Investing word of the day: Leverage

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 source: http://www.etftrends.com

Hi it's been quite awhile since I posted some investing words to think about.

So lets start with LEVERAGE.

Investopedia.com defines leverage as :

1. The use of various financial instruments or borrowed capital, such

    as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with

    significantly more debt than equity is considered to be highly 

    leveraged.

Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home. 

So basically what does this word mean to us? 

Well leverage is taking advantage of available means to increase profit. To make it simple let's use OPM(Other People's Money). 

For example since Christmas season is around let say you wanted to sell those beautiful parols but right now you don't have enough capital to buy such. So you decided to find the manufacturer to make sure you get it at the cheapest price. So you went to Pampanga and was able to find the manufacturer. 

But even though its cheap at the manufacturer you still don't have enough capital of your own so you ask your brothers and sisters to lend you money. And so you got the money and got the parols. Displayed the parols in your house which is along the busiest road in your subdivision and by week's end you sold all the parols.

So where is leverage there? That is where OPM(Other People's Money) come. Well you were able to make profit even without you shelling out cash to finance your purchase.

By that you were able to increase you earnings by 100% if you fully financed it with borrowed money.


The same principle is used in Larry Gamboa's book Think Rich Pinoy(an adaptation to Robert Kiyosaki's principles in the Philippine setting).

                            source:http://thinkrichpinoy.com

source: http://fireballbooks.com/ThinkRichPinoy/

Larry and his partners scout banks for foreclosed properties that are auctioned at insanely low price. With a required deposit of only Php 25,000.00( this is the minimum I think) they were able to join the auction of foreclosed properties and the bank will even let you pay the property at installment basis.

So Larry Gamboa and company are able to leverage on their buy and sell project because it seems that they didn't even empty their pockets to fund the project because they borrowed the fund they need to the same bank who  sold the property. 

That is what we call leverage or in our Pinoy lingo OPM ;)   or better yet DOING MORE WITH LESS

source: http://www.healthy-holistic-living.com

Ways to be debt-free

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                                source: http://antipinoy.com/

This is a follow up on my previous blog "What it means to be debt-free" if you haven't read it yet click here to read it.

So you decided to be free from your debt but your wondering how in the world can I do  that? So this topic will be  in parts since it covers a lot of things.

Let's discuss the very first step. Step one is accepting that you are buried in debt.

                                              source:http://interacc.typepad.com/synthesis/

I know you are lost why to be debt free one should accept that one is buried in debt. Just like any other addictions, the first step towards freedom from it is to acknowledge that one is addicted to it. Accept the fact that you are in debt. Most people will have a hard time doing this because of pride. They would say "no I'm not buried in debt, I'm just behind my payments don't worry money is coming".

It is sad that most Pinoys would just say that. They don't want to accept their situation thus they are always in denial mode. And so doing in order to cheer themselves they buy. They go shopping and go malling and when they see something they've always wanted they buy it and charge it to their credit card.

                                               source: http://blog.beliefnet.com/onecity/

Or if they are upset they escape by going somewhere else like going to a resort or watching movies just to forget that they are buried in debt. I remember my brother's comment about how so many people have the guts to get a loan to pay up another loan just to have money to spend, he says "Basta at least sumaya sila sa inutang nila."

So the very first thing is really to accept that you are buried in debt. It creates that realization inside of you that you have to do something about it.  That one must be responsible for it and not escape and show the world that everything is okay because it is not okay.

                                            source: http://www.selfishprogramming.com

Ever seen movie scenarios where the Dad or Mom secretly works in a night shift low paying job to support their family after losing their job while their children are acting like rich kids getting this and buying that. That is so pitiful and yet the parents keeps on denying it but in the end everything is ruin.

So remember step one: ACCEPT THAT YOU ARE BURIED IN DEBT.

 vv