It is unfortunate that school doesn’t teach us to be wealthy. It teaches us to ‘get by’ and the best way to ‘get by’ in life is to have a secure job so you can pay your bills and live a stable life. However, that is not the path to financial freedom – where you have the time and money to live the life of your dreams.
The way most people earn a living is to trade their time for money. Unfortunately, the challenge with this approach, even if you are a highly paid professional like an attorney or surgeon, is that there are only so many hours in each day, week, month and year that you are able to trade time for money. There is a ceiling to what people are willing or able to pay for each hour that is traded.
Herein lies the reason so many people who are employed or self-employed are stuck on a financial treadmill that is often referred to as the rat race. The problem with said ‘rat race’ is that it is like a never-ending treadmill, where if you stop walking on the treadmill (i.e. you go on vacation or are off work sick), the money stops.
For this reason, you want to get to grips with the idea of “leverage”, and that is what this article discusses. Before that, however, it’s important to remember the foundational step of financial freedom is to be less reactive and more responsive to getting control back of your finances; sometimes snappy loans are what’s needed to bridge an immediate gap in your cash flow, but in the long term reducing your debt to the point of being debt free is a wise goal if you’re wanting to walk the path toward financial freedom.
Use the Power of Leverage
Think of financial leverage this way. An author writes a book and makes $1 per book sale. They may have spent a significant amount of time writing that book, but once it’s published, it’s done – they are no longer swapping their time for money – they have an asset they can leverage repeatedly.
Whether the book goes on to sell 100 copies or 100,000 – the income derived from the initial effort required to create this asset will be generated without them having to be physically present and swapping their time for money; hypothetically, they could be making money in their sleep – particularly if the book were to be selling internationally on a platform such as Amazon. Indeed, they could be lying on a beach in Hawaii!
A further analogy is that of musicians. They put a lot of effort into creating an asset in the form of a song that is then leveraged time and time again. If an advertiser, for example, wants to use their song they would have to license the asset in order to use it for their advert – meaning, in broad terms, that each time the advert aired the artist that created the song would be paid!
This is where most people make the mistake; they are simply going to a job, and trading their time for money, rather than build assets that generate long-term income; like a fruit tree that bears fruit each year, just with a little watering and maintenance on your part.
When you shift your mindset from that of trading time for money, and instead, focus on building assets – you start walking the path that leads toward financial freedom!