Turbochargers have revolutionized aviation and auto racing forever; enhancing performance and speed in a way that traditional methods of engine modification had not previously allowed. In finance, greater dollar-for-dollar performance can be achieved by taking advantage of a powerful concept known as the “Velocity of Money,” where each investment dollar is placed in multiple locations at once in order to keep money moving in a personal economy.
“You could think of our velocity of money approach as a method that is similar to putting a turbo charger in your car. When applied to any investment you do, it allows the individual to act as his or her own economy. Once money stops moving in the world, the economy gets into trouble, and so will the individual’s own economy. Ultimately, the key to applying the velocity of money is to understand how the individual can place their investment dollars through something and not simply to something,” explains Bill Lyons, President & CEO of LEI Financial.
Turbochargers with engine applications are used to improve upon the efficiency of an engine by offering a considerable increase in power. Put simply, the turbo fills with air and builds pressure and is released into the motor in a gust. Put in perspective, when velocitizing money, you can witness your finances gaining “pressure” and then being released into your own personal economy with greater gains. By turbo charging your money, you can make the most out of your dollars by generating wealth in a variety of different venues. This all relies on the basis that if velocity is high, then a somewhat small amount of money can fund a large amount of purchases. By placing your investment dollars in multiple areas at one time you are keeping your economy moving and generating a constant flow of funds, just as a turbocharger keeps a vehicle moving at a faster speed than its competitors.
The “Velocity of Money” is a vital facet to the finance world, as it relates to the world economy. The U.S. Federal Reserve uses this model to gauge the condition of our economy. Every bank in America employs the strategy of the “Velocity of Money” in some form or another in their everyday operations. We can see its power put to use everyday at our local banks. When a bank receives your money, they do not just let it sit there to lay idle. Instead they put it into other investments to generate additional funds using the same initial amount, never using money for only one job.
“If an individual puts one dollar in a savings account at a bank, the bank is going to put that dollar in several places in order to use that same dollar to make the bank more money. Why wouldn’t an individual desire to use that same strategy? Ultimately, the key to applying the velocity of money is to understand how the individual can place their personal investment dollars through something and not simply to something,” Lyons says.
The “Velocity of Money” approach to building wealth is a time-tested strategy that has been around for many decades. The term was originally coined by mathematical economist Irving Fisher in the 1930s and refers to the circulation of currency in a given economy. Today, the finance and mortgage coaches at LEI implement this approach into their client’s own individual economies, to generate a consistent and reliable cash flow.
This philosophy relies on the principles of simple mathematic equations. The theory is based on the equation of exchange which says:
M · V = P · Q. To understand this equation in layman’s terms one must first understand the given expressions. M signifies the amount of money that is in circulation in an economy. V refers to the velocity of money (how often each unit of money is spent). P is the price level for the economy on average for a specified month, and Q represents the amount of goods purchased that month with the money represented by M.
Using this equation, we can see how the “Velocity of Money” can go to work in your personal economy. The formula in the equation, symbolized by M and V, represents the amount of money spent, and the sum represents the amount of money received. It all comes down to implementing the simple process of making your money work for you by keeping those investment dollars in motion to generate further financial benefits.
The method encourages diversifying investment capital utilizing a specific methodology in order to maximize yield. LEI Financial coaches are trained extensively in the process and serve not only to facilitate loan transactions but also as financial coaches. The foundation of the process involves the bundling of mortgage loans, real estate and asset protection products. The students learn how to take savings resulting from the refinance of a primary residence and, utilizing existing capital gains, tax rules and a high-dividend insurance policy, to generate cash value.
“If we can save an individual client $1000 per month on their primary residence, we will then teach them how to invest in real estate and gain additional benefits from depreciation and 1031 exchange without speculation,” explains Lyons. “We’ll then show the client how to invest half to all of their monthly savings in a High-Dividend Cash value Life Insurance Policy in order to protect their interest and generate cash value.”
There are countless ways to get your money working for you using the velocity of money strategy. Real estate investments and life insurance products can all be used as vehicles that keep money moving.
Analyzed piece by piece, the velocity of money can be seen as an applicable strategy in a few easy steps: First, a financial coach will analyze your situation and maximize your wealth potential. Then, in a tax free environment you can gain advantages through liquid insurance investments, and protect the future of your family in planning your retirement. Finally, identifying realty trends and projections, coaches analyze which markets will make your money work for you, and how.
A simple and easy example that demonstrates the power of the velocity of money involves investing in a home. Using a 20,000 investment in a single family home we can see the velocity of money go to work in an individual’s own personal economy. Investing that money in a home allows you to borrow appreciation or buy a house. Assuming you put 10 percent down on a $200,000 house, with a conservative 5 percent growth; your home would be worth $281,000 at the end of 7 years, with equity of around $101,000. This is a small profit compared to what you can gain when you truly velocitize your money. Using the same scenario, and implementing the velocity of money concept of keeping your money moving, we can see the limitless possibilities. Instead of allowing home equity to either accrue or appreciate, every 2 years, you borrow the appreciation you have gained on your initial purchase. Then, using tax benefits, you can purchase more properties every 2 years. After 7 years, you will have accumulated 16 properties with a value of $4,200,000 and $540,000 in equity, as opposed to a mere $101,000 in equity without the ‘turbocharger.’ Though, every student’s financial situation is unique and their financial storyline will result in different turns.
Turbochargers were first used in production aircraft engines in the 1930s prior to World War II to increase the altitude at which airplanes could fly. In 1952, Fred Agabashian qualified for the pole position at the Indianapolis 500 and led for 100 miles, powered by the first turbo powered race car. Turbocharged cars dominated Le Mans between 1976 and 1994, and today the turbocharger powers some of the world’s most efficient high performance machines. Take the economic pole position by turbo charging your investments; take advantage of what the “Velocity of Money” can do for you.