Build Value Through Leverage
“Give me a place to stand, and a lever long enough, and I will move the world”
To make a dent in the universe you need leverage.
To build wealth, you need leverage in the form of labor or capital. To build health, you need leverage in the form of diet, exercise, and sleep. To build friendships you need leverage in time, experiences, and common interests.
While one late work night surfing the waves of my thoughts, I caught a wave of inspiration. I curiously thought, “With the hours I work, what’s my hourly rate?” When I did the math, my hourly rate came out to $14/hour. I made more as a lifeguard in my summer job… 6 years ago.
Don’t get me wrong, I love what I do, and I wouldn’t change careers if I had the choice. But it was then I realized that I’m at the bottom of the food chain – and leverage is my way out.
Books are a form of leverage. Take one of my favorite books, Flow, written by Mihaly Csikszentmihalyi which redefines happiness as a state of consciousness in which you feel and perform your best. In flow you’re so involved in an activity that time dilates, the sense of self vanishes, and nothing else seems to matter except the experience at hand. By reading this book I now can leverage the experience of a distinguished psychologist who has spent the last 30+ years thinking, reading, and researching something that I can digest in one week. This goes for any book you read – you’re leveraging the best of what others have mastered.
How do you create leverage for yourself?
Improve your decision-making quality, choose your trajectory wisely, and choose responsibility.
If you increase the precision of your decision-making by 10%, you’re valued exponentially more. People are paid for their ability to make decisions using their judgement. Think of your boss, their job is to make the best decision in the face of uncertainty, doubt, and a never-ending sea of change. They’re paid for this ability to judge and make the best decision to optimize for their outcome of choice – and paid handsomely for doing so!
I frequently utilize Pareto’s 80/20 principle for making decisions. The principle states 80% of the output is the result of 20% of the input. The question is, what 20% of your tasks drive 80% of the results?
As I look at this principle through the lens of generic financial planning, living in a cash flow surplus, savings at least 20% of your income, maximizing your savings between taxable, tax-deferred, and tax-free accounts, investing responsibly, keeping debt under 30% of total income, appropriately tilting accounts with beneficiaries, insuring tail-end risks, having an emergency fund, and utilizing all credits/deductions made available to you make up highest contributing items to your financial planning success.
When applying this to your job role with the intention of building leverage, you can narrow down the 20% of efforts by looking through the lens of efficiency, profitability, or consumer experience of doing business. Many decisions made through this lens, specific to your role, drive business growth. By making better decisions within this arena and bringing ideas and solutions to the table you’re increasing your value to the firm and building leverage.
“We waste our time with short-term thinking and busywork. Warren Buffet spends a year deciding and a day acting. The act lasts decades.”
Trajectory matters. An hour of thinking can save a decade of work.
I think about this frequently within the realm of financial planning. I’ve met with people who have been focusing their whole life paying off debt to have never saved a dime. People who have put their life savings into building a business with no exit strategy. Or others who have good financial habits but haven’t taken enough risk to be monetarily rewarded for their good habits.
The expense of your present day sacrifice for a future day benefit expands with time. Your decisions are like a snowball rolling down a mountain. The more time that snowball has down the hill, the bigger, more powerful, and more momentum it gains. This compounding effect makes course corrections more costly with time.
By moving in the right direction and more accurately making decisions society rewards you with responsibility. With responsibility comes power and capital which affords leverage.
Those with leverage are those who accept responsibility.
As we again consider the CEO of a company, the magnitude of their decisions are amplified. Their decisions have more power in determining the trajectory of an organization. A CEO doesn’t do paperwork. Instead they’re capital allocators and decision makers. They use their capital to utilize the labor of others to free up their time to make more impactful decisions and perform higher dollar-per-hour work. In other words, they focus on the 20% of inputs responsible for 80% of the output.
To do this, they must accept the responsibility to be accountable for others. This is leverage - but it doesn’t come without a cost. That is the responsibility to lead. As a leader, you now eat last. It is your job to put yourself at risk for others. You are trusted to show up when the going gets tough and provide for those who help you. This is the cost of leverage.
Decision making quality, trajectory, and responsibility are all correlated. This trifecta allows you to scale ideas, earn more, and spend more time focusing on what matters to you most.
“Between stimulus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”
Use your space to choose your trajectory towards your vision of a life of impact and meaning. To choose responsibility to free up your time to allocate it to more valuable work. Execute more intently on the 20% of tasks responsible for 80% of the reward and increase the reliability of your decision making capabilities.
Use your leverage to make your dent in the universe.