Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
Charles Dickens
The next leverage principle you’ll want to apply in your wealth plan is expanding the gap between how much you earn and how much you spend, so it grows geometrically instead of arithmetically.
There’s a natural progression to widening this gap. Most people start out as an employee – the producer in a reciprocal arrangement of time for money. The next stage in business development is usually self-employment, where you essentially buy yourself a job by doing most of the production. Unfortunately, this business model also lacks leverage.
The leveraged business owner removes himself from the production equation, so the business runs itself in his absence. You achieve this goal by converting everything you do into a step-by-step, connect-the-dots system that anyone with the right skills can follow. If one employee leaves, a new one with similar skills can be plugged into the system. Standard operating procedures and employee expertise control the daily operations so the owner is free to work on business development or even take an overdue vacation.
Another way to think about this principle is to reposition your work responsibilities from those of a producer to being the conductor of the orchestra. Your employees are band members in your orchestra, and if they all did their own thing, you’d have a cacophony of noise. It’s up to the conductor to bring the different sections of the orchestra together at just the right times so as to create beautiful music.
The business owner does the same thing by directing the various members of his team toward a common goal to produce geometrically growing results. You, as the owner, strategically decide what needs to be done and when, in order to achieve maximum growth, and you delegate to your employees and to your business systems so they produce the desired results.
The ultimate goal is to design your wealth plan so you can leave for three months at a time with the knowledge that your business, real estate, and investment portfolio will all grow in value during your absence. This challenge is not easy. Most businesses fail and the few that “succeed” limp along for years as glorified self-employment. Probably less than one percent of businesses successfully utilize leverage to attain true freedom.
But when you correctly apply leverage, it’s possible for you to geometrically widen the gap between revenues and expenses so that equity grows exponentially rather than arithmetically. I’ve done it several times, and it’s absolutely worth the effort.
It’s not easy to do, and I don’t want to deceive you by implying that it is. But it’s also not any harder than the alternative of working an entire lifetime for financial mediocrity.
You want to accelerate your wealth plan through geometric growth rather than arithmetic growth. The way you seed that growth is by expanding the gap. In paper assets, the gap between income and expenses results in savings for investment; and in business, the gap between income and expenses results in geometric growth of equity as a multiple of earnings.
The greatest potential for expanding the gap is through leveraged growth of income because expense reduction is inherently limited. Income growth is unlimited, and leverage is the accelerator.
This exercise goes the next step beyond categorizing all tasks as either essential or delegable. It’s specific to business owners and the goal is to make yourself unessential to the daily operation of the business so you can multiply income growth geometrically.
In this exercise, you assume everything is delegable until it’s proven that it’s not.
Start by tracking every activity in your day that requires your attention.
For example, every time your team emails you to solve a problem, make a note of that. Every time an employee or virtual assistant asks you a question, note that as well.
In short, every time your work effort is required, treat that as an opportunity to create a system or standard operating procedure to replace your involvement.
For example, in my Financial Mentor business, I used to complete every aspect of publishing every article on the website. Now the team has a standard operating procedure that governs how articles get published, and each person on the team has a specific role. This system has completely replaced my involvement.
The goals of this exercise are: 1) to progressively make yourself unessential for day-to-day operations so you are free to take time off whenever you desire with zero impact on your business; and 2) to work exclusively on business development during the time that you do work so you can expand the gap by growing income.
Again, the key to this exercise is tracking absolutely everything you do daily in your business and treat those things as a failure of your systems. Try and replace every requirement of your time with some form of leverage until you are completely free.