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What's Residual IncomeAt its simplest level, residual income is the income earned after each of the bills and expenses are paid.For the typical employee, this could be their disposable income. Theyve gotten their paycheck. Then paid the monthly expenses and have some money leftover to do 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 (cost of operating assets * price 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 exactly what were paid for. Were trading time for money.In the corporate finance formula, our time could be part of the cost 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 that would seem like that:Residual Income Net Income (Time Working + Expenses)By getting the time working down to zero and also 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 make something of value, up front, that people will continue to pay for.Writers do so with books.
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They record a song and then can market it the remainder of their lives to produce residual income.Their time working following 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 author and there is someone who is earning residual passive income.
The Virgin brand has grown to look at here airlines, cell phones, listing 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 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 purchases a share of a stock that pays dividends, and every month or quarter, he gets paid.The more shares you buy, the bigger that residual income becomes more. To the point where Warren Buffett earns about $62 million dollars a year on dividend payments. Thats a huge income snowball.Now those are two owners of massive companies, but what about the small guysSteve Scott is a prime passive residual income example.Steve has assembled an ebook empire that brings in 5-figures a 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 software, write an ebook, or create a product that we are looking for. Then give individuals the ability to download it while you get paid to sleep.This way, the item only needs to be built more information once. After the initial cycle, we eliminate 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:But after the first cycle, write ebook is eliminated.
With each dollar spent, you earn a point which can build into a level at which you can buy goods, or even have a trip.This isnt ideal for building an income snowball, but that really is the greatest lead to residual income so weve got to cover our bases.Speaking of examples, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve coated 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 different folks out there who want to know too.Sit down and write an ebook.