What do I mean by “increasing the velocity of money?”
Lets use a metaphor: Imagine several circles, one inside of the other (see the photo below). If you are living month-to-month and only receive earned income, you are running around the outer most circle. It takes you longer to go around the circle than someone who has saved some of their earnings, and re-invested the savings into income producing assets. In a prior blog post , I talked about the importance of earning income in the “capital gains” tax bracket. As you develop more streams of income, especially streams that are in the lower capital gains tax bracket, the smaller the circle you get to run around. The goal is to get to the smallest circle. The smallest circle is the level at which your assets pay for your living expenses and you no longer need to work. Your job title becomes “asset manager” i.e. you manage your own assets.
Each individual or family has a unique number of circles in their diagram. This is because each person has a unique dollar amount at which they can “comfortably” live off of. You should run your life like it is a business. After all, you have an income and expenses just like a business does. The more you spend, the more you will have to make to cover those expenses.
Now, lets figure out what your number is so that we can back track to find out how much monthly cash flow you will need in residual income to cover your monthly expenses. Open up a blank excel spread sheet and list all of your bills and how much they are each month. It should include costs like: rent/mortgage, car payments, gas, utilities, phone bill, health insurance, car insurance, groceries, entertainment, etc.
Once you have added up all of your living costs, subtract it from your current monthly income. Are you even? Do you have money left over? Are you running a negative? Be honest with yourself, this is an exercise that no one needs to see except you. Start a journal/excel spreadsheet called “My financial Report Card”. Start by tracking each month’s income and expenses. You can’t change what you don’t track. Knowing where your money goes is the first step to saving, and then investing.
Remember, the way to increase your passive income stream is by saving money and re-investing it into income producing assets. Click this link to access a few easy tips to increase your savings: 54 Ways to Save .
One of the ways I like to save money is that I meal prep twice a week. I have become so efficient at meal prepping that I can make breakfast, lunch, and dinner in an hour for the next four days. I used to cook dinner every night, which would take an hour for each meal. That is four hours of cooking over four days, but now I can prepare four meals in one hour. That is a 6 hour savings over the entire week! Why am I bringing up cooking in a blog about saving money? Because cooking your own food can create huge savings!
Lets do the math if you were to eat every meal at a restaurant or take it to go: A breakfast would cost you $7, lunch would cost $12, and dinner would cost $16 (I am being conservative here. I am sure many of you have eaten a $20+ dinner).
Lets add all of that up and then multiply by 30 days per month. That is $1,050 per month on eating out! I currently spend about $60 per week on groceries, but I am a relatively small individual, so say you spend twice what I spend on groceries… Say $100 per week, that is $400 per month. That is less than half of what you would spend on eating out!!! Additionally, you know exactly what is going into your meal, which can help you eat healthier!
Do you know any easy ways to save money? Post a comment!