
I know most of you see DEBT (!) when you see that “L” word instantly. Somehow, someway we’ve all been told to avoid debt, to avoid leverage. We’re conditioned. We all read the same headlines..
“Canadians are over-leveraged!”
“Leverage is at an all-time high!”
It’s time we faced the truth, though… leverage is the key to happiness. Stick with me, I’ll explain why and share my own experience with my favourite word, leverage.
Leverage doesn’t mean debt. It includes debt. Sure. It’s just so much more than debt.
I see leverage as this: sharing your responsibilities with others in exchange for your time and your money. You could also phrase it as “offloading your responsibilities” if that helps to understand it. If you want more time and you’re willing to pay for it, leverage lets you get away with NOT having to do what you don’t want to.
When you ask your neighbour to pick up your kids from school because you’re running late, you’re leveraging your relationship with your neighbour.
When you pay someone to shovel your driveway for you so you can stay in and cuddle by the fire, you are exchanging your money to save some of your time. That’s leverage.
When you buy real estate, and you take out a mortgage for 80% of the value of that home, that’s using leverage. This one is debt, sure. You’re also asking someone to pay that 80% up front (in exchange for monthly payments, of course) so that you don’t have to use your 80% right now.
Leverage.
It comes in all kinds of forms.
Growing up as the son of immigrant parents that cared for nothing more than to pay down what they borrowed (mortgage), I learned early and often that debt (/leverage) was a bad thing. I actually believed this lesson so strongly, that it probably set me back a few years in my financial evolution. We all likely have had that same programming installed in our minds.
My wife didn’t grow up with gold bars in her family, either. One of her biggest fears growing up was not having money. She would hear “debt” and panic. The thought of owing someone money still gives her jitters. Until she saw how we used "good debt” to build a lot of wealth.
Now, she tends to bring up teaching financial literacy at home with my 2 young daughters. She’s entrusted me with teaching this subject. I will teach the difference between good debt and bad debt. I won’t share the same lessons I’ve learned from my lovely parents, I can tell you that.
Why do we think debt is so bad? Or that all debt is bad debt?
When you owe a friend some money, of course you should pay them back in full right away. However, if you’re borrowing money and that money is making you more money than it costs you, is that debt still bad? Is leverage the worst thing in that scenario?
When I shifted my perspective on using “other people’s money” (OPM) to make more money for myself, everything changed for me. OPM opens the door to making a lot of money.
Really quickly (I promise I’m not going to preach investing here) - I’ll share how this works using an example. If I borrow money to buy a property - I’m generally borrowing 80% of the value at, say, 3% interest (this is the mortgage). WHEN the property appreciates (not IF, but WHEN) call it 10% in my first year of ownership, it appreciates 10% on 100% of it’s value, not on the 20% I’ve invested. If this happened in a year, I would have earned over 10% and it would have cost me 3% to borrow that money to make that money. I traded 3% for 10% using leverage. See what I mean? I’ve simplified it, but you get the point.
At this stage in my life, leverage has added meaning. Leverage means way more than debt or “other people’s money”. Leverage of time is now the single most influential factor in my life.
We’ve heard this often, time is the one thing you can’t make more of or buy more of. It just doesn’t work like that. Time is our most precious commodity.
So I’ve made a conscience decision to use leverage to keep my time to myself. So I can do the things that I want to. So I can apply my financial gains towards things that are most important to me. Family and freedom.
I could do everything on my own, and give up my time in exchange for earnings. Totally. It’s how I started my career and built a business worth having. It was what I needed to do, it was what I wanted to do. I still very much love to work.
What I have realized quite clearly is that I have to be selective on what I do with my time. Even if it means choosing to Netflix and chill. That’s time that I otherwise could be working or doing other things.
When I choose to not do something - to trust others to do it for me (in exchange for money, often) - I’m using leverage to retain my own time.
It’s a tough pill to swallow. And don’t tell my parents who would write me off if they knew that I chose not to earn more when I could, so that I could Netflix and chill.
Leverage gives me time with my girls.
Leverage lets me watch the Raptors game.
Pre-pandemic, leverage used to let me have date night with my wife while clients submitted offers.
Leverage is going to allow me to vacation - or work-from-away - for months at a time. I have the team of people in place here to make sure all of my promises and obligations are well looked after (probably even better than I, personally, could do).
Leverage has allowed me to help the next generation of earners that work with Team Mangos to stand on their own 2 feet, buy their own homes and exceed in their careers.
In fact, leverage has created better Realtors on my team than I could ever hope to have been on my own. I allow my team to learn and expose them to a lot, and now they are better than I am at everything!
Leverage made all of this possible.
So the next time someone tells you that you’re over-leveraged, maybe say “thanks”?