Velocity of Money: (also known as movement of money or flow of money)
think about a river…when its moving the water is healthy…money (currency) is no different, our world wide economy survives because money moves…your economy (everything in your life with a dollar sign in front of it) must be moving also…EXAMPLE: interest from money markets, mutual funds in a taxable account, capital gains should never go back where they come from (or be re-invested), they should always go somewhere else, ideally to your Prosperity Flow Through Account.
this is the “somewhere else” from above, money moving has a multiplier effect EXAMPLE: interest from a money market should pay car insurance premiums, multiplying the effective use of that dollar…basically getting one dollar to do 2 jobs (the money market and the car insurance). Capital gains could pay for life insurance premiums, getting a few more jobs done…cash value of life insurance shouldn’t sit, it should move, multiplying again its effectiveness and the number jobs its doing or products its buying.
Lost Opportunity Cost:
lost interest when you send a dollar away and can’t ever get it back EXAMPLE: when you give an extra dollar to the government…you not only loose that dollar, you loose the opportunity to invest that dollar for the rest of your life…same when you send cash to a university or private high school, you’ve lost the dollar plus the opportunity to invest that dollar for yourself forever.
Macro Economic View:
seeing the big picture, (micro is seeing the details) both are important but too often you make mistakes by not looking at the full impact of one financial decision on another, lost opportunity cost is often missed as are capabilities for one dollar to do more than one job. EXAMPLE: if you run your investment dollars THROUGH your life insurance policy before you invest it, you’ll get 5 or 6 jobs done versus 1 or 2 with the investment by itself.
think about an engine with a turbo-charger, a booster that isn’t the engine but helps the engine be more effective…turbo-chargers are strategies (what you do) engines are products (what you buy) EXAMPLE: a mortgage is a product, what you do with it determines how effective you are at building wealth because if you pre-pay it, you are only getting one use of the dollar and there is lost opportunity associated with that until you re-finance or sell…but if you pay a 30 year amortization or interest only or option arm payment AND invest that money instead, you’ll be more effective in building and protecting wealth.
opportunity to get money moving and increase benefits and money supply by paying money to the life insurance company monthly or annually EXAMPLE: for whole life that builds cash value or for term insurance you plan on converting. Whole life insurance cash value should store your liquid emergency/opportunity fund.
Business Cash Advance Account:
a one year growth opportunity that operates like peer to peer lending, except it’s money lent by you to businesses inside a fund. Available for all investors (cash or IRA) who have sufficient liquidity.
a 1-3 year income producing opportunity, typically backed by residential or commercial real estate or a land lease, whereby you lend principal, get paid interest monthly, with principal expected to be returned at maturity. Best for cash, though can be IRA monies. Available for all investors, though some which include ownership capability and tax benefits are for Accredited Investors only.
a 7-10 year growth opportunity whereby you invest in a fund that buys senior citizens life insurance policys’ death benefits. Ideal for IRA money, though can be for cash. Available for Accredited Investors only. PPM (private placement memorandum) must be read.
a 3-5 year growth opportunity with tax benefits of direct investing in a fund of oil wells. Available for Accredited Investors only. PPM (private placement memorandum) must be read.
Self Directed IRA:
An independent custodian that holds your IRA and enables alternative investments as above.
Net worth of $250,000 or above, sometimes called a Qualified Investor.
Net worth of $1,000,000 or above, not including home equity OR income of $200,000 if single or $300,000 if married.