In our cd, “What Your Financial Planner Will Never Tell You,” my partner, Ann Mathis, and I discuss the idea of the velocity of money. The example we use is real estate. The natural question that I am frequently asked is whether you can create velocity in business.
The answer is a resounding YES!!! In fact, it is much easier to create velocity in a business than in real estate and money can move much quicker. Let me give you the example I shared with the folks at Buck Rizvi’s Supplement Millions seminar last month.
Suppose you use your money to buy or create a business. You likely will leverage your investment either through a loan from the bank or family members or with a carryback from the seller of the business. Let’s say that you are successful building that business in the first couple of years and now you have some good cash flow from it. What do you do with your cash flow?
This is where velocity comes into play for the business owner. You can either let the money sit in the bank, spend the money on a fancy sports car, or reinvest the money. One way to create velocity is to reinvest the money in the business by opening another location. Another way is to reinvest the money into the business either to build the business or to create additional intellectual property. Any of these investments can create velocity in your business.
So don’t start spending all of the money you earn from the business once you start creating good cash flow. Reinvest it either in the business, in real estate or in paper assets. By doing so, you can create amazing velocity and seriously add to your wealth.
By the way, there are also tax benefits to reinvesting your money in your business.