11: THIS PHYSICS EQUATION WILL MAKE YOU WEALTHY!
Sir Isaac Newton is well known for his contributions to physics. Much of the physics we learn in high school is Newtonian physics. That’s because it is easy to understand.
Perhaps you remember the equation Momentum=Mass X Velocity? Instinctively you understand what momentum is—imagine a locomotive moving rapidly along the tracks. It’s hard to stop!
Now, let’s apply this equation to building wealth. Would you like to create momentum in building your wealth? If so, let’s look at that equation again. In order to increase momentum, you have to increase either mass, velocity or both.
Velocity means something specific in personal finance. Velocity is how quickly you deploy your capital. In general, the quicker you deploy your capital, the quicker your wealth will grow.
Let’s say you made an investment of $100K that yields 10 percent per year. Distributions are made on a monthly basis so you end up with $10 at the end of the year. Not bad right? Well, let’s say that instead of spending that 10K, you were able to invest it into something else that yields 10%. So now, you have 110K working for you rather than 100K and at the end of the year, you now end up with 10 percent of the 110K or 11K. If you keep the cycle going you will see that the speed at which your wealth grows accelerates and your over all portfolio gains momentum.
ONE OF THE KEY PRINCIPLES OF WEALTH BUILDING IS VELOCITY. The faster you redeploy your money, the quicker it grows.
So what is MASS in our equation? It is the money you put aside to invest. Velocity is great but without any money to work with, it is useless. In other words, the key to creating momentum in building your wealth is to deploy more capital (Mass) into investing and to redeploy your returns as soon as possible (Velocity).
Add that up with a little leverage and BOOM! You are on your way to the promise land!