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What is Residual IncomeAt its most basic level, residual income is the income earned after all the bills and expenses are paid.For the average employee, this could be their disposable income. Theyve gotten their own paycheck. Then paid the monthly expenses and have some money leftover to get 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 capital)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.
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 function asset.Corporate America considers time as part of the invoices paid before theyre paid.Combining the two, we get a formula for passive residual income which would look 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 eventual 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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They set a song and then are able to market it the remainder of their lives to make residual income.Their time working after the initial investment has gone to zero.The ultimate passive residual income model moves away from trading our time to get money. It puts 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, listing labeland on and on.Mr. Branson doesnt really spend his day to day hours working on each of those businesses, but he earns income from them. If the companies do well, he can well.Warren Buffett is another shining example. Hes check my site 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 which pays dividends, and each month or quarter, he receives paid.The more shares you buy, the bigger that residual income becomes. On the point where Warren Buffett earns about $62 million dollars a year on dividend payments. Thats a huge income snowball.Now those are just two owners of massive companies, but what about the little guysSteve Scott is a prime passive residual income example.Steve has built an ebook that brings in 5-figures per month out of ebook sales.Hes able to write them quickly on topics that people are looking for.
No manufacturing that needs to take place.Design a few applications, write an ebook, or create a product that we are looking for. Then give individuals the capacity to download it while you get paid to sleep.This manner, the item only needs to be built once. After the first 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.
With every dollar spent, you earn a point which can build into a level where you can buy products, or even take a trip.This isnt perfect for building an income snowball, but this is the ultimate guide to residual income so weve must cover our bases.Speaking of examples, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve coated this one a bit already.If youve got some knowledge which 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 folks out there who want to know too.Sit down and write an ebook.