The Velocity of Money; Turbo Charging your Dollars
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.
