# L6) Tracking VELOCITY in your Private Reserve Strategy System.

One example of** VELOCITY **is using the repayments of loans to capitalize the financing of new loans on a continuous basis.

This post is a demonstration of a way you can track the velocity of your own Private Reserve Strategy Loans. The diagrams tell the story and the xls spread sheet sections prove the math. You can use the spreadsheet in the same way if you want to. If you need me to re-email it to you, let me know and I would happy to send it to you and help you begin with this way of tracking your loans.

The following example is a very simple demonstration of borrowing money for 3 items over a period of 6 years. I am certain you will want to borrow way more than three loans over a one year time frame, let alone six years, but this is just so you get the idea.

I have not included the annual increase in cash value as you pay your premiums each year. I am only showing the starting of $50,000 in your cash value and how it can grow, OUTSIDE the policy, using *the velocity* banking strategy, which ALL banks use daily.

We begin with a pool of capital equal to $50,000. Where did that pool of money come from? How much money do you have sitting idly in an account waiting for your retirement or for an emergency or being saved for a holiday etc? Rather than allowing other people to move that money and pay them to do so for you, so they can make a profit, how about YOU being the one in control of moving that money? So let’s say YOU have full control of that pool of money called the cash value of your permanent life insurance policy, which you can collateralize up to your collateral capcity. You actually borrow the insurance companies money from their general fund though, while your money stays in your policy. We are focusing on what happens OUTSIDE your policy in this post.

How much will we end up with after six years, is the question, in comparison to how much we have lost out of our circle of wealth had we used a corner bank for the three loans instead of our banking system?

* Click on pictures to enlarge if needed.

We decide to go and buy an SUV using the cash value in our Private Reserve System as collateral while we borrow the insurance companies money, that way our cash value is still earning guaranteed growth and non-guaranteed dividends while we use their money.

To see how by not interrupting the compounding effect of your savings earns you more money than using that money to pay cash, read this post here using *pay premiums* as the access password.

Our first loan is to buy a $50,000 SUV. We decide we will pay it back over 6 years with a monthly payment of $961.00. At the end of year one, how much money will be back in the pool?

After a year of $961 monthly repayments, we end up with $11,532 as the determining factor for how much we can again borrow. So the kids luck out and get a 4-wheeler each. The repayments of the SUV are now funding the capital needed to finance them, so we borrow the $10,000 and set up another loan. We decide we will pay them off over two years and our monthly payment will be $441 increasing our total monthly repayment to be $1,402.

Guess what, after paying two loans back over the past year we now have $18,356 as the measure (or our collateral capacity) for how much we can now borrow again from the general fund of the insurance company. We decide it is time to update our furniture and so splurge with another $10,000. We set up this third loan over a four year period so it will end at the same time as the SUV loan. This increases our monthly repayments by $233 to a three loan total of $1635.

So at the end of year one of the furniture loan, 1/1/2014, which is year 3 of the SUV loan, the two year 4-wheeler loan comes to an end. This decreases the monthly repayments now from $1,635 – $441 = $1,194.

For the next three years we faithfully repay the $1,194 and do not finance anything else. Remember though that you are paying unstructured repayments. That means, if you have an unexpected expense that makes it very difficult to come up with a months payment, you can choose to not make a payment that month with no penalties, (unless you wish to charge yourself a penalty) and no negative consequences on your credit report.

Sorry that year five is missing months Feb thru April 2015. The math is correct, the picture just isn’t there.

We now end up with an ending balance of $70,960. We started with $50,000 and so our money grew by $20,960. This is a total increase of 41.92% over 6 years. Or 41.92% of guaranteed, no risk wealth accumulation that is happening out side of the policy while on the inside of the policy the cash value is compounding the savings and growing our death benefit (which is what is being used as collateral for the loans)

Looking a little more closely, the $50,000 actually bought Death Benefit first, before it became the financing of the SUV collateralized capital. Then the loan repayments of that SUV $50,000 became the collateralized capital for the 4-wheelers and then those loan repayments added to the SUV loan repayments once again became the collateralized capital for the furniture.

If, you had not started with the death benefit purchase in the first place and had gone to a local bank to borrow to make these three purchases, how much money would you have after purchasing these three items? ZERO. The total increase of the $90,960 is how much you would be out. All three loans principal and all the interest would be gone forever. Instead, you have your $50,000 intact, which is growing inside the policy. You also have all the interest ($20,960) as well. And you have your three purchased items. Let’s not forget the fact that you also have hundreds of thousands of dollars of death benefit as the icing on the cake. Yippeekyay!

**FINAL ANALYSIS – That actually translates to instead of a loss to the corner bank of $90,960, you have a gain of (the interest portion of your payments) $20,960,(+ the death benefit), the spread being $111,920, (+ the death benefit). **

**If you remove the $50,000 you started with, you are still ahead by $90,960 – $50,000 = $40,960 or 82% that would have gone to someone else’s bank.**

**Plus: you did not have to prove to any bank you did not need the money before they would loan you any money to buy these three possessions did you? **

**Plus, your repayment schedule was unstructured, meaning you could miss payments if needed without any negative side affects to your credit history or score.**

Is the Private Reserve Strategy worth the effort of tracking your money and banking a little differently than you have been taught in the past?

Imagine the power and wealth of banks who do this every day rather than 3 times over six years. And they do it mostly with fiat money. If you did this more than three times over a six year period, what would your results look like?

**(In response to a question just received I am adding the following:** The question is really discussing interest volume rather than velocity which is what this post was originally intended to be about, but here is the rest of the story regarding interest volume.

*The interest rate on each loan has not been added but it doesn’t really matter because we are interested in the total volume of interest you will either pay a bank or capture in your own system.*

* The interest rate is just a measure banks use but it is not as important as the amount of money (the volume) you are actually paying towards the debt.*

*The overall volume of interest you paid another bank in the scenario above is 29.94% ($20,960 / $70,000 = .2994 x 100 = 29.94%)*

*Because you were able to reuse your loan repayments to purchase the 2nd and 3rd items, which is velocity in action, this means your bank ended up with a 41.92% increase though.*

*We are looking at the volume of money leaving your circle of wealth and how you can velocitize your money in this example and it is also showing how the interest rate on each loan is really just a marker but is so much less significant than the volume of interest or the number of actual dollars spent. However, that being said, the first loans rate is around 11.35% and the next two are around 5.5% and 5.6%)*

Below are the calculators that prove my point and are educational because you can see the difference between interest rate and interest volume as well as how the length of a loan increases or decreases the volume of interest paid which is a good example of the ‘time value of money’.

**Loan 1 for $50,000 over 6 years.**

Notice below that with the first loan is being charged 11.35% over 6 years, but the actual interest volume is 38.34%

**Loan 2 for $10,000 over 2 years**

Notice below the second loan is being charged 5.5% over 2 years, so the actual interest volume is only a fraction more due to the speed of paying back the loan principal; 5.83%

**Loan 3 for $10,000 over 4 years**

Now notice even though the interest rate is pretty much the same as loan 2, .1% difference only, due to the length of the loan being double, (4 instead of 2 years) the volume of interest has increased by 6.25% to a total of 11.85%. That extra two years is the time value of money cost.

If you want help getting started using* Our Spreadsheet Calculator* to track your loans, please call me. You can also add in the cash value generated with each years premium payments and the death benefit as well. I did not because I wanted you to see the affect of just the three loans and nothing else.

You should have received an email with this xls spreadsheet calculator in it. If not, let me know and I will resend it to you.

From the bankers/bank owners point of view in your own life, contemplate how you can velocitize your own money on a continuous basis. Read EVA to learn why you want to do this. Use the password ‘EVA’ to access post.

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Notice one of the suggestions above is *‘anything that you pay for’.* Expand your mind to grasp this concept. What did Nelson say? He said, “your premiums should eventually equal your income.” Have that as your goal.

Nelson also suggests that when you pass away, you really should not own anything. This is a wonderful concept. Why? Because you are just funding the government if you pass away without a will, or with too much wealth, all depending on the rules that seem to change annually. Death Taxes, Probate on a federal and state level will eat into what you thought you were leaving for your loved ones. By having all your wealth in Permanent Life Insurance that passes on to beneficiaries tax free, you are keeping your hard earned wealth within your family circle.

October 17, 2011
· Jennifer · No Comments

Posted in: CLIENT LESSONS, L06) Tracking Velocity, Personal Bank

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