Power of Passive Income

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You have probably heard the term residual income before.  It’s a phrase thrown out there and probably needs some explanation so that you know how powerful it really is. What we can all agree on is that the rich seem to understand and live this principles.  It is because they focus on a completely different way of earning money. The big money makers from Mark Cuban to Warren Buffett to Richard Branson didn’t come from family fortunes, they earned every dollar.  And they grow it through residual income.

Different Incomes

In order to apply the principles residual income, let’s compare and contrast.  First, the opposite of residual is active income.  Active income comes as a direct result of your work efforts. This is the kind of income most people are familiar with.  It’s when you are paid for your time.  From retail employees to lawyers and doctors, these are all wage earners based on the hours they spend working.cash flow

On the other hand, residual income is when your pay is not directly correlated to hours worked.  It is based on some type of initial work that you continue to get paid on after the work is done. This can include things like real estate or business investments where you’re not actively working to earn it.

Residual income comes from building an asset that continues to pay you after the work has been done. A mobile app, book, or song are assets where you can earn royalties. An apartment building is an asset with the income paid in rental payments.

What is Passive Income?

There is a misnomer out there that I’d like to put to rest.  Passive income is not equal to residual income.  Some folks talk about passive income as if there is no work required and give the impression that you never have to do anything to keep that income stream flowing. The truth is that you will have to be somewhat involved if you want it to continue to run smoothly. For example, Mark Cuban doesn’t physically run any of the many companies he started, but he does go over the numbers each day to make sure they’re performing well.  There is an element of management involved in keeping up the income stream.

Building your Income Stream

Now that we’ve defined it, how do we build residual income streams?  That’s the million dollar question, right? The core principle is leverage. In order to build a passive stream, you must be able to effectively leverage other people’s time or other people’s money. Mark Cuban, leverages the CEO’s of his companies because he isn’t actually there on site.  To create residual income, you first need to find something that people will continue to buy on a regular basis long after you’ve created it. A rental property is a great example as people continue to pay rent for the right to live in the house.

Network marketing is a relatively inexpensive way to leverage your own network of contacts to sell a product or service.  You put the time in on the front end and, if done correctly, you’ll reap the benefits for years to come.

Steps To Create Residual Income

The first step is an honest personal assessment of where you currently are.  What kind of active income do you currently have?  What type of residual income do you currently have? If you are truly committed to this ideal, then you’ll want to decide on a transitional plan from active to residual income over time.  Since residual income is not something that is created over night you will need to have patience as you execute your plan from active to residual income.

Choose which residual stream you’d like to create.  Set up an affiliate website, write a blog, buy an investment property, learn to trade options.  There are a lot of different ideas here.  As you begin to make more residual income you can start to scale back the hours you put in with your employer.

Residual income is one of the greatest concepts since compound interest.  As you continue to build multiple streams of residual income you will see what the wealthiest people already know, residual income gives you back your time, which is the greatest asset we have

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