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What is Residual IncomeAt its most basic level, residual income is the income earned after all the invoices and expenses are paid.For the typical employee, this would be their disposable income. Theyve gotten their paycheck. Then paid the monthly expenses and have some money leftover to get 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 require a 500 chunk from it 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 part of the invoices paid before theyre paid.Combining the two, we get a formula for passive residual income that would seem like this: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 :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, that 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 rest of their lives to make residual income.Their time working following the initial investment has gone to 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 writer and there's someone who's earning residual passive income.
The Virgin brand has grown to airlines, cell phones, record labeland on and on.Mr. Branson doesnt actually spend his day daily hours working on all these businesses, but he earns income from them. If the companies do well, he does 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 mostly 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 receives paid.The more stocks you purchase, resource the larger that residual income becomes. On the point where Warren Buffett earns roughly $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 choice passive residual income example.Steve has built an ebook that brings in 5-figures a month from ebook sales.Hes capable to write them quickly on subjects that people are looking for.
No manufacturing that needs to take place.Design some applications, write an ebook, or produce a product that we are looking for. Then give individuals the capacity to download it while you get paid to sleep.This way, the product only needs to be built once. After the initial 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 first cycle would look like this:But after the initial cycle, then write ebook is removed.
With each dollar spent, you earn a point which can build into a level at which you can purchase products, or even take a trip.This isnt ideal for building an income snowball, but that really is the greatest lead to residual income so weve must cover 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 acquired some knowledge which you find yourself teaching friends and family about, its time to write an ebook.Whatever youre teaching is currently in demand, which means there are other people out there who want to know too.Sit down and write an ebook.