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What is Residual IncomeAt its simplest level, residual income is the income earned after each of 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 do 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 (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 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 a portion 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 which would look 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, that people will continue to pay for.Writers do this with books.
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They set a song and then are able to market 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 writer and there is 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 Go Here day daily hours working on each of 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 like Richard Branson, but Buffett also earns passive residual income from all his investments.By sticking mostly to dividend paying stocks, Mr.
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He buys a share of a stock which pays dividends, and every month or quarter, he receives paid.The more shares you purchase, the larger that residual income becomes. To the point where Warren Buffett earns about $62 million dollars a year on dividend payments. Thats a massive income snowball.Now these are two owners of enormous companies, but what about the little guysSteve Scott is a choice passive residual income example.Steve has assembled an ebook empire that brings in 5-figures a month from ebook sales.Hes capable to write them fast on topics that people are looking for.
No manufacturing that needs to take place.Design a few applications, write an ebook, or create a new product that people are looking for. Then give individuals the capacity to download it while you get paid to sleep.This way, the item only needs to be built once. After the initial cycle, we eliminate the make 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, then write ebook is removed.
With each dollar spent, you earn a point which can build to a level at which you can buy goods, or 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 that you find yourself teaching friends and family around, and its time to compose an ebook.Whatever youre teaching is already in demand, which means there are different people out there who want to know too.Sit down and write an ebook.