You probably know by now that money isn’t everything. But in today’s fast-paced world, your income is a strict judge of your financial well-being. If you have an above-average income and live a comfortable life, great! But if you spend more than you make, your financial state could use some work. Residual income measures how much money you have coming in from other sources after you pay for your monthly expenses like rent or mortgage, groceries, gas, and other daily necessities. Rather than focusing on one primary source of income like wages or commission sales, residual income instead measures multiple streams of secondary earnings. These are usually passive sources of income that don’t require constant monitoring or attention to keep them running—like residual earnings from assets you own ("asset rent"), services you provide to others ("service rent"), or properties you lease out to tenants ("real estate rent").
What is residual income?
Residual income is the amount of money you make after you account for all of your expenses. Essentially, residual income is the amount of money you earn after your day job, or your primary work, is done. Residual income is different from earned income, which is money you receive as compensation for work you do. Residual income is the amount of money you make after you account for all of your expenses. Essentially, residual income is the amount of money you earn after your day job, or your primary work, is done. Residual income is different from earned income, which is money you receive as compensation for work you do.
Why is residual income important?
Residual income is a vital part of building wealth. While it is true that earned income is the best way to boost your bottom line and get ahead financially, it is also true that a cash-poor business owner who collects residual income is better off than a cash-rich but asset-poor employee. Residual income is also helpful to people who are trying to get out of debt because they will begin to build a cash flow as they create their asset. Since the income is coming from an asset, not a job, the income is tax-free.
How to create residual income?
As with most things, the best way to create residual income is to start small. Choose a few assets to lease out to others, like a car, a piece of equipment, or even your own home. Once you have a few assets generating residual income, start adding more. One way to get started is with contract-for-deed (CFD) arrangements, where a property owner whom you trust leases out his or her property to you for a contractual period (often a few years). You make a down payment, take out a lease, and then start paying the owner perhaps $500 a month. If at the end you have made the contractual payments, you own the property.
3 Tips to Start Creating Residual Income
- Identify which assets generate residual income. You have to actively seek out residual income opportunities, no one will just come to you. If you own a car, lease it out to a rideshare service like Uber or Lyft. If you have your own home, become a host on Airbnb. If you have extra space, become a house sitter. If you have some extra time, become an online tutor. There are a multitude of ways to generate residual income. - Start out slowly. When taking advantage of residual income opportunities, do not bite off more than you can chew. It may sound contradictory, but you want to start out slowly. You will be more successful if you start small and work your way up. Trying to go big all at once is a quick way to get overwhelmed and give up. - Be patient. While residual income can be very exciting, it can also be very slow growing. Do not be overly impatient with your investments. Instead, be patient and allow them to grow and mature.
Residual income is an important source of income, especially for those who cannot, or do not want to, work a full-time job. Residual income is also important for those who are retired, and need a way to generate income, as well as those who are disabled and are not able to work. If you have ever dreamed of working from home, or quitting your day job to pursue your passions, residual income is the key. You can earn money while you sleep, and have extra cash on hand while still paying the bills. No matter who you are or what your financial situation is like, there is a way to increase your residual income.