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What's Residual IncomeAt its simplest level, residual income is the income earned after all the invoices and expenses are paid.For the typical employee, this would 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 (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 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 paid for. Were trading time for money.In the corporate finance formula, our time would be a portion of the charge to function asset.Corporate America considers time as a portion of their bills paid before theyre paid.Combining both, we get a formula for passive residual income that would look like this: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 eventual residual income model means youve got to create something of worth , up front, people will continue to pay for.Writers do so with books.
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They record a song and then can sell it the remainder 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 for money. It places an emphasis on creating value for others.Residual Income ExamplesName any musician or writer and there is someone who's 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 daily hours working on each of those businesses, but he earns income from them. When the companies do well, he can well.Warren Buffett is another shining example. Hes created Berkshire Hathaway that brings in income like Richard Branson, but Buffett also earns passive residual income from all of his investments.By sticking mainly 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 shares you purchase, the bigger that residual income becomes more. To the point where Warren Buffett earns roughly $62 million dollars a year on dividend payments. Thats a massive income snowball.Now those are two owners of massive companies, but what about the little 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 write them fast on topics that people are looking for.
No manufacturing that needs to take place.Design a few applications, write an ebook, or produce 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. After the initial cycle, we eliminate the create painting and are going back and forth between market painting and earn money.In the example of an ebook, the first cycle could look like this:But after the first cycle, write ebook is removed.
With every dollar spent, you earn a point which can build to a level at which you can buy products, or even have a trip.This isnt ideal for building an income snowball, but this is the ultimate lead to residual income so weve must pay all our bases.Speaking of illustrations, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve coated this one a little already.If youve acquired some knowledge that you find yourself teaching friends and family about, it's time to write an ebook.Whatever youre teaching is already in demand, which means that there are different people out there who want to know too.Sit down and look what i found write an ebook.