Velocity Banking Rule Of Leverage

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Hello and welcome Kingdom citizens, lowest subscribers and new people. My name is Denzel Rodriguez, your personal finance geek of the 21st century. On this YouTube channel, we cover the velocity banking concept, Infinite banking, and Kingdom authority. Today we're going to be talking about a subtopic of velocity banking dealing with leverage. Denzel, I hear this question all the time. How do I come up with the chunk, you know, method or what is the 66% rule? How did you get to that point, you know, why are you chunking this among much or does it make sense to chunk more than my cash flow times 12? A lot of you guys are. Some people are struggling. Most people get it. If you watch my velocity banking scenarios playlist is over 7, 60 or 70 plus scenarios of different case studies, you're going to see the rule applied every single time. It varies of course, but the fundamental principles stay the same. It's not cookie cutter, unfortunately. You simply have to put in the time, effort and run the numbers. That's really what it boils down to. So my rules may not always apply for every single situation, but the principle of the rule applies for every situation because it'll help determine whether or not the rule makes sense for you for the situation. It also helps the rule itself, helps you from abusing the concept of velocity banking. It prevents you from forcing the velocity banking concept to work in your favor when just mathematically speaking it may not work in your favor, but because you're so, I don't know, you're so excited and very passionate and you forget to run the numbers and you make a mistake that you, you convince yourself, you fall into this illusion that you're doing velocity banking and really you're just making us look bad. You're making yourself look bad, right? Because you're not, you didn't do the work that I told you to do. In the scenarios that I give, in all the videos that I give, what do I always say? Got to know your four major numbers. You got to know all your numbers, period. And then you gotta run the numbers. We use debt snowball, Dead avalanche as our measurement stick to determine whether or not velocity banking makes sense. And these rules that I have in place also help protect you from the concept itself, helps you from making these, these critical mistakes. At the end of the day, we're trying to get either get out of debt, become debt free, become debt leveraged, create cash flow, create long term wealth. So let's solve that. Let's not get, let's not get confused. Rely on the numbers. My goal is to help you become self sufficient where you don't need me forever, right? I want you to be self sufficient, a leader, a master over your own finances. If you rely on a guru or some expert like myself, putting myself in that category, you rely on these gurus, these financial gurus and experts as your God essentially, when it comes to finances. And you worship them and you do everything what they say and you, and you copy them, essentially, you might end up hurting yourself because it, they may not be in alignment with what your mission is. So again, I'm the type of guru, the type of expert, the type of financial person that's saying, look here, here are your options. Full, open, honest and transparency. Here are your options. And option A, option B, option C, and maybe there's something I don't see, but I evaluate the numbers and I allow the numbers to tell me exactly what it is that I'm, that I'm missing or to determine whether or not this thing even makes sense. So let's take a look at the board. So you'll constantly hear me talk about, you know, in terms of leveraging and determining your chunk amount is the credit limit of your debt tool, whether it's a credit card, personal line of credit, business line of credit, HELOC in the first or second position, all in one loan, cash value, life insurance policy, iul, premium financing, you name it, whatever your available credit limit is. I times that by 66%. Obviously it lowers the number, gives me a range. I look at your cash flow, your conservative monthly cash flow, times that by 12. That's gonna give me a number. And then finally, whatever I borrow, I want to be able to offset the borrowing costs, right? So if I'm borrowing at 6% to pay off 1%, that may not make sense, ladies and gentlemen, especially with inflation being over 7%. So if you borrow at 6 to save 1, I don't know if that makes any sense. Now, if you borrow at 6 to save 11%, that's simple debt consolidation right there. You just consolidated 11 and you moved it to 6. You still owe 6, right? So, so where velocity banking comes in play is to say how do we bring the 6 down to 1? In many cases, 0, hence offsetting your borrowing. How do you borrow at 6, Denzel, but actually pay 1 or nothing, right? How do you do that? Let's discuss it quick. Example, let's say you have a line of credit for 50 grand, 66% of that 33,000, you now have a number. We're developing our chunk range. Let's say you have $2,000 in cash flow per month, times 12 is 24 grand. Your chunk range is anywhere from 33 to 24k.

Right.

Doesn't mean you should do that. It just means that's the chunk range. That's it. That's just the rule. Doesn't mean you chunk that or chunk that or chunk above a chunk below. It's just here's a range somewhere to start with, right? So let's say your borrowing costs. Your line of credit of 50k is at 6%. Let's just say. How do you offset the borrowing cost? Well, first you need to determine what is your cost of borrowing at 6%. Let's say we decided to chunk the max leverage amount 66%. Let's say we want the highest amount, 33 grand. And your borrowing cost is 6% from the debt tool. So it's a 6% interest rate on say, a second position HELOC. Okay, run the math. When I borrow 33 grand at 6%, what will that cost me in a year? That's $1,980. That's if the balance stood at 33K for 365 days straight, you'll pay $1,980. With principal and interest payments over those 12 months, this number will actually reduce. It might be a couple hundred dollars less than what it is. Okay, so what we do in the velocity banking world, since we know we're not going to owe the debt for that long, nor are we going to pay that amount of interest, we take the rate, take the limit, right? Get the number divided by 365. It's $5.42 a day for however long. I owe $33,000. Times that by 30 days. Your highest borrowing cost is the first month. That number, let's just say it's $162.73.

Okay.

When you owe 33k for 30 days straight, paying no principal on the balance, that's how much you'll pay. $162.73. Okay, let's look at your four major numbers. Let's say you got income coming in at 10k, you spend 8, cash flow 2.

All right.

And you've got two debts that we've identified that we want to wipe out. Got a bunch of different credit cards totaling in cash flow recapture of 375 interest rates varying between 19 and 22.99%, let's say. All right, so again, 19 to 22% is simply consolidating to 6 that is a win. Unfortunately, in the Dave Ramsey world, borrowing to pay off other debt is against the law. You don't do that. It's stupid. That is quote unquote the words that is used in the Ramsey community. It is stupid to move 19, 22% to 6% in the logical mathematical world. It is not. This is wise. This is wisdom, my friend. When you come to the conclusion that math is more important than your ideology in regards to finance is the moment you can truly surrender and break free from these chains of these different ideologies that exist. I like to rest my thoughts. I like to rest my, really the way I function, my finance in math, where math just won't lie to me.

Right.

I, your personal finance geek of the 21st century. I have the ability to lie to you and you won't even know it.

Right?

I have that ability. Am I going to do it? I don't want to do that. It's going to hurt my character. So what do I do? I remove myself from the situation and I let the math do the talking. Because math just won't lie to me. That's what I love about this. So 19 to 22% to 6. Now here's a little interesting thing. 4% to 6. Does that make sense? Let's prove it. I would be gaining a total of $853. So that means my expenses go down $853 in the event that I make this move.

Right.

So my new expenses would be 7,001 47.

Right.

That would be my new expense number. My new cash flow number would be 2853.

Right.

So we'll put cash flow 2853. When you're doing velocity banking, 100% of that becomes principal on your debt tool because of the way the interest is calculated. This is the beauty. So we're going to bring that 162 dramatically down. How much down here? Between.01%. That's, that's the goal. Get it down to zero. If you get down to one to two, it's way better than six. And it's way better than whatever debt you were consolidating to.

Right.

So you may have a rate of this, but then there is an effective rate. The effective, if I spell correctly, the effective rate, the actual rate that you pay is less than the rate you're given when doing velocity banking, which is why this makes this very attractive. So you have to look past the rate to determine the effective rate. What are we actually going to pay? That ends up being Somewhere around here. Let's prove it. So when we make that chunk, say it's 33,000.

Okay.

We get a $853 cash flow gain. I now owe 33 grand. So my debt has not increased nor has it decreased. I still owe 33 grand. Step one was consolidation of debt. Lump sum chunk payment wipes out two debts, puts it in another location at a lower rate. Yes. Follow me. Great. I owe 33 grand. We wrote out the numbers. Now we have to say, all right, I make 10 grand in a month. So that means 33,000. Minus 10,000. It's gonna bring my balance down to 23k.

Right.

That's the lowest my balance will go in the first month of doing velocity banking. Do the math. Times 6% divided by 365.

Boom.

378 day. This is assuming that the balance will stay there for about 10 days.

Right?

378. Next number. 23,000. You got bills to pay. Still got to pay those. But now they're less by $853. So only 7,000. Only $7,147 is coming out of the line of credit, the HELOC, which brings the balance to 30,147 again, times 6% divided by 365. $4.95. Take that number, that number, this number. Add the three, divide by three, see what you get.

Boom.

14. Boom. So my average borrowing costs, assuming that I owe 33K for 10 days, 23K for 10 days, 30K 147 for 10 days. That's not going to be the case. But again, this is just getting an estimate, an overestimate, which is good because it leaves room for error in the favor of the user, the client doing the work. This is the why I did it this way. I do things the way that I do so that my numbers actually come out worse and their numbers come out better. It's better than me putting better numbers than what they're going to do. That sets the expectation too high and then they don't fulfill it. It's better for you to beat the expectation, actually get better numbers. You actually make me look good because that gets very good reviews. So 471 times that by 30 days. Look how I just brought the effective rate from 6, 6%. And I just brought it down roughly 20 bucks. Maybe my effective rate, if we were to do the math, probably around 5%. Now I dropped it a percentage. Very interesting. So this is assumed. Assumed overestimated rate. I just brought it to Five. Now let me put some icing on the cake. Let's say out of the 8,000 now, $7,147 of expenses. Let's say you have $3,500 of bills per month consistent that can be paid with a credit card that has cash back rewards at roughly 2%. Usually the range is between 1 and 3%, sometimes as high as 5% in cash back rewards. Sometimes there's a matching where you can double. Sometimes there are statement credits where you can earn 100, 200, $300 for spending a certain amount of money in the first 90 days of opening that credit card. So not even including all that. Again, underestimate, $3,500 are bills that can be paid with a credit card with no fees. Food, gas, phone bill, car insurance, miscellaneous home products, bathroom products. Yes. Can easily swipe a car to do that. And let's say it comes out at $3,500. Times that by 2%, that's 70 bucks. 141.55 minus $70. Your borrowing cost is now $71.55 for that first month. Okay, the preceding month the number will be less than 141. Maybe the next month the number is now 130. So maybe it drops by $11. So 130 minus 70 bucks. The actual borrowing cost was 60 month. One month.

Two.

Let's say the following month it goes down to 118. One hundred and eighteen minus 70. 48. It won't be long before this number hits zero. Where their borrowing costs after the fifth month, roughly maybe six the longest, that the borrowing cost goes to zero, even though they still owe money on the debt tool. Do you see that? They still owe a balance, but they're no longer paying interest on the balance. So now all of their income is what Principal cash flow is principal. If you're paying 4%, 19%, 11%, 7%, 6%, I'm paying zero. Who goes faster if both of our numbers are the same, Same cash flow, same income, same expenses, same lifestyle, same everything. If we do everything the same, but you're borrowing or you're, I should say you're paying an interest rate and I am not. Who goes faster? I do all day long math, math, math, math. We'll show that. Yes, with me. Cool. So this is what you do all day long. You run your numbers. You tell yourself, oh wait, if I were to borrow 40k, you're like, why don't I just borrow 40k? Well, if you run the numbers and your Borrowing costs ends up being higher than whatever it is that you're eliminating. That may not make sense. Again, borrowing at 6 to pay off 1, then that may not make sense.

Right.

So we don't want to again force velocity banking to work just because, oh, I'm offsetting my costs in four or five months. No, let's, let's really get a win. Let's make a drastic win with this. So notice how, like I said, four, five, six months into it, you eliminate the borrowing costs, you have the advantage of cash back rewards. $70 a month consistently offsetting your borrowing costs. We went from 162, which is 6% over a 12 month period.

Right.

When you divide it by six months, it's actually 3%. So if we're looking at just this number in a six month period, technically only 3% of the six was paid. Yes. So if I reduce the number from 162 in the first month to a net of 7155, 162, 73 down to 7155 over $91 savings in interest. And we say, okay, 162, divide that by two is $81. So we save more than 50% in interest on a rate of 6%. So that means that my borrowing costs will somewhere be around here, would it not? Maybe 1.5 and some change. When you look at the overall window of those first four to six months, remember how I said look, 6% over a 12 month period is 1980. So take 1980, divide that by two in six months. Six months is $990. That's 3% half of 1980. So that means it's half of the rate. So now we're at 3% by bringing my borrowing cost to zero after six months.

Right.

So I'm basing this off that they'll pay interest even with the cash back rewards, even with velocity banking, they'll pay interest for six months. The preceding months, they're going to continue to pay interest. Don't get me wrong, you're going to still pay interest, but it's being offset by what cash back rewards. This interest savings, this interest savings, the cash flow gain, all, all of that is working in my favor in the beginning months. And then even more efficiently as you proceed, you still owe the balance, but Now I'm paying 0% on that balance. Isn't that awesome? That makes you go faster. Yes. Does it not? Clearly it does. Okay, but some would disagree, even with all the math. So six months is 3% because technically only $990 would have been paid if I kept 33k owed for six months straight. I'll pay that 990. You do 1980, divide that by 12. 165 bucks is your interest per month. Boom. There you go. 162. See that? Interesting stuff. So 3% is half 6. In the first month I brought it down to $71.55 of net. I pay 141, but I offset 70. So I save right from that cash back. I really only paid 7,155. Yes. And then the preceding months, the number goes down.

Right.

I pay less and less interest each month. If you look at a six month period, your borrowing cost is absolutely without a doubt less than 3. It's probably over here between 1 1.5%. So then you say, oh wait, my rate was 6, but my effective rate ended up being less than 2%. So yes, 4% is higher than 2, 2 is less than 4. That is a win. If I would have kept making extra payments on here, I'd be paying this. But if I move it here, and that's what you need to do with your numbers each and every time before you make a chunk payment is what is the borrowing costs over that length of time, how long does it take me to pay off the chunk again? Another rule of mine, six to nine months to pay off the chunk. You don't want to extend it too long. If it goes past 12 months, it's too what over leverage? In my opinion, you, you chunked too big because your income is not able to bring the line of credit to 0 or close to 0 within the 6 to 9 month range. Or at least bringing the borrowing costs to zero by the sixth, fifth, fourth month.

Right.

It's where you want to be able to essentially bring your borrowing cost to 0.1percent less than 2%. That's amazing if we're able to do that. So hope this video was very valuable to you. By the way, I have my Velocity banking manifesto programs. I do one to one consulting, got my coaching practice, you can do this for free. The DIY option to do it yourself by simply watching the material that I provide to you in exchange for watching. I am blessed because I get subscribers, I get loyal viewers, people share the content. So I'm blessed. Thank you very much for that. For those who want to take it a step further, want to work with me one to one, you want to accelerate the process, you can work with me one to one. I have options available throughout the year. I will have my services available and then certain portions, certain times of the year, I will close that opportunity. I'm a quality guy. Quantity. I really enjoy people getting results extremely fast. So I build programs, I build services. That increases the probability of success dramatically.

Okay?

I don't want tens of thousands of people buying my program. And out of the 10,000, only 3,000 succeed. That's a 30% success ratio. No, I'd rather have 1,000 and 900 succeed. That's a 90% success ratio, right? My goal is to get to 100%, but that's not the case. People will fail. People will make mistakes. People mess up. Let the videos, let the content that I'm providing to you. Let that at least be like your warning. Before you engage in this stuff alone, like, evaluate this stuff before you spend thousands of dollars on a guru or an expert or some fancy software, right? Before you do that, evaluate like these rules are in the softwares. I'm pulling it out of it and just giving you. I'm giving you the formula on how to calculate your borrowing costs. If you know how to calculate borrowing costs. Oh my goodness. The amount of money you can make when you start syndicating real estate, building a business, Being able to borrow at 1 million, 5 million, 10 million, 50 million, 100 million, $1 billion. Being able to borrow at extraordinary amounts of money, pay nothing in interest. Why? Because you can deduct the taxes, offset inflation, offset devaluation by the cash flow earnings of the asset. And through velocity banking of mixing the money, right? Rotating the dollars, giving $1 7 uses.

Right?

Imagine being able to use $1 7 times. How do you do that? Through these mess? Through these concepts. Velocity banking, infinite banking kingdom, authority, the big business, the cash flow quadrant.

Right.

The B and the I. Big business investor. Big business meaning using other people's time, other people's talents, other people's treasure, other people. Opm. Yes. Are you with me?

All right.

My name is Denzel Rodriguez, your personal finance geek of the 21st century. Have a wonderful day. Check the links below. Plenty of resources and we'll be talking soon.