This year it has become increasingly common for financial “guru’s” to tell people they need to create residual income to set themselves up for success. You may have found yourself wondering “What is residual income” when this advice gets thrown around.
Residual income – also referred to as passive income periodically – is money that you earn from past actions, or automated systems, that don’t require your future time involvement.
What is Residual Income?
Residual income is income that you continue to receive after the completion of the work that produced the income. Some common examples of residual income include rental properties, dividend income, licensing opportunities, interest income, royalties, etc.
Residual income is often referred to as passive income, and they are very close indeed. I suppose the difference would be that passive income insinuates the least amount of work possible to generate income, while residual income implies that you had to work to generate the income, but now it continues to come in long after you have stopped working on that task.
My personal favorite form of residual income is the cash flow I receive from tenants on my rental properties, but there are so many ways to build these streams of income if you are resourceful!
How to Make Residual Income!
Smash the Like button! – Seriously, if you smack the like button residual income will just magically flow into your life…but if you don’t like this video, your life will fall apart, and the curses of those old email chain letters will all haunt you!
- Rental properties – Without a doubt, rental properties are my favorite way to build wealth. When you purchase a rental property, the income from your tenants will be used to pay down your mortgage, taxes, insurance, maintenance expenses, repairs, and any other expenses. Any amount of extra income (cash flow) left over is your residual income. This does not even account for the fact that your tenants are paying off your mortgage, and rental properties have some incredible tax benefits too!
- Dividend income – Some publicly traded companies pay out a portion of their earnings as a dividend to their stockholders. This is a great source of passive income, that can certainly increase over time! Let us say you own $100 of a company that pays a 7% dividend yield. That means you’ll earn $7 annually, just for holding this stock in your portfolio. This doesn’t include the fact that the stock may increase in value, and the dividend percentage may increase. Conversely, the stock could lose value, and the dividend could be slashed too. This may not seem like a ton of money, but if you owned $100,000 of that stock, it would pay you $7,000 a year just for owning it. Talk about a passive return on your investment!
- Interest income – If you were to lend somebody $50,000 at 10% interest for a year, you would earn $5,000 in interest income. There are a lot of ways for you to lend money to people that can result in residual income. Obviously, you want to ensure that the deal is something worth lending money to, and know the amount of risk associated with the deal, but being a private lender can be a great way to earn a return on your investment.
- Affiliate marketing – Suppose I was to tell you about how incredible Propstream is for real estate investors, and why I will continue using it for the rest of the time I’m an investor. Then, let’s say that you used my link to check out their free trial, and then decided to sign up for a membership, I would get 30% of your membership fee as a thank you from the company for recommending them to you. Affiliate marketing is a great way to generate residual income, especially if you already have a platform that you can recommend things through such as a blog, large social media presence, YouTube channel, etc.
- Royalties – Imagine that you are an artist of sorts, let’s say musical artist. Royalties are the money you earn from repeat sales of your songs, and or records. You can earn royalties from music, or a book that is used for a movie, or for writing the script for a movie, etc. There are a ton of ways to earn royalties from creative endeavors.
- Licensing – If you build a brand – whether personal, or a company brand – other people may wish to license the use of your brand on their products. Probably the most well-known example of this would be how Michael Jordan licensed his personal brand to Nike, and we all know how that is gone. Another, more recent example is the song Baby Shark that swept the nation by storm a few years ago. You have probably noticed Baby Shark merchandise here and there, all of that is most likely licensed merchandise that the creators of the trend are earning residual income from.
- YouTube channel – Creating a YouTube channel takes time. Honestly, for most people the ROI for creating a YouTube channel probably isn’t worth the amount of effort it takes to build. I currently earn only about $400/month, and have uploaded over 400 videos. That being said, many people make a huge amount of money online, and several of them built that revenue fast.
- Start a blog, or advertising revenue – Building a blog is not passive, but it can be lucrative. As your platform grows you can generate residual income through advertisement revenue, sponsored posts, or selling your own products and services. Once your website begins to rank on Google for keywords or phrases, you may find yourself with a substantial amount of website traffic coming in whether you’re working on the blog or not.
- Write a book – I’m almost done writing The No B.S. Guide to Military Life: How to Get Rich, Get Promoted, and Achieve Greatness. As I write this, the final round of editing is being completed, and we are getting ready to launch. A book can provide residual income in a few different ways. The first, being book sales (obviously). Secondly, a book can be used as a business card to generate sales of your products/services, or help you book speaking gigs within your niche.
- Online Courses – Online Courses have seemingly exploded over the last year or so. As true as this may be, there is still very much a market for creating your own online course, if you’re an expert in a given niche. These course sales can be completely automated, to include the advertisements you might be able to run behind the scenes. Obviously, building an online course might not be a simple task, and neither is creating all of the advertisements or landing pages…but the payoff can be solid!
- Intellectual property sales – Intellectual property is huge, and will only become more powerful in the future, but how can you package your thoughts to create residual income? Well, you could bundle copies of your speaking engagements, zoom calls, coaching calls, or unreleased content, for sale. You could also use this as a free lead magnet to get people into your sales funnel.
- Physical product sales – Selling physical products is not really my jam. However, once you create the product, and have the sales funnel built and automated, this can be a great source of residual income. A simple example of this that is almost completely automated is print-on-demand t-shirts. You can sell merchandise on your website, or through social media, so that when somebody orders a T-shirt the company prints it, and mails it to the customer, without you having to do a single thing.
- Recurring online sales (photography, B-roll, graphic design, etc.) – If you have graphic design skills, or are talented with a camera, you can generate recurring income online. You can sell B-roll templates for videographers, stock images, designs you’ve created, templates for others to use for designing products, etc. in order to sell these items online passively.
- Membership sites – BiggerPockets, the largest real estate investing forum in the world, is a membership site. They have thousands of pro members, and premium members, that gladly pay to benefit from the discounts and bonuses that come with their memberships. You could build your own membership site, or simply use a platform like Patreon to allow your true fans to show their support as members.
- Only fans – Joking, kind of. While Only Fans is certainly taboo, the idea is solid for residual income. Provide some sort of value to your audience, and allow them to support you monthly on that platform in return. This is just another example of a membership site, but I broke it out because, let’s be honest…using Only Fans as a legitimate example of a way to build recurring income is comical, but it works!
How to Multiply Residual Income
So, you’ve built a few hundred dollars in residual income? What should you do next?
Well, you could go celebrate by buying yourself something nice, and I might even recommend that…provided you only do it once.
What you should do is take every penny of that residual income and reinvest it in more income-producing assets.
This is how you multiply residual income in order to exponentially build wealth. The more you can reinvest your income into passive, and residual, income producing ventures, the faster you will achieve financial freedom!
So, what is residual income to you?
What are you doing to build residual income this year? Are there ways to generate this recurring income that I forgot to mention? Comment down below so I can improve this list with new wealth building strategies for everyone to see!