specified interest rate. With a family bank, I’m able to recapture some of that $500k.” But
that’s only true in his eyes. It gets better.
Figure 37: Borrower’s Perspective
So the borrower’s potential “savings” with a family bank is as much as $500k if they
captured 100% of their interest (difficult to do). But that’s all the borrower “sees”—the
amount of interest they can recapture. They are not used to seeing the banker’s side.
Everyone that hears about the family bank can only see things from the borrower’s
perspective because they have no other perspective to relate to, and therefore they make
decisions about the family bank without seeing things from the banker’s perspective.
On the other side, the banker owns a money moving program like a “machine” called
the VOM that takes payments from each borrower and makes them grow exponentially!
This “machine” on the right side can make $1,000 grow exponentially to over $20k in 40
years at 8%. Imagine how large that $100k of the $500k a borrower now pays in interest
could grow over a lifetime!
That “machine” is called the VOM, or “Velocity of Money” machine.
Applying the Velocity of Money process, you relend out the money, as soon as it is
repaid, to other borrowers (or even same borrower) allowing that money to grow
exponentially.
Figure 38: Banker’s Perspective
So if the bank made all that money from your $1,000, how much can they make in
interest from your $500,000 over your lifetime? What about EACH of your kids $500,000
of interest over their lifetime? What about the $500,000 from each of your siblings, your
in-laws, your extended family members, etc.? Even if the total of all those $500,000
interest payments was half saved and reinvested, that is still a significant amount!
Really, that’s a LOT. LOT, LOT of money.
So borrowers “see” the interest they can save, but they never see how much the
banker can make from that same amount of money because of the banker’s VOM
“machine.”
But how does that relate to the family bank?
Well, when you see how much you can “recapture”, it’s quite a bit, but when you own
the family bank, you OWN the “machine” that can grow money exponentially. Remember,
you are not just recapturing some of the interest you are paying other bankers, you now
own the machine, the “Velocity of Money” machine that can grow your money
exponentially by lending it to you and the other family members.
So how does VOM grow your money exponentially?
First, let’s describe what we mean by “velocity of money”. Velocity of money plays a
very important role inside your family bank. I like to think of velocity of money as the
“turning of the same money”. By “turning,” I mean lending, investing, or reinvesting the
family bank money as quickly as it is returned to or is available in your bank. When you
lend money including the “new money” (interest) you earned on previous loans you are
“turning” that money. In other words, that new money, as you “turn” it (you add velocity
to it), you are using it to acquire more and more assets or profits.
This is discussed in more detail in my book The Banker’s Code. Here is a section from
that book.
So let’s look at an example.
Assume two lenders, David and Steve lend out $60,000. Let’s assume the loan terms
are as follows: $5,600 per month for 12 months. Here is what their income stream
schedules look like.
Table 17: David and Steve streams of income from their family bank
They both started with $60,000 and ended up with $67,200 after 12 months. That’s a
12% return.
David decides to leave his monthly payments in the bank until he receives all his
payments. So by the end of the 12 months, he would have $67,200.
Steve, the smart lender, decides to ‘turn his money’ by lending it out as soon as it
comes back. As soon as he receives the first payment of $5,600, he lends it out at 12%
for 11 months, thus receiving $56 per month for 11 months (refer to the table below).
Table 18: David and Steve streams of income in their family bank
Steve ends up receiving $67,200 and the $616, resulting in a sum of $67,816. That’s a
return of 13.03% when David is getting 12%. But, Steve does not stop there. He does
the same thing for the next $5,600 payment he receives as well, resulting in another
stream of income of $56 per month. He then does a ten month loan with that money.
Table 19: David and Steve streams of income in their family bank. Steve is using velocity
of money to make more money
Steve ends up receiving three streams of income: $67,200, $616 and the $560,
resulting in a sum of $68,376. That’s a return of 13.96% when David is getting 12%.
However, Steve does not stop there. He does the same thing for every $5,600 payment
he receives as well, which results in another stream of income for $56 per month for each
one. He does that every single month, and in fact, his return percentage keeps going up
as he continues to do so.
Table 20: David and Steve streams of income in their family bank. Steve is using velocity
of money to make more money
David: $67,200 (12.00% return)
Steve: $67,200 + $616 + $560 + $504 = $68,880 (14.80% return)
The only difference between David, who is now getting 12%, and Steve, who is getting
a much higher return, is that Steve is using the velocity of money. In fact, his strategy is
simple. As soon as money is back in his bank account, he lends it right back out.
Sometimes, it might sit idle for a few months, but he will lend it as soon as he has a
chance.
In fact, if you think about the above statement carefully, you realize that Steve is even
relending the $56 right back out as soon as he receives it, making money on that money
as well!
Velocity of money increases your returns and allows your money to grow
exponentially.
Now, the reality is that you might not be able to lend the money right back out
immediately as stated earlier. It might sit idle for a few months.
So the VOM machine is used by the right side of the Wealth Equation, typically by
banks etc. By shifting over and having a family bank, you now “own” this machine as
well. But you will need to know how to run this VOM machine.
So to wrap up this discussion, a family bank is not about moving money from one
pocket to another. It’s a lot more than that. In fact, it’s about recapturing interest from
family members in an exponential way.
What we covered so far with the family bank is only the tip of the iceberg, the very tip.
This is such an exciting strategy and goes well beyond the scope of this book.
In fact, the “Family bank” is a whole new movement and I believe most families should
have one. In fact, I personally believe in it so much that we created a company with the
sole vision of reaching one million people by Dec 31, 2020, and have it take on a life of
its own. We decided to do that by having families all over the world teach it to other
families. This is done through a live and fun interactive game played in huge rooms with
many players. This 2-day game is meant to bring families together with other families
and have everyone learn together. My personal goal is that this is talked about in every
neighborhood in the world. Even though it makes sense financially, the family bank is a
LOT more than just money. It’s about relationships and the passing of knowledge and
experience to your loved ones.
Anyways, I digress.
Again, there’s more advanced features that are not covered in this book. I just wanted
to share with you some of the highlights of the family bank.
Perhaps I’ll write a book on that someday.
So why does this move you to the right side?
The family bank in addition to the more advanced vaults allows you start moving to
the right side of the Wealth Equation.
Family Bank allows you to move to the right side of the Wealth Equation
Remember the four forces? With a family bank you become the recipient of interest.
You are recapturing your own interest, as well as your family members’ interest. On
taxes, there are some tax-advantages of certain advanced vaults. Furthermore, the
money in the advanced vault allows you to use the money in two places at the same time
(opportunity cost). Refer to The Banker’s Code for more information. In terms of inflation,
the advanced vaults allow you to use the same money in multiple places using the debt
to beat the inflation rate.
Table 21: The Family Bank Used Right Allows You to Move to the Right Side of Wealth
Equation
However, the critical point here is that you start your family bank. The primary power
and benefit of the family bank is not the knowing the above process but rather actually
doing the process. I strongly recommend you start your family bank with just a checking
account and focus on doing the process regularly. Please refer to the resources page for
more information on family banks.
* * *
That was simply amazing what my mentor described.
So now what about the “family office?” I asked.
“The richest families in the world have so much money that it makes no sense to have
financial institutions manage their money. Imagine a family with a billion dollars, or $500
million. They can afford to hire some of the smartest people on the planet to manage
their wealth for them. That is a simple explanation of how a family office works. If a rich
family has $250 million or less, a few families might share a family office. That’s called a
multi-family office. A single family with its own family office is called a single-family
office” my mentor went on.
“The family office invests in various investments out there.”
“However, all these family offices have a family bank at their core. And in fact, every
family can benefit from their own family bank. You can be in debt, no debt, rich or poor,
you can hugely benefit from the family bank” he said.
Chapter Thirteen
Putting it All Together
A few days later, I walked into my mentor’s office.
He was just finishing up a meeting related to some sky-scraper he was building in
downtown San Jose.
After some small talk, I asked him to help me put everything we covered during the
lunch with Emile and his grandson together.
It was a lot to absorb.
* * *
Let’s review where we started.
We started by recognizing that the current method of investing used by the majority of
the population and investors doesn’t work. The math shows that before taxes, inflation,
and after fees, the returns needed just to break even are practically impossible to attain,
and more importantly to maintain year after year in a compounding manner, and that is
just to break even, not even build wealth! (Refer to chapter three).
We then learned that the ultra-wealthy use a completely different method of investing
called “The WealthQ Method” which challenges everything we know about investing. It
goes against everything we have been told about investing!
This new method is based on something called “The Wealth Equation” which identifies
people as either being on the “Paying” side and the “Receiving” side. Most people are on
the “Paying” side, and that simply means the financial system works AGAINST them,
while the few on the right side, the “Receiving” side, understand how the system works,
and have moved to the right side to make the system work for them automatically.
In fact, the result of this powerful and advanced WealthQ Method is that the people on
the “Paying” side, unbeknownst to them, are transferring their wealth to the people on
the “Receiving” side. This is not done with bad intentions by the investors on the
“Receiving” side, it is simply due to the investors’ lack of knowledge on the “Paying” side!
Lack of knowledge in this case is very expensive!
Inflation, Interest, Taxes and Opportunity Cost. These are four of the major forces
(among others) that investors and the general population on the “Paying” side have to
“combat”, and in fact spend all their lives combating these forces. The ultra-wealthy
move to the right side, the “Receiving” side of these forces to make these forces work for
them and therefore become wealthier easier.
The investors on the “Paying” side focus on higher returns, low liquidity and riskier
assets while investors on the “Receiving” side focus on more stable assets, higher liquidity but with well-structured debt and equity.
To switch to the right side of The Wealth Equation, we recognize we need to use debt
correctly. Debt used incorrectly can backfire and hurt us. Too much debt can really hurt
us. Too little debt will only help you take a small incremental step towards the right side.
One has to know and use debt effectively to switch to the right side.
By using debt strategically and correctly, we also shift the work to someone on the left
side. The people on the “Paying” side have to work harder and longer due to the system
working against them.
Again, lack of knowledge is very expensive!
We also learned that it’s the debt that actually increases your purchasing power and
not the asset. The rich focus on the strategic use of properly structured debt, while the
average person on the left side of the WealthQ focuses on the asset. Those on the left
keep looking for various assets trying to find the “right” asset that can generate higher
returns, which in turn increases their risk.
We then wrapped well-structured debt into a bigger “container” called “Capital
Structure.” Capital Structure is simply how an asset is financed. In simple terms, this
includes how much of the capital structure is debt and how much is equity. It is the use of
the correct capital structure, called the “Optimum Capital Structure,” that allows us to use
the proper amount (mix) of debt and equity in conjunction with the related asset. This in
turn moves us to the right side of WealthQ, lowers our risk, gives us the best return for
the risk we selected, and moves us towards the result we are seeking in the most
efficient manner possible.
I also introduced a term “Debt Millionaire” as someone who understands the lessons in
this book; “The WealthQ Method,” and how to use debt strategically to move them to the
“Receiving”
side of the WealthQ effectively.
The challenge with all this is DEBT itself. We have been conditioned that it’s bad, it’s
dangerous, and it’s fire!
Unfortunately, we live in a world that is very different than the 1920’s. Money is
printed in boatloads, with nothing to back it up except the trust of the people in the
government. No gold. So many things are happening around us, and not dealing with this
reality will hurt us. We are going to lose by ignoring reality, or even by “playing” with
improperly structured debt and burning ourselves. Thankfully, there is one more option.
We can educate ourselves. Don’t just rush out and start accumulating debt as that would
surely hurt us more than we realize. We should take our time and educate ourselves.
You can fear debt or you can choose to master it. You can keep working hard against
the system or do something about it. Move to the right side. Your decision.
The WealthQ Method was built from the ground up with the existing monetary system
in mind to work for us instead of against us, and it is through education that we can play
to effectively play this game of finance.
Let’s compare people on both sides of the Wealth Equation. This is really comparing
the traditional method of investing with the method mentioned in this book, The WealthQ
Method:
Table 22: Comparing Left Side and Right Side of WealthQ
Where to Start?
This book’s objective was to introduce you to a new method of investing. It can be
overwhelming since a lot of it goes completely against what we have been taught.
So the question is where to start?
The best first three things to do are the following:
1. Start and build your family bank. Keep it simple. Don’t complicate it.
2. Practice by analyzing portfolios and identifying what can be done to move to the
“Receiving” side of the WealthQ.
3. Read this book again.
Again, you can start with a relatively simple strategy such as “the family bank” that
moves you towards being on the “Receiving” side. This book is obviously a lot more than
just the family bank, but this is one of many possible first steps.
Let’s look at some simple portfolios and see if you can identify if these people are on
The Debt Millionaire Page 13