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What's Residual IncomeAt its simplest level, residual income is the income earned after each of the invoices and expenses are paid.For the typical employee, this could be their disposable income. Theyve gotten their own paycheck. Then paid the monthly expenses and have some money leftover to do exactly what they want.In the corporate world, the definition is a bit 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 capital)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.
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 could be a portion of the cost to operate asset.Corporate America considers time as part of the bills paid before theyre paid.Combining the two, we get a formula for passive residual income that 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 :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 make something of value, up front, people will continue to cover for.Writers do this with books.
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They set a song and then can market it the remainder of their lives to produce residual income.Their time working after the initial investment has gone to zero.The ultimate passive residual income model goes away from trading our time to get money. It puts an emphasis on creating value for others.Residual Income ExamplesName any musician or author and there browse around these guys is someone who is earning residual passive income.
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. When the companies do well, he can 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 his investments.By sticking mostly to dividend paying stocks, Mr.
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He buys a share of a stock which pays dividends, and every month or quarter, he gets paid.The more stocks you purchase, the larger that residual income becomes. On the point where Warren Buffett earns about $62 million dollars per year on dividend payments. Thats a massive income snowball.Now those are two owners of enormous companies, but what about the small guysSteve Scott is a prime passive residual income example.Steve has assembled an ebook that brings in 5-figures a month out of ebook sales.Hes able to compose them quickly on topics people are looking for.
No manufacturing that needs to take place.Design a few software, write an ebook, or create a new product that people 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. Following the first cycle, we remove the make painting and are going back and forth between sell painting and earn money.In the illustration of an ebook, the initial cycle would look like this:But after the initial cycle, write ebook is removed.
With each dollar spent, you earn a point which can build to a level at which you can purchase products, or even have a trip.This isnt perfect for building an income snowball, but this is the greatest guide to residual income so weve must cover all 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 got some knowledge that you find yourself teaching friends and family around, and its time to compose an ebook.Whatever youre teaching is already in demand, which means that there are other people around who want to know too.Sit down and write an ebook.