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What's Residual IncomeAt its simplest level, residual income is the income earned after all the bills and expenses are paid.For the average worker, this could be their disposable income. Theyve gotten their paycheck. Then paid the monthly expenses and have some money leftover to do exactly what they want.In the corporate world, the definition is somewhat different.
You could call this passive residual income.Residual Income FormulaFor corporate America, the formula looks like this:Residual Income net operating income (cost 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 require a 500 chunk from it youre left with a net income of $2,500. That month, youve also got a mortgage payment for $1,000.
Our time is worth something and we shouldnt discount it.For a normal 9 to 5 job, thats what were compensated for. Were trading time for money.In the corporate finance formula, our time would be part of their charge to operate asset.Corporate America considers time as part of the bills paid before theyre paid.Combining both, we get a formula for passive residual income that would look like that:Residual Income Net Income (Time Working + Expenses)By getting the 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 ultimate residual income model means youve got to create something of value, up front, people will continue to pay for.Writers do this with books.
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They set a song and then are able to sell it the rest of their lives to make residual income.Their time working after the initial investment has gone into zero.The ultimate passive residual income model moves away from trading our time to get money. It places an emphasis on creating value for others.Residual Income ExamplesName any musician or writer and there is someone who is earning residual passive income.
The Virgin brand has grown to airlines, cell phones, listing 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 such as Richard Branson, but Buffett also earns passive residual income from all of his investments.By sticking mostly to dividend paying stocks, Mr.
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He buys a share of a stock that pays dividends, and each month or quarter, he receives paid.The more stocks you buy, the bigger that residual income becomes. To the point where Warren Buffett earns about $62 million dollars per year on dividend payments. Thats a huge income snowball.Now those are just two owners of massive companies, but what about the small guysSteve Scott is a prime passive residual income example.Steve has built an ebook that brings in 5-figures per month from ebook sales.Hes able to compose them quickly on subjects people are looking for.
No manufacturing that needs to take place.Design some software, write an ebook, or produce a product that we are looking for. Then give people the ability to download it while you get paid to sleep.This way, the product only needs to be built once. After the first cycle, we remove the make painting and are going back and forth read more between sell painting and earn money.In the illustration of an ebook, the initial cycle would look like this:But after the first cycle, then write ebook is removed.
With every dollar spent, you earn a point which can build into a level at which you can purchase goods, or even take a trip.This isnt ideal for building an income snowball, but this really is the greatest guide to residual income so weve must pay our bases.Speaking of illustrations, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve covered this one a little already.If youve acquired some knowledge which you find yourself teaching friends and family about, its time to compose an ebook.Whatever youre teaching is currently in demand, which means that there are other folks out there who want to know too.Sit down and write an ebook.