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What Is Residual Income And Why Do You Want It?

What Is Residual Income And Why Do You Want It?

You have probably heard the expression that “the rich get richer while the poor get poorer.” It’s often used to explain the unfairness when it comes to money.

However I don’t think this is unfair at all. The reason it happens is because the rich focus on a completely different way of earning money. There are thousands of stories about poor people who accumulated great riches and this choice is available to all of us.

Warren Buffett, Bill Gates, Richard Branson, and Oprah were not born into riches. Yet over their lifetimes they’ve amassed huge personal fortunes. This is because they understand and use the power of leverage through residual income like we’ll talk about today.

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What Is Active Income?

Active income comes as a direct result of our efforts. This is when we work for one hour and get paid a certain amount for that hours work. This can be seen in wages, salaries, and self-employed service providers like lawyers or doctors.

There are many people who get paid vast amounts of money to become the CEO of a company, play professional sports, or star in a movie. Earning a high active income is often a lot of hard work and requires a dedication beyond most of us. It’s also limited because no matter how much money you get paid you still need to show up to work to earn your money.

What Is Residual (Or Passive) Income?

Residual income is when you continue to get paid after the work is done. This includes royalties from books, movies, or songs and also income that comes from real estate or business investments where you don’t actually have to be present to earn it. For example, Bill Gates is still making a residual income from Microsoft even though he isn’t working there anymore.

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Residual income comes from building an asset that continues to pay you after the work has been done. A book, movie or song is an asset to the people earning royalties from it. A house is an asset to the landlord being paid rent and a business is an asset to the business owner who does not need to be involved in the day-to-day activities anymore.

The Passive Income Myth

Many people talk about passive income and create the impression that you never have to do anything to keep that income going. The truth is that you will normally have to keep your eye on things if you want it to run smoothly. For example Richard Branson doesn’t run any of the 400+ companies he started but he goes over the numbers each day to make sure they’re performing well and calls the CEO if there are any problems.

There is also an idea that we should work to build a passive income asset and then sit on the beach relaxing for the rest of our lives. The truth is that most people would get extremely bored with this scenario and will be eager to find something to do. That’s why the world’s billionaires continue to work… they love what they do and it stopped being about the money a long time ago.

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How To Build Residual Or Passive Income

The key idea here is leverage. You must be able to leverage other people’s time or other people’s money in order to create a residual income. Richard Branson can run 400+ companies because he isn’t actually running any of them at all. His CEOs are.

To create residual income, you need to create something that people will continue to buy on a regular basis long after you’ve created it. A house is a prime example of this as people will continue to pay rent for the right to live in the house. A business needs to have products that are sold over and over again rather than trading the business owner’s time for money.

The products might be an item that has been created and can be duplicated or it might be the time of other people. For example, a dentist can only make so much income trading their time for money but when they bring on other dentists they will start to leverage their results to build residual income.

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The First Steps To Creating Residual Income

The first thing is to be aware of how you work for active or residual income. Then you want to decide a path that transitions from active to residual income over time. It’s hard to start a new business and create residual income tomorrow so you have to have some patience.

As you make more residual income you can start to scale back the hours you put into active income. This will mean your residual income will grow even faster once you pay it more attention.

As Jim Rohn was famous for saying:

“I’m working full-time on my job and part time on my fortune. But it won’t be long before I’m working full-time on my fortune. Can you imagine what my life will look like?”

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Craig Dewe

Craig founded Lifestyle Outlaws, with the belief that everyone should have the time, money and health to do what they want with life.

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Last Updated on March 29, 2021

Life Insurance: A Secure Way To Protect Your Future.

Life Insurance: A Secure Way To Protect Your Future.

Life is a journey full of ups and downs. No one can actually predict what might happen the next moment; there are times where the happiest moments do not even take a second to turn into the gravest. Planning for your future can help you face such unwelcomed but irrepressible situations with much ease. We all want to make every memorable event of our life more special and to cherish all those moments happily and worry less, you must financially plan your future. But no one has control over life and death. Who would wish to see his family suffer in his absence? Insurance hands over the financial jeopardy of life’s happenings to an insurance company.

Importance of getting a life insurance

No one has control over life and death. Nobody would like to see their family suffering in an absence, and that’s why many people recommend life insurance. A life insurance plan is one of the best ways to secure the future of your family, even against those financial troubles after an untimely demise. These plans are safe and credible, and you could trust them for your family’s better future.

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On the other hand, a life insurance policy is a contract between a company (insurance provider) and policyholder in which the insurance provider ensures to pay a certain amount of money to the nominated beneficiary in case of the policyholder’s death during the term of the agreement. There are different types of insurance plans, and it is important for you to know the benefits of those plans such as a funeral, medical or some life expenses provided they are mentioned in the agreement.

Choosing the right insurance plan

If you’re about to select an insurance plan, you should consider some important factors:

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  • The time at which you start investing in a program and the number of family members you want to get insured. Obviously, a married man with two children has different needs compared to a single one. The number of persons who are dependent on an individual also varies from person to person.
  • The next thing you need to consider is you and your family needs. What are your child’s dream, your retirement plans, for how long would your dependents need financial support, any personal injury, etc. And do not forget those events or situations that will surely demand a huge sum of money.
  • The next thing one must consider is your current income. You should preferably choose a plan which you can afford.

Now you must be having a pretty clear idea of how to choose the best plan for you. Further, you should also compare various plans offered by different companies and numerous sites available online that help will you to compare them.

Differences between life insurance plans

Here’s a short brief of some plan categories you can choose according to your needs:

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  • Term Insurance Plan – You have to pay once, and your nominee gets the paid money under your misfortune demise. It ensures a person for a fixed time. If you survive the policy period, you do not get your premiums back.
  • Whole Life Policy – This plan continues for your lifetime. Under this, the policyholder has to pay regular premiums, until their death.
  • Endowment Policy –  In case the individual dies during the tenure, the beneficiary gets the amount assured. If the person survives the policy tenure, they gets back the premiums paid with other investment returns along with several other benefits.
  • Money Back Policy – In this a portion of the money invested is returned to the investor at regular intervals. If you survive the insurance term you get the entire amount back; else the beneficiary receives the entire sum assured.
  • ULIPs – These are the life insurance plans that offer you future security plus wealth creation options.

Many people do not opt for whole life policy and endowment policy because of the high amount of money you need to pay, while others may prefer to opt for these if they have a high life expectancy. Surely you will find the best one for you.

So what are you waiting for? Plan for your future and live a happier and carefree life today.

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Featured photo credit: aryehsampson.com via aryehsampson.com

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