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What's Residual IncomeAt its most basic level, residual income is the income earned after each of the bills and expenses are paid.For the typical employee, this could 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 * price of capital)For personal finance, the formula looks like this:Residual Income Net Income ExpensesSay you earn a check for $3,000. Taxes take 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 would be a portion of their cost to function asset.Corporate America considers time as part of the bills paid before theyre paid.Combining the two, we get a formula for passive residual income which would look like that: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 valueup front, that people will continue to cover for.Writers do so with books.
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The Virgin brand has grown to airlines, mobile phones, record labeland on and on.Mr. Branson doesnt actually spend his day daily hours working on all these businesses, but he still earns 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 like Richard Branson, but Buffett also earns passive residual income from all his investments.By sticking mainly to dividend paying stocks, Mr.
He buys a share of a stock that pays dividends, and every month or quarter, he gets paid.The more shares you buy, the larger that residual income becomes more. On the point where Warren Buffett earns about $62 million dollars per year on dividend payments. Thats a massive income snowball.Now those are just two owners of enormous companies, but what about the small guysSteve Scott is a choice passive residual income example.Steve has built an ebook empire that brings in 5-figures their explanation per month from ebook sales.Hes able to write them quickly on topics people are looking for.
No manufacturing that needs to take place.Design a few applications, write an ebook, or produce a 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. Following the initial 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 first cycle could look like this:However after the first cycle, write ebook is removed.
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With every 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 ideal for building an income snowball, but that really is the ultimate guide to residual income so weve must cover 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 acquired some knowledge which you learn this here now find yourself teaching friends and family about, its time to write an ebook.Whatever youre teaching is already in demand, which means that there are different folks around who want to know too.Sit down and write an ebook.