You’ve often heard the term, but you don’t quite understand it. What’s more, you’ve heard it used in reference to moguls and extremely wealthy people such as Oprah Winfrey, Bill Gates or Richard Branson. And this intrigued you. What is residual income? Can you benefit from it? And if so, how? This is what we’re here to explain.
Passive Income vs Active Income
The first simple thing you need to understand on the path of discovering what is residual income is this. There are two types of incomes – active and passive.
Active income is the direct result of your work or any type of effort you put in. The equation here is really rather straightforward. You go to the office, you work for a day at the factory or in the field, you log in an hour as a freelancer, and you get paid a particular amount of money.
It translates into what we all call wages or a salary. You can get it from an employer, meaning someone who actually pays you to perform a particular service for them or their business or you can be self-employed and be your own boss.
The important thing to remember about active income is that, no matter how high it gets, it’s still limited. You still have to go to work and do what your employer asks to earn that paycheck.
Passive income is the sum of money you continue to receive even after you have finished working in a particular place, for a certain employer or on a project. The most common types of passive income are as follows.
- Royalties from books, movies, and songs.
- Income from real estate.
- Business investment opportunities which do not require your presence.
How Do You Create Residual Income?
Here’s a simple example. Bill Gates is still making money from Microsoft, even though he is no longer employed there. Another one would be the type of deal movie stars have. They get paid a certain amount to shoot the movie. Also, they are promised more money if the film reaches a standard high at the box office over a period of time. If that is the case, the movie star stands to make more money. We call that residual income, even though he or she is no longer involved with that project.
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The idea behind residual income is to create something people will still want to use even after you are done working on it. People listen to the same songs, watch the same movies, and read the same books for decades, sometimes even centuries.
Therefore, you need to think of something that can be sold over and over again without damages, and that will bring you money. Such as renting a house or an apartment, building a business where you have other people working for your while you live off the residual income. For example, if you own a coffee shop and work in there yourself, that’s active income. However, if you expand enough so as to be able to afford a barista while you are able to do something else, that’s residual income.
So, what is residual income? The idea that you won’t be working at your job anymore. Instead, you will be working to build your fortune. Does that sound good to you? Write to us in the comment section below and let us know what you think.