Leverage is the use of financing to borrow capital for an investment, with the expectation that multiplying the risk-reward relationship of the investment will create more potential profit. In other words, the more money you invest, the more risk you have and the larger the reward (profits) you receive, if all goes as well with your investment.
Kiyosaki vs Ramsey Who is Right About Debt?
Robert Kiyosaki and Dave Ramsey are probably two of the biggest names in personal finance today. But they have almost polar opposite views on financing and investing. For those not familiar with these two, Robert Kiyosaki is the author of the best-selling book Rich Dad Poor Dad, which he has now turned into a series of books, and a brand of educational games and other media. Dave Ramsey is a best-selling author, a nationally syndicated radio host, and owner of Ramsey Solutions, an educational company that sells personal finance training programs.
Robert Kiyosaki became famous for teaching such unconventional notions as “Your home is not an asset”. Here’s how he defines assets and liabilities, “ An asset is anything that puts money in your pocket every month, and liability is something that takes money out of your pocket every month”. He also believes you should “never say, ‘you cannot afford something’. That is a poor man’s attitude. Instead ask yourself, ‘How can you afford it?’”. These unusual concepts are what made him popular and helped him take the personal finance world by storm. His philosophy on debt is that it should only be used to finance assets like rental properties, not liabilities like cars, boats, and as he says, “doodads”. He believes the key to investing is to leverage your assets to maximize your ability to purchase more assets. Which on some level makes sense because you can grow your investment portfolio much quicker. But this is not without risk!