In its most literal sense, a lever is “a rigid bar resting on a pivot, used to help move a heavy or firmly fixed load with one end when pressure is applied to the other.”
“You can’t move a rock by your self. You just need a lever to change the direction of that rock.
That is smart work.” - M.Rehan Behleem
In finance, leverage is debt. Borrowing money so that you can do things you couldn’t normally do. However, leverage is a double-edged blade. If you’re not careful, it can ruin you. If used properly, it can do wonderful and amazing things. That’s why I love it. Power that must be kept in check. You must stay measured, humble, and sharp so that you don’t burn yourself while using it.
Leverage gets a bad rap. I get it. Debt is a scary word. “Oh don’t go into debt, don’t use debt to pay for things, you’ll end up owing a lot more than you intended.” You hear these horror stories of how people end up ruining their lives by using too much leverage, and end up blowing up their companies, or building up massive credit card bills that they’ll never be able to cover, or winding up with too many student loans that hang over their head like a specter. And sure, debt used unwisely can go terribly. But used in the right way, it can be a power tool to enhance your life. Much like how I wouldn’t advise a child to use a power drill, I wouldn’t advise the uninitiated to use leverage as a tool to get what you want (and frankly, some people I know really should not have any leverage), but if you’re an ambitious adult with a reasonably good head on your shoulders, I believe you would be remiss not to apply the power of leverage to your life, work, and personal finances.
Use leverage wisely; don’t use it, and you are unlikely to realize your full potential. Use too much, and you can quickly find yourself in a bad place. In being a double-edged sword is part of the beauty. A maker and a destroyer, it must be respected. And thus, leveraged-ish.
Some of my favorite quotes related to the use of leverage:
“The central question facing borrowers — how do I access opportunities beyond my current resources? — is analogous to a question that inspires many of us: How do I live the fullest life? Much of what life has to offer requires the help of others… Getting that help creates a set of commitments — and those commitments come with constraints. In short, how you are able to embed yourself in broader networks and relationships through commitments will determine your ultimate trajectory — much as debt shapes the trajectories of firms by providing resources in return for commitments.” - Mihir A. Desai
Inevitably, risk-taking will lead to failure, and failure should be viewed as a bad outcome with an abundance of lessons. Conflating the bad outcome of risk-taking with a sense of moral failing limits our willingness to take on risks and we lose out on the opportunity to learn from failure.