One of the key ways to create wealth is by leveraging your money. Although I won’t go into the math today, simply due to its complexity and I’d like to review it before writing about, the theory behind leveraging is quite simple. Essentially leveraging money is when you borrow money (hopefully a low interest rate) and then invest it (trying to earn a return greater then what you borrowed at).

You can think of leveraging as amplifying your results. So when the investment goes well it will go really well, but when it does bad the effects are more severe. Luckily for us the market statistically goes up over the long run and not down.

The most common place that people leverage their money is when they purchase a home. Generally they get a mortgage from a financial provider and then use this money to purchase the house. Mortgages are great because they are low interest which makes it easier to be profitable when investing.

Although a mortgage is the most common, there are still other places to get money. You can take out an investment loan from a broker, I suggest putting this in index funds or at least something that has been relatively stable in the past. Another often overlooked form of leveraging is when you take out a business loan. Businesses accelerate their growth by borrowing money, accelerate your wealth by doing the same!

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Filed under: Investments, Saving