Understanding money velocity can be very beneficial to any entrepreneur or business person. If you are an entrepreneur or just want to make some extra money– then listen up because this will help you tremendously.
So What Is Money Velocity?
The velocity of money is just a measurement or an equation that will tell you how fast you are recouping your money. For example. If you put $20 into advertising, then how long would it take you to get that $20 back?
This is assuming that you are getting it back at all (of course). So money velocity is really how fast the money is moving. This idea applies to business as well as investments. If you are looking to invest money into a business or an investment, then you will want to know the velocity of the return on your investment.
So let’s take our example from before and say that you are looking to invest $20 into advertising.
A big question you should be asking yourself is
” How fast am I going to get my $20 back?”
If you have a somewhat automated business, then the velocity of money will be much easier to figure out. If you were to look at any investments it would also be a relevant question to ask how fast your money will return to you.
Understanding this concept will allow you to put money out and get money back…very quickly.
Money velocity becomes even more powerful when you are building an asset along the way. An asset is something that you are building or investing in that will pay you in the future.
Let’s say you have $100 that you could spend in your business or invest with. You would want to try to invest that $100 into something that could pay you in the future and get your $100 back as soon as possible.
The faster you can move the money- the better. So you want to put that $100 into an investment and take $100 out of it as soon as possible while leaving the initial $100 in the initial investment.
Example of Money Velocity in my own business…
I am in the business of online marketing. I have products to sell, and I sell them via the internet. Really anyone can do this because there are 1,000’s or even 10’s of 1,000’s of products online that you can sell and make a profit from.
So in this particular business, I need to know how long it is going to take me to recoup my advertising dollars. If I put $25 into advertising, then I need to know how long it will take to get that $25 back.