The lazy person doesn’t do much work.
The leveraged person doesn’t either.
At first glance, both seem identical. However, nothing could be further from the truth.
A lazy person doesn’t do much work and doesn’t derive any benefits from working.
The leveraged person doesn’t do much work either, but still derives the benefits as if she had done the work herself.
So what’s the difference?
The leveraged person front-loads the work to build an asset.
Once an asset has been built, the asset does the work — eliminating or at least reducing the workload for the leveraged person.
The leveraged person still receives the benefit of work being done, but no longer has to do the work herself.
Here is an example:
In industry, a leveraged manager recruits a team, trains the team, documents the training given to the team, and invests in the skills of her team.
Rather than hovering over every member of her team managing by watching, she creates performance measurement systems and manages her team in part through key performance indicators.
This creates more work in the short run. It would be far easier (initially) to just tell everyone what to do.
Instead, she created a management system.
Once the asset has been built, the system does a significant portion of the work the manager would otherwise have to do herself.
A team is one form of asset.
A management system is another form of asset.
Here’s another example.
Let’s say you get a paycheck and earn $100. You spend $80 on your basic living expenses. You then spend $20 just for fun.
At the start of next month, you repeat the process again.
The leveraged approach would be different.
The leveraged person gets the same $100 paycheck initially. He spends $80 on basic living expenses as well. He then invests $20 to buy a book to improve his skills.
For the next 18 months, each of you repeats this process.
After 18 months, the leveraged person has developed another kind of asset... a skill.
He now has better skills and is able to take on a more challenging job.
Now the leveraged person earns $120 a month. He spends $80 on basic living expenses. He spends $20 just for fun. And he invests $20 to buy a book and further improve his skills.
Imagine repeating this concept every month for 10 or 20 years.
At the end of this time period, the leveraged person is working far fewer hours for every hour personally worked than a peer that didn’t follow the same path.
The key insight here is that skills are a type of asset.
Here’s my question of the day:
What have you done this week, this month, or this year to be more leveraged?