Our Way – Velocity of Money
The Velocity of Money is the rate at which money changes hands – using the same dollars multiple times to create economic benefit.
Let’s clarify the concept with an example:
Deposits to your checking account don't stay at the bank. In fact, you could be borrowing your own money back when you use a credit card to pay for a purchase.
When you pay the credit card bill, the bank has use of your dollars again and has earned a fee for providing access to your credit. They are, in effect, loaning your own money back to you.
But you are not the only one to whom the bank loans your money. Your deposit may be loaned to:
- a builder to pay for supplies
- a small business needing operating capital... or
- a family buying a home
The bank acts as a money broker, loaning out your money to realize a return. They use the difference between what they earn with your deposit dollars, less the interest they pay you, to make a profit. In other words, the bank uses OPM – Other People's Money – to create more assets. At Money Counts, we use integrated banking strategies to increase the number of uses for your money to benefit you.
Our consultants will show you how to use the velocity of money to work toward creating wealth for yourself in much the same way as the bank --- by using idle money to improve your potential to create income and cash flow or to build assets.
See an example of how Money Counts can help you make your money work for you.
Their Way --- Accumulation of Assets
Some traditional money managers build wealth by "locking" money away to be saved for each goal. This occurs when you purchase products that are designed to be goal specific.
Examples of locked money are:
- 401k, 403b and IRA plans for retirement
- 529 plans for education
- Special purpose insurance plans - Cancer, Accidental Death, Life insurance for Mortgage payoff - for risk protection
- CD's and fixed rate bonds for emergency funds
This method implies that if this money isn't locked away for each goal, you might spend it and not be prepared for emergencies, college, retirement, etc. The early withdrawal penalties and surrender charges are designed to keep you "locked in".
This type of wealth building may be referred to as passive because you lose access to your money for many years and it is only available to you in specific situations. Meanwhile the product providers continue to earn fees while the access to your money is restricted.
See an example of how Money Counts can help you make your money work for you.
* This does not represent financial advice. It is intended for clarity purposes. No financial advice will be offered by Money Counts until we have a complete understanding of your individual financial picture. Diversification does not ensure a profit or protect against a loss in a declining market.
* These are the views of Money Counts, Inc., and not necessarily those of LPL Financial and any of its affiliates and should not be construed as investment advice.