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What is Residual IncomeAt its most basic level, residual income is the income earned after all the invoices and expenses are paid.For the average employee, this would 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 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 * price 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 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 part of the 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 also 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 worth , up front, people will continue to cover for.Writers do this with books.
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The Virgin brand helpful site has grown to airlines, mobile phones, record labeland on and on.Mr. Branson doesnt really spend his day to day hours working on all 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 of his investments.By sticking mostly to dividend paying stocks, Mr.
He purchases a share of a stock which pays dividends, and every month or quarter, he gets paid.The more shares you purchase, the larger that residual income becomes. On the point where Warren Buffett earns roughly $62 million dollars per year on dividend payments. Thats a huge income snowball.Now those 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 a month out of ebook sales.Hes capable to write them fast view it on topics people are looking for.
No manufacturing that needs to take place.Design some applications, write an ebook, or create a new product that we are looking for. Then give people the ability to download it while you get paid to sleep.This manner, the product only needs to be built once. Following the initial cycle, we remove the make painting and are going back and forth between sell painting and earn money.In the example of an ebook, the initial cycle would look like this:However after the first cycle, write ebook is eliminated.
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With every dollar spent, you earn a point which can build into a level where 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 cover our bases.Speaking of examples, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve covered this one a bit already.If youve acquired some knowledge that you find yourself teaching friends and family around, and it's time to write an ebook.Whatever youre teaching is currently in demand, which means there are other folks around who want to know too.Sit down and write an ebook.