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Active income is income for which solutions have been performed. This includes wages, tips, wages, commissions, and income from businesses in which there is material participation. Passive or Residual income is an income received on a regular basis, with very little effort needed to maintain it.
Portfolio income is income from investments, dividends, interest, royalties and capital gains. Portfolio income does not come from passive investments and is not earned through normal business activity. Normally, income from interest on money that's been loaned does not count as portfolio income.
Now, looking at the sources of residual income, we are going to move in the ones that we think will be the toughest to create to the ones which are the easiest to create. Here we go.
7. Royalties: the creation of audio, books, inventions, machines, patents. A royalty is something you have created or sold and put it on a platform that you do not run and then get compensation based on when the item is bought or used. The majority of us do not have the potential to quickly create royalty streams.
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This is the purest form of passive residual income, if you can attain it. .
6. Network Marketing: Network marketing is a unique business model and has created more millionaires than any other business. The industry as a whole is growing and more companies are trying to leverage referrals or direct sales to increase revenue and market products. On the other hand, the industry as a whole is confusing to many and demands a tremendous amount of mental and emotional fortitude to produce residual income possible.
The effort you have to put in is important to consider. .
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5. Subscription Models: Subscription models/Customer Hubs/Member Areas All these are businesses like Netflix, Costco, Sams Club. The subscription model has come to be almost its own class. But it has considerable price and you must continuously create and cultivate content and value. The income is remaining and combines devotion and education with community.
A good book that explains this version of residual income is The automated Customer by John Warrillow. He walks you through, in plain English, the various styles of subscription models and the way to potentially apply them to your business.
4. Affiliate marketing: Getting paid to tell people what you like and showing them where to receive it. As a Dad, I tried 3 high chairs before finding the Bumbo. Now when I blog about the Bumbo and link to it to my Amazon account, and someone buys it, then I can earn a commission.
A great illustration of this will be Pat Flynn at PassiveIncome.com because he walks through how to establish your own system to maximize and profit from your passion.
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3. Business: As I mentioned, not all businesses are created equal when it comes to residual income. Lets take a look at a local taco stand. Sure, that taco stand might have loyal patrons and make the best damn beef taco youve ever needed, but they also need to wake up each day and turn the lights on and fire up the grill to get paid for their special tacos.
So, literally tomorrow I am going to earn a fee whether I move in or see here not. Sure, I have to maintain relationships to keep earning that fee, but really the income is residual because once I sign up one client I am going to make money from their money perpetually.
Why do we call these the Power 2 Because these require less specialization and expertise, and with all the leveraged use of debt that is smart, can work together.
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2. Real Estate: Property is 2 for one simple reason, leverage using intelligent debt and other individuals money. When looking at real estate rents and the potential for income real estate provides, it is the trifecta of residual income. To begin with, a home or rental property can appreciate, therefore capital appreciation is your first long-term benefit of owning a house.
Other men and women are paying off the mortgage, insurance, property taxes and maintenance at the same time you own that piece of property. Third, tax protection. Rental income is taxed at a lower rate than ordinary income and you can depreciate real estate by taking a paper deduction on your annual tax return not to mention expensing the price of mileage, mortgage interest, and updates to the home.
The fourth and maybe most hidden, but important benefit is that over time rents rise, protecting your money against inflation, while your mortgage interest can be in a fixed rate potentially. .
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1. The final and most powerful form of residual income, in my opinion, is investing and insurance. The majority of us have 401Ks and IRAs, so that I am going to leave that for the investment side. Within this, I think our Foundation Freedom Phases is by far the simplest, safest and most powerful tool for many reasons: a.