Everyone needs to understand leverage and compounding

Everyone needs to understand leverage and compounding:

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Everyone needs to understand leverage and compounding.

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It’s how you can outsize your success with consistent effort for a long time.

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Compounding, officially known in math as compound interest, is quote ‘the addition of the interest to the principal amount of the loan or deposit, or in other words, interest on principal plus interest’ as per Wikipedia.

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Einstein called it the 8th wonder of the world.

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Knowledge, like money, compounds.

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It’s additive.

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But it’s not linear.

It’s exponential.

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You can’t see the progress day to day.

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But after years of consistent work, the results will shock you.

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Another one is leverage.

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Leverage is commonly thought of in finance where you can get a loan from the bank for a much larger than the amount you have.

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For example, if you have a 10 billion dollar fund, you can go to the bank to get 20 or 30 billion dollars to use to invest.

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You can also think of it on the Internet.

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Your message can be broadcast to the world.

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For the same amount of work, you can exponentially increase your reach.

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Let’s say a doctor and a podcaster work the same number of hours.

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The doctor is capped by the service he produces for that day.

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The podcaster can reach millions of people for less than the amount of work.

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They’re spending the same amount of time working but the podcaster can make millions of dollars, especially while he sleeps because of the leverage effect of the Internet.

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Naval talks about 4 using forms of leverage for maximal success - labour, capital, media and code.

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Labour means managing people.

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However, it’s complicated as you scale because managing people’s egos is tough.

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Capital you need to be born rich, make your own money or have someone give it to you. 

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Both forms of leverage you need permission.

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You can’t become a manager unless you’ve gotten promoted up the ranks.

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You can’t manage other people’s money until you can prove you can manage it.

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However with media and code, you don’t need anyone’s permission.

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Media voices can reach millions of people today, more so than at any other time in history.

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There’s a reason social influencers are titans or at least can be.

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Code is the same.

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You can create a 1000x more valuable product with code.

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Media and code you don’t need someone to grant you permission to do it.

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Learn how to become a media voice or learn how to code and you can use the massive leverage the Internet provides.

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If you work on yourself and your knowledge for years while using these forms of leverage, the world is your oyster.

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So learn about leverage and compounding.

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It’ll change your life.

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