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What's Residual IncomeAt its simplest level, residual income is the income earned after all the bills 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 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 * price of funds )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 paid for. Were trading time for money.In the corporate finance formula, our time would be a portion of their cost to operate 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 that would look like this:Residual Income Net Income (Time Working + Expenses)By getting the 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, people will continue to pay for.Writers do so with books.
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They set a song and then are able to 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 moves 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'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 really spend his day to day 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 made Berkshire Hathaway that brings in income like 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 that pays dividends, and each month or quarter, he gets 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 look at these guys two owners of massive 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 out of 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 software, write an ebook, or produce a new product that people 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. Following the initial cycle, we remove the create painting and are going back and forth between market painting and earn money.In the illustration of an ebook, the first cycle would look like this:But after the first cycle, write ebook is removed.
With every dollar spent, you earn a point which can build to a level at which you can buy products, or even have a trip.This isnt ideal for building an income snowball, but that is the ultimate lead to residual income so weve got find out to pay all our bases.Speaking of examples, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve coated this one a bit already.If youve got some knowledge that you find yourself teaching friends and family around, and it's time to compose an ebook.Whatever youre teaching is currently in demand, which means that there are other people around who want to know too.Sit down and write an ebook.