What is the velocity of money made simple? 2022

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The formula to find the velocity of money

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How do we find the velocity of money? Good news! There is a simple formula. But beware, this is not a get wealthy quick scheme. Learning this formula is one thing. Applying it and building wealth over time is another.

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Here’s the formula:

1- Invest my money into an asset

Saving is not bad...if it has an end goal. And that goal should be to invest it. Again, if we save money but don’t invest it—that is move it—it will die.

2-Get my money back

In order to be an investor, we need to receive money. We might invest in assets, but if those assets aren’t paying us back in cash flow, then we are not really an investor. We are a speculator hoping our "assets grow" in value.

In Real Estate we can apply this portion of the formula many times over, putting money into apartment investments, doing improvements and raising rents, and then refinancing the apartment loan to get our money back.

3-Keep control of the asset

A major component of the velocity of money is that it grows exponentially over time much more so that compounding interest. How? By keeping your assets that still give you cash flow, while also using the money from those assets to acquire more assets.

In Real Estate an apartment building, we get our money back tax-free, keep the apartment building, and continue collecting cash flow from that apartment building.

We can do this with any cash-flowing asset such as a business or venture capital.

4- Move my money into a new asset

This is the velocity part of the velocity of money. Once we get our money back from the original asset, we don’t sit on it. We move it into another asset! For example in Real Estate when the money we get from our refinance of apartment buildings and move that capital into yet another great apartment investment. Now we have two great, cash-flowing assets and we’re playing with house money.

5- Repeat the process

Simple enough to understand. This is a repeatable formula we can employ over and over again to build massive wealth. This is how the rich get richer.

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