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What's 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 do 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 * 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.
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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 could be a portion of the charge to function asset.Corporate America considers time as part of the bills paid before theyre paid.Combining both, we get a formula for passive residual income which would seem like this:Residual Income Net Income (Time Working + Expenses)By getting 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 eventual residual income model means youve got to create something of valueup front, people will continue to cover for.Writers do this 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 to day hours working on each of these businesses, but he still earns income from them. When 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 of his investments.By sticking mainly to dividend paying stocks, Mr.
He buys a share of a stock that pays dividends, and each month or quarter, he gets paid.The more stocks you purchase, the larger that residual income becomes. To the point where Warren Buffett earns roughly $62 million dollars a year on dividend payments. Thats a massive income snowball.Now those 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 empire that brings in 5-figures per month out of ebook sales.Hes able to compose them quickly on topics 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 click this link cycle, we remove the create painting and are going back and forth between sell painting and read earn money.In the example of an ebook, the initial cycle could look like this:However after the initial cycle, then write ebook is removed.
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With every dollar spent, you earn a point that can build to a level where you can purchase goods, or even have a trip.This isnt perfect for building an income snowball, but this is the greatest lead to residual income so weve got to pay all our bases.Speaking of examples, lets look at a few.Residual Income Ideas and OpportunitiesWrite an EbookWeve covered this one a little already.If youve got some knowledge which you find yourself teaching friends and family around, and its time to compose an ebook.Whatever youre teaching is already in demand, which means that there are other people out there who want to know too.Sit down and write an ebook.