Step 1: Create a Budget
The first step to creating your velocity banking system is to develop your budget. I know you probably hate hearing that word, but you really need to know how much positive cashflow you are bringing in each month. How much money can you really devote to paying off debt? What is a reasonable budget for groceries and eating out? What about entertainment? Check out my spreadsheets to help you budget.
Step 2: Identify Wants Versus Needs
To maximize the benefits of Velocity Banking, you need to figure out how you can maximize your positive cash flow by identifying wants versus needs. Lower your budget on eating out and consider shopping at affordable supermarkets. Limit how much you spend on entertainment and STREAMING. Ever heard of passive income? Subscriptions and Memberships are the opposite of passive income. Look for whatever is causing the hole in your wallet and eliminate it. Switch services to lower your subscription, phone, insurance, or utility costs. Wait for specific holidays or birthdays to buy gifts for yourself or others. Force yourself to follow the 72 hour rule. If you want something, hold off on buying it for 72 hours. You may change your mind.
When I started this process, one of the first things I did was to lower my fixed expenses. I switched insurances, cancelled subscriptions, and ditched my $80/month T-Mobile Cell phone plan for the $15/month Mint Mobile plan that uses the T-Mobile Network. Same 4G LTE and 5G coverage, same phone, 1/5th the cost. Sign up with Mint Mobile here and get your first 3 months free.
Step 3: Create an Emergency Fund
With Velocity Banking, you should take all of your savings accounts and put them together to get a 6-8 month emergency fund. Stop saving for travel or a new car and focus all of your savings on creating your emergency account. This account should be able to fund your living expenses for 6+ months. If your average expenses total $3000 per month, then make sure you have $18,000 saved up in a LIQUID account.
I am emphasizing Liquid Account because you need to be able to access that money immediately without waiting 2+ business days for a transfer, sale of security, or withdrawal to take place. Never use an Investment Account as an emergency savings account. Some may say you can use your line of credit as an emergency. I don’t recommend this because you are not in control of your line of credit (LOC). LOC’s are issued by banks. Based on market conditions, your credit score, or your job status, banks can take your LOC’s away from you at any time. They can reduce your limit or make you pay back your LOC with little notice.
I recommend a high-yield online savings account like Ally Bank or Yotta Savings. Yotta Savings is a fun way to save for an emergency because it encourages saving. For every $25 you save, you get a lottery ticket and a chance to win up to $10 million each week. Second place gets a Tesla. You can even setup Lottery Ticket pools with friends and family. Sign up for Yotta Savings with code HyderFT and get 100 tickets on signup. Since I opened my Yotta Savings account 1 year ago, I have earned an effective interest of 0.42% which is among the top rates you can get these days.
Step 4: Find and Open a Line of Credit
While you can do this with a low balance transfer fee credit card or a portfolio line of credit, I believe a Home Equity Line of Credit (HELOC) is best for Velocity Banking. There are probably over 50 different home equity lines of credit in the United States. They all have different limits, charge different interest rates, and provide different features. Read my post on “Top 5 Home Equity lines of Credit – Velocity Banking” to help you decide which HELOC is best for you. You are going to want a HELOC that offers online banking, convenience checks, low fees, low rates, and great customer service.
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