The Law Of Financial Momentum
September 21, 2023
4 Minute Read
If you are rich, this is why. If you are poor, this is why. You must be in control of your financial momentum. If you do not control it, it WILL control you.
Having had a physics background I was engaging in some nerd like activities one day. I was thinking about our company name, Momentum Lifestyle Network, and the importance of momentum in almost everything.
Beyond physics, momentum is extremely important in just about everything including sports, sales, business, leadership, trains…wait. Trains? Yes trains! John Maxwell the author of somewhere around 100 books on the subject of leadership and a mentor of mine and my wife’s, speaks of momentum in his book “The 21 Irrefutable Laws Of Leadership”. He calls it “The Law Of The Big Mo”.
He states that a stationary train can be stopped from moving forward by placing a small wood block on the tracks under the wheel. Why? Because it has no momentum. A moving train can hit a 5 foot thick steel reinforced concrete wall and smash right through. That train has momentum and can overcome the obstacle.
This made me think of the equation for momentum (the nerdy activity mentioned earlier).
Warning: For the non-nerdy readers out there, grab onto something for a minute. This is the important part that you will be tempted to skip… DON’T DO IT!
My first exposure to the momentum equation came in my college freshman physics course in Classical Mechanics. The momentum of an object in motion is the mass of the object multiplied by its velocity. Or
Momentum Equation: p = mv
For some reason the letter p is used to represent momentum. Probably because the letter m was already used to represent mass. How does this apply to money? It’s really simple.
Money is the object in motion. The momentum of your money (your assets) equals the mass of your money multiplied by its velocity. Example: Say you buy a warehouse for $1 million. Someone rents it from you and you make a 10% return per year. That 10% per year is the velocity and it gives your money(or mass) momentum.
Additionally, the property appreciates in value and saves you money on taxes.
It’s value is growing and it is hard to stop. That’s why the rich get richer.
Why the poor get poorer.
On the other hand the poor get poorer because instead of buying something that gives them a return they use high interest credit cards to buy depreciating assets (TVs, furniture, clothes, etc.) and they buy cars and toys(boats, motorcycles, etc.) on credit. Their momentum is going in the wrong direction. It’s going down.
Poor doesn’t necessarily mean low income. I know people who make half a million, even a million dollars a year who have no money. They are considered by most to be “rich”. They make a lot of payments on all the things they bought instead of investing in positive momentum assets. Cash flowing, appreciating assets. Like real estate. Or a business. Even investing it back into their own business and making it grow.
So basically if you have a lot of the wrong kind of debt (i.e. credit cards, auto loans, toys), and no cash flowing assets you are likely to remain right where you are financially. You could easily become even worse off down the road. The poor get poorer. If your money goes into something that grows in value and provides cash flow you can become wealthy. The difference comes in knowing.
Most of us (me included) are guilty of staying poor so we can enjoy rich things. I heard the following quote once and I have to apologize to whoever said it because I can’t remember who it was. But it explains the difference between being rich and being wealthy.
“A rich person will go buy a new Mercedes. A wealthy person will buy the dealership”
Unknown
It’s a simple difference in mindset.
Special thanks to:
Momentum Lifestyle Leadership Academy for sponsoring this newsletter. Momentum Lifestyle is a leadership coaching and training community focusing on leadership, self leadership and communication. Communication issues and conflict within a team can bring down a company. We find the simple solutions to those problems for your business whether you are a small or a large team. Join our private community here: https://momentumlifestyle.com/
That's it for this time. See you next week!
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