Comments on: Leverage: The Secret of Making Big Money http://www.fivecentnickel.com/2006/06/28/leverage-the-secret-of-making-big-money/ personal finance tips, tricks, and commentary Mon, 13 Feb 2012 18:22:18 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Eugene http://www.fivecentnickel.com/2006/06/28/leverage-the-secret-of-making-big-money/comment-page-1/#comment-245562 Eugene Mon, 12 Sep 2011 15:11:52 +0000 http://www.fivecentnickel.com/2006/06/28/leverage-the-secret-of-making-big-money/#comment-245562 Clearly, the person who published this is the reason for the financial crisis. Clearly, the person who published this is the reason for the financial crisis.

]]> By: David http://www.fivecentnickel.com/2006/06/28/leverage-the-secret-of-making-big-money/comment-page-1/#comment-78756 David Fri, 03 Aug 2007 04:36:52 +0000 http://www.fivecentnickel.com/2006/06/28/leverage-the-secret-of-making-big-money/#comment-78756 I think it's important to note that theirs usually a strong correlation of RISK associated with leverage. Sure if you pay your employees $10 and they make $15, that's leverage. Similarly, if you buy a house using 100% of the banks money, that is also leverage. The problem is that risk frequently increases proportionately with leverage. For example, if you suddenly lose your job or fall ill and are unable to work for 6 months, your "leveraged" house would suddenly turn into a huge liability. It's a boat anchor dragging down your financial life. The same is true of employees. If you have a slow month or slow season, you still have to pay all your staff regardless of whether or not you made enough money. If you lay off your employees, people won't want to come back to work for you and you won't be able to retain a quality work force. Thus further hurting your profitability. My point is, leverage is a two-edged sword. It will cut you just as quickly as it advances you. I would use it cautiously. I think it’s important to note that theirs usually a strong correlation of RISK associated with leverage.

Sure if you pay your employees $10 and they make $15, that’s leverage. Similarly, if you buy a house using 100% of the banks money, that is also leverage. The problem is that risk frequently increases proportionately with leverage.

For example, if you suddenly lose your job or fall ill and are unable to work for 6 months, your “leveraged” house would suddenly turn into a huge liability. It’s a boat anchor dragging down your financial life. The same is true of employees. If you have a slow month or slow season, you still have to pay all your staff regardless of whether or not you made enough money. If you lay off your employees, people won’t want to come back to work for you and you won’t be able to retain a quality work force. Thus further hurting your profitability.

My point is, leverage is a two-edged sword. It will cut you just as quickly as it advances you. I would use it cautiously.

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