Getting rich is not just about hard work. In fact, hard work has little to do with getting rich. It’s not that I don’t advocate hard work, I do. I love to work hard, but I especially like to see myself and others working smart. I know that getting rich and successful is not exclusively the domain of blood, sweat and tears. I have seen friends, coworkers, and family members go the extra mile for little to no reward.
The cult of hard work, personal sacrifice and the goose that lays the golden eggs
There is a cult of self-sacrifice evident in our culture that ensures you are very busy, working very hard and putting in crazy hours. When it comes to creating personal wealth and achieving success, you are the golden goose. However, you can only put pressure on the golden goose before it stops laying those golden eggs. Without exception, all golden geese will eventually run out of energy, ability, or enthusiasm. Therefore, learning to use other people’s time, money, and skills (i.e., leverage) is a prerequisite for becoming rich, creating wealth, and achieving success.
Money and leverage from other people
Generally speaking, gaining access to other people’s money (OPM) is a form of leverage that allows you to go beyond the limits of your own resources and instead apply ingenuity to everything you do. In business terms, leverage is the key that differentiates the freelancer who owns a job from the entrepreneur who owns a business. In financial/investing terms, it means gaining access to cash that is not yours to buy income-producing assets that you control.
What the Rich and Rich Have Known for Years
The richest people and especially the richest people in the world have known for years how to take advantage of other people’s money. Everyone from Jean Paul Getty to Aristotle Onassis and Donald Trump have excelled in this number one principle of wealth creation. His use of OPM to purchase assets is legendary. Onassis, in particular, is known for having obtained contracts to transport mineral and oil in ships and tankers that he did not already own and then going to banks to secure the loans to buy the ships and tankers using the contracts. A cheeky and talented negotiator if ever there was one!
People go about creating wealth or acquiring assets in different ways depending on their backgrounds, past experiences, and what they have been taught or know about money. For the most part, people think that great riches are unattainable largely because of the model or mindset they have about money. What most people don’t understand is that you don’t actually need money to make money. Sure it helps, but what you really need is access to other people’s money to make money.
The benefits of using other people’s money
OPM buys you time; it allows you to do things before you would otherwise be able to do them. It allows you to participate in deals that your own resources do not allow you to do. It allows you to make decisions that you couldn’t make otherwise. It takes the average person many, many years to accumulate wealth or build a business entirely with their own resources. By using the power of other people’s money, you can accelerate the creation of your personal wealth or the growth of a business. Importantly, your personal wealth creation is no longer limited to what you have been able to save and invest from your earned income.
Getting High with OPM – Real Estate
Most people’s typical first experience of using other people’s money is when they apply for a mortgage to buy their home. Your down payment combined with your employment contract that demonstrates your ability to produce future income is usually enough to secure a home mortgage loan. Unfortunately, your house is not an asset, well it is, but it is the bank’s asset, since they earn income from the loan upfront, not you. If you can get a bank to advance you a mortgage loan to buy an investment rental property (an asset) whereby you can keep what’s left of the rental income after you pay off the mortgage, then you have used other people’s money to buy and assets to produce income. To guarantee this loan, you must prove to the bank that you are a safe bet. They will typically want to see that you have at least 20% of the purchase price as a down payment and that this asset and other sources generate enough net income to outlast any changes in interest rates, lease cancellation periods, etc.
Getting High in OPM – Business
In business, entrepreneurs and business owners gain access to other people’s money when they write a business plan that they present to a business agent or venture capitalist, that is, investors. This process is known as raising capital. In exchange for the money (known as equity) received, the investor who provided the equity typically receives shares (ie, equity interest) in the business. You can also borrow money from a bank and the bank is repaid the principal and also receives interest on the loan. It is the business owner’s job to put this capital to good use; produce products or services that generate sales revenue to pay off the loan and, of course, all other business expenses.
Other people’s money is always available and accessible to a greater or lesser extent depending on general market conditions. His first responsibility as an entrepreneur or investor seeking capital is to understand and educate himself about the many sources of OPM and the many deal structures that use OPM.
Leaping through the window of opportunity
Finally, the main takeaway from all this talk about other people’s money is that instead of telling yourself “I can’t afford to start a business” or “I don’t have the money to invest in that business”, now Know that you don’t there are no real excuses or limitations. Not that using other people’s money is without its dangers. Like any financial transaction, there are inherent risks. First, you are responsible for repaying the borrowed principal and generally providing an agreed additional return to the investor. However, that is not the subject of discussion here. The key for now is to realize that you can always gain access to other people’s money to allow you to participate in deals and do things you previously thought were not possible. You can start jumping through the window of opportunity when it’s open…and when you start to implement this other people’s money principle into your business and personal wealth-building endeavors, you’ll start to realize it’s open! all the time!