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What's Residual IncomeAt its simplest level, residual income is the income earned after each of the invoices and expenses are paid.For the typical employee, this would be their disposable income. Theyve gotten their own 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 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 take a $500 chunk out of it so 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 part of the cost to operate asset.Corporate America considers time as a portion of their 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 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 make something of valueup front, that people will continue to cover for.Writers do so with books.
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They record a song and then can sell it the remainder of their lives to produce 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 places 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, mobile phones, record labeland on and on.Mr. Branson doesnt really spend his day daily hours working on each of these businesses, but he still earns income from them. If the companies do well, he does 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 mostly to dividend paying stocks, Mr.
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He buys 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 more. On the point where Warren Buffett earns roughly $62 million dollars a year on dividend payments. Thats a huge income snowball.Now official statement these 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 able to write them fast on subjects 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 capacity to download it while you get paid to sleep.This way, the product only needs to be built once. Following the first cycle, we remove the make painting and are going back and forth between market painting and earn money.In the illustration of an ebook, the initial cycle would look like this:But after the first cycle, write ebook is eliminated.
With every dollar spent, you earn a point which can build into a level where you can purchase goods, or even have a trip.This isnt ideal for building an income snowball, but that is the ultimate guide to residual income so weve must cover 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 i thought about this you find yourself teaching friends and family around, and it's time to write an ebook.Whatever youre teaching is currently in demand, which means there are other people around who want to know too.Sit down and write an ebook.