Increase Escape Velocity To Increase Your Returns, Security, And Impact
Escape Velocity leverages the power of your assets to reach your personal and professional goals.
We teach you how to measure and use it.
What is Escape Velocity?
Escape Velocity (“EV”) is the rate / year by which you are accomplishing your Primary Financial Goal (“PFG”). This is an extremely useful measurement of progress. It tells you whether you are moving forward or backward toward a goal and how to pace yourself. It tells you as an entrepreneur if you are really giving yourself a big enough raise or not. As you age, it can tell you if you are lying to yourself about some goals. EV is a foundational measurement for risk-related decision-making and for the Family Bank.
How Escape Velocity Works
The formula for EV is:
EV = 100 / the number of years required to accomplish your goal at the present rate (“Years”)
Years = $ Amount of Your PFG / $ earned and applied to the Goal in a year
The EV for accomplishment of your goal in a year also represents the percentage of progress toward your goal in a year. For most people, EV is usually first applied to Lifestyle Security (“LS”), which is the amount required to support you and your family with a passive income based on valid market assumptions. An example of a valid assumption would be a 5% income return with a small inflation hedge. To accomplish a goal of lifetime security at $250,000 per year before tax, which is $175,000 per year after federal tax or $15,000 per month, you may need $5,000,000 if you start from nothing. If you can earn the entire amount of $5,000,000 toward your goal in a way that gives you the income without paying taxes, then
$5,000,000 needed / $5,000,000 able to generate passive income each year going forward = 1 Year
EV = 100 / 1 Year = 100 (% toward your goal per year)
If you pay taxes at the rate of 50% on that $5,000,000 of income, then your EV goes to 50 as follows:
$5,000,000 / $2,500,000 = 2 Years
EV = 100 / 2 = 50 (% toward your goal)
On the other hand, if you earn $500,000 per year to save toward your goals but pay 50% tax on this, then you only save $250,000 toward your passive income goal. With the same goal, calculate EV as follows:
$5,000,000 / $250,000 applied to savings = 20 Years
EV = 100 / 20 Years = 5 (% toward your goal per year)
When 100 is the percentage you accomplish toward your goal in a year, accomplishment of the same goal in 6 months gives you an EV of 200.
What is your EV?
To know this, first determine your Lifestyle Security (“LS”). And if you have enough for LS, what is your Next Level Goal (“NLG”)? What do you need to move to the next level of lifestyle or impact? Take a look and begin to figure it out for yourself.
How do EV and LS work together?
After you’ve read the basic descriptions of EV and LS, watch this video to see how EV and LS work together with FTI’s unique processes and other strategies to help you accomplish your goals with confidence and speed. We think it's pretty cool.
Watch our video to learn more »