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Active income is income for which services have been performed. This includes wages, tips, salaries, commissions, and income from businesses in which there is material participation. Passive or Residual income is an income obtained on a regular basis, with 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. Typically, income from interest on money that's been loaned does not count as portfolio income.
Now, looking at the resources of residual income, we're going to move from the ones which we think are 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 place it on a stage that you do not run and then get compensation based on when the merchandise is purchased or utilized. Most of us do not possess the potential to quickly create royalty streams.
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This is the purest type 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. However, the industry as a whole is confusing to most and requires a tremendous amount of mental and emotional fortitude to produce residual income potential.
The effort you have to put in is important to consider. .
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5. Subscription Models: Subscription models/Customer Hubs/Member Areas These are businesses like Netflix, Costco, Sams Club. The subscription model has become almost its own category. But it has considerable cost and you must continuously create and cultivate content and value. The income is residual and combines loyalty and education with community.
A good book that explains this model of residual income is The automated Client by John Warrillow. He walks through, in plain English, the various styles of subscription models and how to potentially apply them to your business.
4. Affiliate marketing: Getting paid to tell folks what you enjoy and showing them where to get it. As a Dad, I tried 3 high chairs prior to finding the Bumbo. Now when I blog about the Bumbo Read Full Report and link for it to my Amazon account, and someone buys it, then I can earn a commission.
A fantastic illustration of this will be Pat Flynn in PassiveIncome.com because he walks you through how to set up your own method 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 have a look at a local taco stand. Surethat taco stand might have loyal patrons and make the best damn beef taco youve ever had, but they also have to wake up every day and turn the lights on and fire up the grill to get compensated for their special tacos.
So, literally I am going to earn a fee whether I move in or not. Sure, I must 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 them the Power 2 Because these require less specialization and experience, and with the leveraged use of debt that is smart, can work together.
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2. Real Estate: Real estate is 2 for one simple reason, leverage using intelligent debt and other peoples money. When looking at real estate rents and the potential for income property provides, it is the trifecta of residual income. First, a home or rental property can appreciate, therefore capital appreciation is your very 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 this piece of real estate. Third, taxation protection. Rental income is taxed at a lower rate than ordinary income and you also can depreciate property by taking a paper deduction on your annual tax return not to mention expensing the cost of mileage, mortgage interest, and updates to the home.
The fourth and possibly most hidden, but important benefit is that over time rents grow, protecting your cash-flow against inflation, although 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. Most people have 401Ks and IRAs, so I am going to leave that for the investment side. Within this, I think our Foundation Freedom Phases is undoubtedly the simplest, safest and most effective tool for many reasons: a.