The concept of Velocity Banking revolves around paying off your loans in large chunks using borrowed money from a line of credit, allowing you to save thousands in interest and many years off in paying your amortized loans. As a Velocity Banker, you take what is left over in your account each week or each month and use it to pay down your Line of Credit. When you have a bill to pay, borrow money from your low interest line of credit.
When it comes to budgeting, there are many different techniques and apps you can use. Envelope Budgeting is a system used to budget your top spending categories. For example, if you budget $100 per week in groceries, you should put $100 in an envelope. Take the envelope with you when you buy groceries and stay within your $100 budget. Once the money is gone from the envelope, it’s gone. You have to give yourself the discipline to not add money to the envelope. If you underspend, whatever is left in your envelope can go towards paying off your debt.
The GoodBudget App
Goodbudget is an envelope based budgeting app available on Android, iOS, and the web. You can create multiple envelopes and set budgets for each one. You can also add your paycheck amount and frequency so the app can automatically refill your envelopes. Aside from setting up a recurring automatic envelope filler, Goodbudget is very manual. You have to enter each expense manually and include the date, the envelope, and the payee, or vendor. Luckily the app will remember payee names. If you enter an expense from Taco Bell, it will remember Taco Bell as a vendor and suggest Taco Bell when you type “Ta”. You can also turn on location services so that it remembers payee’s based on location.
Using Goodbudget for Velocity Banking
To start, set a goal for velocity banking. If you want to pay off your house in 5 years, how much money do you need to chunk into your mortgage, and how often? What will it take to finish your student loans in 2 years? You will need a loan amortization table to help you determine your goals. Subscribe for a free copy of my Amortization Table in Excel or Google Sheets.
Let’s say that your household income is $3000 per month and you want $500 per month to go towards Velocity Banking. You already know that your fixed recurring expenses like your mortgage payment and memberships or subscriptions total $1500 per month. You will then need to budget $1000 into envelopes. You can set aside $400 per month for food, $250 per month for transportation (car payments, gas, insurance, etc), and $350 for everything else. In fact, it would be easier to budget by week rather than month.
It also helps to lower your fixed recurring expenses. If you pay a monthly PMI and have owned your house for less than 5 years, it may be worth refinancing to get rid of your PMI. I saved $400 per month by refinancing my mortgage. I saved over $2000 per year by canceling my gym membership, switching my car and home insurance, switching to the $15/month Mint Mobile cell phone plan, and switching to a cheaper internet service. It only took me about 1 hour of my time to get quotes and make the switch.
With the emergence of cash back and point-based credit cards, many of us haven’t used cash in years. Budgeting with cash is much easier because you can see what is left over in your physical envelope. Using Goodbudget and a credit card, you have to be strict with yourself to make sure you don’t overspend in any of your envelopes.
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