Leverage Your Assets to Increase Your Earnings

Let’s consider the following scenario, which is all too common: You work a very long day and generate $10,000 in billings. The insurance companies pay your practice $3,000 for your hard work, but your practice overhead is about 50%, so $1,500 of that income is gross profit. However, the $1,500 isn’t yours. Of the $1,500 you actually receive, the federal, state, and local tax authorities can take 40% to 45%, leaving you with about $850.

In other words, less than 10% of the work you do in a given day actually results in your earning. This means that you have to do $3 million worth of work in order to generate less than $300,000 in earnings for you to enjoy. Unless you want to continue to work 10 times as hard as necessary, you have to learn to work smarter.

The key to our approach to working smarter is to use leverage.

There are three definitions for the word leverage. The first definition simply says that leverage enables you to increase the amount of force that you can exert. For example, using a fulcrum and a lever, you could move a rock that you would not be able to move by hand.

The second definition of leverage says use of leverage allows people to be more efficient, effective, and powerful. This can be interpreted to mean that leverage allows people to get more done in less time. It can also be interpreted to mean that leverage allows people to get a job done with less effort. In either case, leverage enables people to be more effective.

The third definition discusses credit and loans. In this definition, leverage allows people to buy things they don’t have the money to buy in an effort for them to increase their financial capacity. To illustrate this definition, think of a home loan: the $500,000 home that is purchased by a family with only $100,000 of their own money to use as a down payment. Leverage is the ability to enjoy the upside potential of an investment you otherwise could not afford.

Leverage is a method by which you can do more with less. Less effort. Less money. Less time. If you are looking for a shortcut to financial success, leverage is the closest thing to it.

The importance of leverage

Successful businesspeople know that leverage is an important tool to increase wealth. Without leverage, people would have to do everything themselves, including running their own business, earning money, handling financial affairs, paying for everything with only their own money, micromanaging everything at work and at home, and still finding time to eat and sleep. If you feel like this is an accurate description of your life, then you are not using leverage.

Leverage makes your life easier. Leverage frees you to do the things that are most important, most profitable, or most enjoyable to you. Leverage is what allows you to achieve greater levels of financial success. No matter what your financial goals, mastering the art of leverage and incorporating it into your planning will help you reach these goals faster. As you can see, leverage is a way to increase the power and effectiveness of financial planning.

Financial leverage: the foundation of wealth

For thousands of years, every great construction project required the use of levers to complete the building process. This was true for moving the large stones to build the pyramids of Egypt and lifting the stones for Stonehenge. Levers were used to build all of the great castles, churches, synagogues, and mosques around the world.

F

inancial projects are very similar to construction projects. They both can seem overwhelming at the

beginning—a collection of complex tasks that must be executed with skill and precision. The success of both types of projects begins with significant and detailed planning. After the plans are drawn, they must be implemented accordingly. One person could not accomplish the implementation of these plans. Instead, the plan requires a team of people working together to accomplish the same goal. In this case, that goal is building and maintaining wealth.

Without exception, every high-income earner and wealthy family has relied on financial leverage in one way or another. Once you grasp the concept of leverage and the financial applications of leverage, it becomes impossible to imagine how affluence could possibly be built without it.

Leverage limitations

A little leverage is good. A lot of leverage is better. Who wouldn’t want to get more done with less effort or get more done with less money? Those who understand leverage have tried to maximize its potential and use for thousands of years. It may seem like the amount of leverage one can attain is endless, but there are restrictions on how much leverage you can achieve. This restriction can be referred to as capacity.

Consider the following:

• You can only exert so much force

• You only have so much time

• You only make so much money

• You can only borrow so much money

• You can only manage so many people

The principal goal of leverage is to maximize efficiency. Efficiency is achieved when leverage is maximized but capacity is not exceeded. It is important to be aware and to not exceed your capacity.

Examples of problems caused by increasing leverage beyond your capacity include seeing so many patients that you are: 1) making billing and coding errors (Medicare fraud); 2) working too fast and making mistakes (medical malpractices cases); 3) hiring too quickly and acquiring the wrong employees (employee lawsuits); etc.

Types of financial leverage

You can use different types of financial leverage to create and build wealth:

Leverage of effort

This is a way to get more out of your financial plans and investments. The goal of leverage is to get more done with less effort so all forms of leverage require collaboration; the leveraging of your individual along with the efforts of others.

Leverage of assets

Through leverage of assets, you can increase your financial status and get more out of what you currently possess.

If you had an unlimited amount of money or land, you wouldn’t need to accumulate any more wealth; however, this is not the case for most people. We all have limited resources and we want to get the most wealth/asset accumulation and financial protection out of what we have, with the least amount of effort and risk.

Leverage of people

Savvy business owners know that they only have the capacity to do so much and that the leverage of people is one way to get more than 24 hours out of a day.

By leveraging other people’s efforts, you can increase the number of tasks you can accomplish in a day. By leveraging people with special skills and expertise you don’t possess, you can get things done in much less time than it would take you—if you could accomplish them at all.

Generally speaking, physicians utilize leverage to some degree, but they are not thorough in their application. They try to leverage effort by working hard—we know that. Doctors also may try to leverage assets in their practice through medical equipment for which they can bill and they may try to leverage people through technologists, nurses, and physician’s assistants, who can generate income to the practice.

Still, few physicians apply this concept broadly enough in their practices to result in any real wealth building. Even fewer doctors effectively leverage people or assets with respect to their personal finances.

Diagnosis

Within each of the three categories of leverage discussed above—leverage of effort, leverage of assets, and leverage of people—there are a number of different applications. We will address these in subsequent articles. We will review each of these categories, discuss how they can be used to generate wealth, and explain which of these types of leverage are more appropriate for creating wealth and which types of leverage will best help maintain higher levels of wealth.

Mr. Berry, Mr. Jarvis, and four other members of the Daktori Financial Fellowship were recently named “2013 Best Financial Advisers for Physicians” by Medical Economics. For more information about Daktori, contact John Henry Dreyfuss at johnhenry@daktori.com or (917) 520-4192.

Receive a free copy of The Physician's Money Manual ($39.95 value), by Mr. Jarvis and Mr. Berry by visiting www.daktori.com/free-book/.