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What's Residual IncomeAt its most basic level, residual income is the income earned after each of the invoices and expenses are paid.For the typical 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 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 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 paid for. Were trading time for money.In the corporate finance formula, our time would be a portion of the charge to function asset.Corporate America considers time as a portion of the invoices paid before theyre paid.Combining the two, we get a formula for passive residual income that 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 :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 value, up front, people will continue to cover for.Writers do this with books.
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They set a song and then are able to sell it the rest of their lives to make residual income.Their time working following the initial investment has gone to 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. Check Out Your URL
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 these businesses, but he 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 Read More Here 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 purchases a share of a stock which pays dividends, and each month or quarter, he gets paid.The more stocks you buy, the larger that residual income becomes more. To the point where Warren Buffett earns roughly $62 million dollars per year on dividend payments. Thats a huge income snowball.Now those 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 that brings in 5-figures per month out of ebook sales.Hes capable to compose them fast on topics that people are looking for.
No manufacturing that needs to take place.Design some software, write an ebook, or produce a new product that people are looking for. Then give individuals the capacity to download it while you get paid to sleep.This manner, the item only needs to be built once. Following you can find out more the first 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 first cycle could look like this:However after the initial cycle, write ebook is removed.
With each dollar spent, you earn a point that can build to a level at which you can purchase goods, or even have a trip.This isnt perfect for building an income snowball, but that 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 that you find yourself teaching friends and family around, and it's time to write an ebook.Whatever youre teaching is already in demand, which means that there are different folks out there who want to know too.Sit down and write an ebook.