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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 could 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 can call this passive residual income.Residual Income FormulaFor corporate America, the formula looks like this:Residual Income net operating income (cost 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 require a $500 chunk out of it youre left with a net income of $2,500. That month, youve also got a mortgage payment for $1,000.
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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 part of their cost to function asset.Corporate America considers time as a portion of the bills paid before theyre paid.Combining both, we get a formula for passive residual income which would look like this: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 eventual residual income model means youve got to create something of worth , up front, that people will continue to cover for.Writers do so with books.
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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 those businesses, but he earns additional info income from them. When 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.
He buys a share of a stock that pays dividends, and each month or quarter, he receives paid.The more shares you buy, the larger that residual income becomes more. 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 enormous companies, but what about the small guysSteve Scott is a prime passive residual income example.Steve has assembled an ebook empire that brings in 5-figures per month out of ebook sales.Hes able to write them quickly on topics that 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 item only needs to be built once. Following the first cycle, we remove the create painting and are going back and forth between market painting and earn money.In the example of an ebook, the initial cycle would look like this:But after the initial cycle, write ebook is removed.
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With every dollar spent, you earn a point that can build into a level at which you can buy products, or even take a trip.This isnt perfect for building an income snowball, but this is the ultimate guide to residual income so weve got to pay our bases.Speaking of illustrations, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve covered this one a bit already.If youve acquired some knowledge which you find yourself teaching friends and family around, and it's time to compose an ebook.Whatever youre teaching is already in demand, which means there are other folks out there who want to know too.Sit down and write an ebook.