The leveraging of cash and assets has been around almost as long as money itself, and is a term bandied about by everyone from large multinationals to internet marketers and scam-artists. But what does it mean?

In its simplest terms, leveraging is where the money you get out is greater than the money you put in. Or, more simply, making money work for you, not the other way round. It is used in financial markets, property markets, by stock investors and, more recently, in the realms of the internet.

This article aims to explain the main differences between real-world leveraging and e-leveraging, without getting bogged down with equations and (too many) figures, and how to spot a genuine opportunity from a pyramid or ponzi.

In the financial markets, leveraging commonly takes the form of a company borrowing money at a set interest rate so they can invest it and get a return that is more than the interest charged. Sounds complicated, so take a look at the example below.

Amount borrowed……….$100 (at an interest rate of 5%)

Amount to repay………….$105

Amount invested………….$100

Amount made………………$115

Minus repayment…………$105

Profit…………………………….$10

So the company make $10, or 10% just from using leverage.

Much the same has happened in property investment, where people borrow money to buy a house (mortgage) on the basis of putting down a deposit. If the house goes up in value, and interest is only paid on the mortgage, leverage means the homeowner is better off. Take a look

House price……$100

Borrowing……….$60K (at 5% Interest)

Equity………………$40K

If the house goes up in value by 5% over a year (to keep things simple)

House value…….$105K

Borrowing…………$63K (60 + 5% interest)

Equity………………..$42K

So the homeowner has used leveraging to make $2000 over the year

What does leveraging mean in the internet world? Well, in the sense that it is commonly used, it can be said to be leveraging money AND time. Usually, this is by you working to help yourself and someone else, in the hope that people further along will all be working to benefit both themselves, and also you. But how?

The most common one is the ‘join us and tell people’ scheme, which basically expects you to pay to join a scheme. You then tell 15 other people who pay to join (you usually get a portion of this), who each tell 15 people and so on. The figures bandied about can seem ridiculous, as I have shown below. This is based on an initial investment of $5 and everyone who joins telling 15 people, who all join. You get to keep $1 from every person who joins.

You join…………………-$5

You get 15……………..$10 (15 people minus the $5 you put in)

They get 15 each……$220 (15 x 15 minus the $5 you put in)

Who get 15 more……$3370 (15 x 15 x 15 minus the $5 you put in)

And again……………….$50,620 (15 x 15 x 15 x 15 minus the $5 you put in)

Sounds great, and logically it all makes sense because every person who joins can expect the same results if everyone gets 15 people to join. And yes, if everyone pulls their weight and get that many people, it does work. .

The main thing to be wary of is an illegal pyramid (or ponzi) scheme masquerading as a leveraging system. First, it is a myth that pyramids are bad per-se. Any government, church, religion or company has a pyramidal structure, and wouldn’t work without one.It is ILLEGAL pyramids that are outlawed, and for good reason. Fortunately, they are also fairly easy to spot if you know where and how to look.

The definition of an illegal pyramid scheme is one that is ‘”A fraudulent business with a non-sustainable income model, that relies primarily on members ‘investing’ or paying money to a sponsor in the promise of getting a considerably larger return on that investment. Often disguised with over-hyped or over-priced products which either do not really exist or are almost worthless. Are very secretive about the information they reveal to ‘non members’. The people at the bottom of the pyramid always lose their money, while only the people at the top ever make any money.”

So, to spot an illegal scheme, look for the following things

Benefits forever without any work on your part A (possibly large) membership fee as well as your investment. More than 3 exclamation marks in its publicity (sign of hysteria) Permanent membership to the scheme Limited information is given until you join You have to pass up a proportion of your profit to someone else. General playing to your emotions and trying to bypass your rational thought.

No single thing says ‘pyramid’ by itself, but if more than three of the above are true, its probably time to put away your wallet and look for something else. If none are true, its most probably genuine.

The name of leverage has been dragged through the mud in the last few years, but has always been an essential aspect of business. In essence, nearly all business relies on leverage of some sort to make a profit. A builder is using leverage when he buys a cement mixer for $1000 knowing he would get a $1500 saving on labour costs because of it. The trick is, as with any other business, to check out the individual schemes on their own merits and decide from there. There are definitely valid and genuine leverage systems that are worth joining, and with a bit of thought and homework, it is easy to identify these from the throng.