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What is Residual IncomeAt its simplest level, residual income is the income earned after each of the bills and expenses are paid.For the average employee, this could be their disposable income. Theyve gotten their paycheck. Then paid the monthly expenses and have some money leftover to get what they want.In the corporate world, the definition is somewhat different.
You can call this passive residual income.Residual Income FormulaFor corporate America, the formula looks like this:Residual Income net operating income (expense of operating assets * cost of funds )For personal finance, the formula looks like this:Residual Income Net Income ExpensesSay you earn a check for $3,000. Taxes take a 500 chunk out of it so youre left with a net income of $2,500. That month, youve also got a mortgage payment for $1,000.
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Our time is worth something and we shouldnt discount it.For a normal 9 to 5 job, thats exactly what were compensated for. Were trading time for money.In the corporate finance formula, our time would be part of the cost to function asset.Corporate America considers time as a portion of their invoices paid before theyre paid.Combining both, we get a formula for passive residual income which would seem like that:Residual Income Net Income (Time Working + Expenses)By getting time working down to zero and the expenses as low as possible, were left with:Residual Income Net Incomeand the money is coming in without lifting a finger.The Residual Income ModelThe eventual residual income model means youve got to make something of worth , up front, that people will continue to pay for.Writers do this with books.
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The Virgin brand has grown to airlines, cell phones, record labeland on and on.Mr. Branson doesnt actually spend his day to day hours working on each of these businesses, but he earns income from them. If the companies do well, he does well.Warren Buffett is another shining example. Hes made Berkshire Hathaway that brings in income like Richard Branson, but Buffett also earns passive residual income from all his investments.By sticking mostly to dividend paying stocks, Mr.
He purchases a share of a stock that pays dividends, and each month or quarter, he receives paid.The more shares you purchase, the bigger that residual income becomes more. To the point where Warren Buffett earns about $62 million dollars per year on dividend payments. Thats a massive income snowball.Now these are two owners of enormous companies, but what about the little guysSteve Scott is a choice passive residual income example.Steve has built an ebook that brings in 5-figures per month out of ebook sales.Hes able to compose them fast on topics people are looking for.
No manufacturing that needs to take place.Design some applications, write an ebook, or produce a product that people are looking for. Then give individuals the ability to download it while you get paid to sleep.This way, the product only needs to be built once. After the initial cycle, we remove the create painting and are going back and forth between sell painting and earn money.In the illustration of an ebook, the first cycle could look like this:But after the first cycle, write ebook is removed.
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With every dollar spent, you earn a point which can build into a level at which you can purchase products, or even take a trip.This isnt ideal for building an income snowball, but this is the ultimate guide to residual income so weve got to cover all our bases.Speaking of examples, a fantastic read lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve covered this one a little already.If youve got some knowledge which you find yourself teaching friends and family about, its time to write an ebook.Whatever youre teaching is already in demand, which means that there are different folks around who want to know too.Sit down and write an ebook.