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What is Residual IncomeAt its most basic level, residual income is the income earned after each of the bills and expenses are paid.For the average employee, this could be their disposable income. Theyve gotten their own 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 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 take 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 exactly what were compensated for. Were trading time for money.In the corporate finance formula, our time would be a portion of the cost to function asset.Corporate America considers time as a portion of their invoices paid before theyre paid.Combining both, we get a formula for passive residual income which would seem like that:Residual Income Net Income (Time Working + Expenses)By getting time working down to zero and 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, that people will continue to cover for.Writers do so with books.
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They record a song and then can 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 goes away from trading our time for 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, mobile 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 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 his investments.By sticking mainly to dividend paying stocks, see post Mr.
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He buys a share of a stock which pays dividends, and every month or quarter, he gets paid.The more shares you buy, the larger that residual income becomes. 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 enormous companies, but what about the little guysSteve Scott is a prime passive residual income example.Steve has assembled an ebook that brings in 5-figures per month out of ebook sales.Hes able to write them fast on topics that people are looking for.
No manufacturing that needs to take place.Design a few software, write an ebook, or produce a product that people 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 initial cycle, we remove the make painting and are going back and forth between sell painting and earn money.In the illustration of an ebook, the initial cycle would look like this:But after the first cycle, write ebook is removed.
With each dollar spent, you earn a point that can build into a level at which you can purchase products, or even have a trip.This isnt ideal for building an income snowball, but this is the ultimate guide to residual income so weve got to pay 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 write an ebook.Whatever youre teaching is already in demand, which means that there are different people out there who want to know too.Sit down and write an ebook.