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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 worker, 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 somewhat 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 * 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 out of 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 would be a portion 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 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 create something of worth , up front, that people will continue to cover for.Writers do this with books.
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They record a song and then are able to market it the rest of their lives to make 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 to get money. It puts an emphasis on creating value for others.Residual Income ExamplesName any musician or writer and there is someone who is 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 does well.Warren site here 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 mostly to dividend paying stocks, Mr.
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He purchases a share of a stock which pays dividends, and each month or quarter, he receives paid.The more shares you purchase, the bigger that residual income becomes. To the point where Warren Buffett earns roughly $62 million dollars a year on dividend payments. Thats a huge income snowball.Now these are 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 compose them go to the website quickly on subjects people are looking for.
No manufacturing that needs to take place.Design some software, write an ebook, or produce a product that we 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 initial cycle would look like this:However after the first cycle, write ebook is eliminated.
With each dollar spent, you earn a point that can build into a level at which you can purchase goods, or even have a trip.This isnt ideal for building an income snowball, but that is the greatest guide to residual income so weve must cover 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 around, and its time to write an ebook.Whatever youre important source teaching is already in demand, which means that there are different people around who want to know too.Sit down and write an ebook.