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What is Residual IncomeAt its simplest level, residual income is the income earned after all the bills and expenses are paid.For the average employee, this would 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 can 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 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 what were compensated for. Were trading time for money.In the corporate finance formula, our time could be part of the charge to function asset.Corporate America considers time as a portion of the invoices paid before theyre paid.Combining both, 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 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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They record a song and then are able to 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 author and there's someone who is earning residual passive income.
The Virgin brand has grown to airlines, cell phones, record labeland on and on.Mr. Branson doesnt really spend his day to day hours working on all those businesses, but he still earns income from them. When the companies do well, he can well.Warren Buffett is another shining example. Hes made Berkshire Hathaway that brings in income such as 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 gets paid.The more shares you purchase, the bigger that residual income becomes more. On the point where Warren Buffett earns about $62 million dollars a year on dividend payments. Thats a huge income snowball.Now these 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 empire that brings in 5-figures per month from ebook sales.Hes able to write visit this site right here them fast on subjects that people are looking for.
No manufacturing that needs to take place.Design some software, write an ebook, or produce a product that people are looking for. Then give individuals the ability to download it while you get paid to sleep.This manner, the product only needs to be built once. After the initial cycle, we remove the create painting and are going back and forth between sell painting and earn money.In the example of an ebook, the first cycle could look like this:However after the first cycle, write ebook is removed.
With every dollar spent, you earn a point which can build into a level at which you can buy goods, or have a peek here even take a trip.This isnt perfect for building an income snowball, but this 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 covered this one a little already.If youve got some knowledge which you find yourself teaching friends and family about, go to my blog it's time to compose an ebook.Whatever youre teaching is currently in demand, which means that there are other people around who want to know too.Sit down and write an ebook.