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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 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 (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 take 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 compensated for. Were trading time for money.In the corporate finance formula, our time could be part 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 which would seem like this:Residual Income Net Income (Time Working + Expenses)By getting 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 valueup front, people will continue to pay for.Writers do so with books.
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They record a song and then are able to market it the rest of their lives to produce residual income.Their time working following the initial investment has gone into 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 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 all 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 More about the author income from all his investments.By sticking mainly to dividend content paying stocks, Mr.
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He buys 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. To this article the point where Warren Buffett earns about $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 small guysSteve Scott is a prime passive residual income example.Steve has assembled an ebook that brings in 5-figures per month from ebook sales.Hes able to write them quickly on subjects that people are looking for.
No manufacturing that needs to take place.Design a few software, write an ebook, or produce a new product that we are looking for. Then give people the capacity to download it while you get paid to sleep.This manner, the product only needs to be built once. After the first cycle, we eliminate the create painting and are going back and forth between sell painting and earn money.In the example of an ebook, the initial cycle could look like this:But after the initial cycle, write ebook is eliminated.
With every dollar spent, you earn a point which can build into a level at which you can purchase products, or even have a trip.This isnt perfect for building an income snowball, but that really is the ultimate lead to residual income so weve got to 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 got some knowledge which you find yourself teaching friends and family around, and its time to write an ebook.Whatever youre teaching is already in demand, which means that there are different folks around who want to know too.Sit down and write an ebook.