Velocity of Money – Episode 535            

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, we’re talking about the velocity of money. So for all you runners out there, Olympic athletes, I’m hoping that I can pull you in and say, we’re tying that velocity of running and the marathon to what your money will do. That kind of works. Really this is two parts. This is for you adrenaline junkies. We’re going to show you how to control your money using an acronym that we’ve used in the podcast before CLUE and how you can get that marathon, that long distance velocity out of it as well. There’s our promise. Kim, how do we deliver on that? Well, I have to first tell a fun story. We actually have a client that gets paid to run. What? Wow.

[00:52] Isn’t that cool? I mean, there are professional athletes out there that are pre Olympic and whether they make that or not, or sometimes even post Olympic, they get paid to practice their craft and we have a specific client that gets paid to run and a coach that coaches her and recommends other clients to talk to us. So I think that’s pretty special. That is special. Wow. How about that? That’s a different type of velocity. I wasn’t expecting that it is. So let’s talk about this. It is a very tempting word, right? When you hear velocity of money, you just immediately think, oh, I want to have that. And yet most typical financial planning strategies do not implement velocity. In fact, they literally prohibit it.

[01:44] So what do I mean by that? So let’s take a look at the retirement account space. So your Roth IRAs, 401ks, 403Bs, profit sharing plans, regular IRAs, rollover IRAs, inherited IRAs, et cetera, et cetera, et cetera. Those literally disable velocity because once you put money to them, notice the verb I’m using. Once you put money to them, that money has to stay there. Now I know you can trade it within, you can sell one stock and buy another one mutual fund and buy another, but you can’t until you’re 59 and a half. And of course the government could change that age anytime they wanted to get the money back out. So you don’t have the ability to put the money through the account. You have to put it to the account and that disables velocity because the term velocity

[02:39] implies movement. So you want to look at other assets. So assets are things that you buy or products, if you will, products or things that you buy and combine them with strategies, which are things that you do to implement velocity. And I want to pick up on the clue acronym and then I also want to identify two specific products that enable velocity very, very easily. And it becomes very obvious when we look at the clue acronym for measuring the capacity for velocity. And this is not going to get overly complex. It sounds complex, doesn’t it? It sounds a little complex, but I I’ve seen the way that you work and we’re going to simplify this as much as possible. And then I have a follow up question that we’ll see if I can throw a little curve

[03:42] All right, sounds fun. So the clue acronym is C L U E and it stands for control liquidity, use and equity. So control liquidity, use and equity. And sometimes the L stands for legacy. If you’re a little bit older and that’s more important to you. I want you to consider using the clue acronym as an opportunity filter for your product. So let’s take the 401k, the retirement account space through the clue acronym. Do you control it? No, the government does. Is it liquid? Absolutely not. It’s locked up till you’re 59 and a half. Can you use it for whatever you want? No, you have to use it for later only. And can you borrow against it? Does it act like equity? And the answer is no. So you have a whole litany of no’s for the retirement plan space.

[04:41] Not saying that the retirement plan space is bad. And maybe if you get a match, it’s a little better. But the fact is you don’t control it. It’s not liquid. You can’t use it for whatever you want. And it does not cannot by law act like equity. So you’ll want to pay attention to that. Let’s take two other products that act very, very similar and I’ll just throw them in the same category for now and take them through the clue acronym. So let’s look at whole life insurance, the kind that has cash value and investment real estate. Now you could say primary residence, real estate as well, but let’s get specific and say investment real estate. Let’s take that through the control liquidity use equity acronym.

[05:22] Do you control your whole life policy and or your investment real estate? Absolutely. You choose when you choose how much. You choose whether or not to do any of the other things with it. Is it liquid? Life insurance? Absolutely. Investment, real estate, potentially if you can keep an equity line of credit on it. Can you use it for whatever you want? Yes. The life insurance can be used to educate children, provide an emergency fund, be as an opportunity fund. The real estate, if you have equity, yes, you can use it for whatever you want. Furthermore, you can rent it to whoever you want. You can choose not to rent it. You can rent it to yourself. You know, there’s all kinds of strategies that you can dictate.

[06:07] So control liquidity use, and then both products act like equity. They can be borrowed against. And so those products, you can put money through retirement plans. You can only put money to it. Life insurance and investment real estate. You put money through it, meaning you contribute dollars to it in the form of a mortgage payment or a down payment or a premium payment or a paid a petition contribution. And then you can turn around and borrow against it and get the money back out the other side to go on and do other things. And this is what the velocity of money means. It’s the movement of money through an asset or through a product via strategy. Strategy is what you do. Products are what you buy.

[07:00] Strategy is what you do. The velocity of money is a strategy. It’s not a product. It’s something that you apply. It’s something that you do. It’s an act. And it will then get those dollars moving to then go on and do other things. And I want to check in and see if that makes sense. And then you throw me your curve ball. Absolutely makes sense. And I think what makes sense about it is that we can analyze any asset that we have by following that strategy, and it’s very simple. Now I would say in my situation, you know, when I look at this, I’m thinking, okay, the liquidity is a pretty big indicator right there alone. And that is one that a lot of people will get mixed up on, on the liquidity piece,

[07:50] because they will decide or let’s say they’ll fantasize that they can be liquid faster than what they are able to, or that they actually have the control to have the liquidity. Yeah, I hear people say to me sometimes that their stock account is liquid. Sure, it is as long as the market’s up. But I guarantee you, if we have a downturn in the stock market, they are not going to want to liquefy their stock account. They’re going to want to sit in there and wait until it comes back up. And maybe it will, maybe it won’t in the short term. That means it is not liquid. Absolutely. So you said there’s one other piece on here, a curve ball that I can throw your way. So we’ve talked about this in other podcasts before.

[08:39] And it’s one that looks it’s disguised as following the clue acronym. It’s disguised as working, but it doesn’t. And that is this whole convoluted thing of using home equity and lines of credit and bouncing this around and all of that. You’ve seen it. And on a TikTok video or an Instagram reel or in a quick blog post, it could feel like it’s there. Why is it not? Because it has extra dollars associated with it. So whether you’re talking about the Australian mortgage or the get out of debt in seven years or the home equity credit line method of mortgage paying and prepaying and et cetera, no matter what you call it, there are extra dollars included. And we have a lengthy white paper that goes through this that spells the whole thing

[09:40] out in very specific terms. And one of the biggest things that it points out is so often in those programs, there are different timeframes and the actual facts are very misused to make something appear that is not true and not accurate. And that is, again, extra dollars are included, and that’s why the debt gets paid off quicker. So this space, the prepay mortgage space, and it could be as simple as even just a regular 15-year mortgage or it could be more complex as to some of these others that are talked about is apropos of anything that is happening in today’s social media world, which is that a lie can be told in a sentence and in order to tell the whole truth, it takes a paragraph or an entire blog post or a full on 20-page white paper

[10:40] to spell out all of the distinctions that then tell the whole truth. And so I really, really encourage people, if something sounds too good to be true, keep digging because Peter D. Amanda says a crazy idea sounded too good to be true the day before it was implemented. You know, take something like flying cars that we used to just laugh at and now they’re actually happening. And yet, when it comes to finances, there is no new invention. This thing did not just come across the pond from Australia. There is not a way to get something for nothing. You cannot eat at McDonald’s every day and expect to have a healthy body. You know, it’s all in the same space. In order to be truly financially efficient, you have to have all the facts.

[11:35] You have to be measuring them over the same time frame. You have to only change one element at a time. In a scientific study, you can’t go changing two ingredients. And so when you break it all down and do the analysis properly, it becomes very obvious where the inaccuracies are and what is true and what is not true. And the bottom line is on the mortgage as an example, a 30-year fixed mortgage with no prepayments and no extra principal is more efficient than a heckle or a heckle or any other acronym that you want to assign to what is essentially prepaying the mortgage, whether it’s home equity credit line, 15-year mortgage, 13 payments a year instead of 12, 26 payments a year instead of 12, you know, all those special programs that are out there,

[12:27] which by the way, you usually have to pay three or four grand to get involved in, are not as efficient as a basic 30-year fixed. So let me see if I answered your curve ball, but then let me also throw out why I think they’re so tempting. So you did answer it, and that’s where the disguise happens by a good salesperson convincing you in one sentence that sure, you control this and yeah, you can get liquid because you’re using the, the, the heat lock or the heckle or whatever you want to call it and follows mostly other pieces, but you’re right. It doesn’t actually work. So what’s the meat of this? It’s human behavior and behavioral finance is a thing. There are people that are studying it. I will be so grateful if they can get it figured out, but they’ve been studying it

[13:30] for quite some time and part of the challenge with us human beings is it’s very difficult for us to see ourselves in the future because we cannot see ourselves in the future. It’s really hard to make long-term decisions. Like if you asked everybody today, what snack do you want it break a week from now, a banana or a piece of chocolate? A lot of people would vote banana, like 70% or something from the studies that I’ve seen, but when break time actually comes a week from now it’s flipped 70% will choose the piece of chocolate. Right. And because we have a hard time seeing ourselves in the future programs that instill a little bit of automated discipline can be valuable. And that’s really all that is it’s like the 401k that takes the money from your check

[14:27] before it hits your checking account. The reason that works is because it instills some automated discipline. So it’s so much better instead to install your own series of steps of discipline, like using the current structure, like using gravy stack for your kids, which of course will help the adults as well, like having a save first mentality so that you control the human behavior aspects that you want to have happen. And that is what is going to build wealth, our habits and structures that you control. Oh, I love it. This is so good. So now we’ve explained, we’ve broken down the elements of the velocity of money. We’ve talked about what it really means. We’ve helped you miss. We’ll talk about this so that you’re not going to be misaligned or misguided

[15:29] by one of these strange programs. There is one other quasi thing that I have seen work, but you’ve mentioned it already, which you’ll hear about from Elon Musk or people that take companies public or with a large investment portfolio where you can borrow against it. And yes, that may work when the markets are up. That also is when people lose. And it made me think often recently, I read an article during the last big downturn that we had, every single car company in the United States went bankrupt except for Ford and Tesla because they did not have access to capital. They didn’t have control. And for all of our households here, we don’t know what will happen. I think for us, we’re going to be prosperous regardless of the economy.

[16:26] Now that prosperity might go a little slower. Sometimes it might be a little faster, but we’re going to be prosperous in our minds and it’s going to happen everywhere else. But we can’t get sucked into the things that can destroy that prosperity. So this was helpful, Kim, the velocity of money. Always a joy, Spencer. Thank you. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.