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Active income is income for which solutions 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 required 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 actions. Typically, 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 from the ones which we think are the most difficult to make to the ones which are the easiest to create. Here we go.
7. Royalties: the creation of music, 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 receive compensation based on when the merchandise is purchased or utilized. Most of us do not possess the potential to quickly create freshwater flows.
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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 solutions. On the other hand, the industry as a whole is confusing to many and demands a tremendous amount of mental and emotional fortitude to make 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 category. But it has considerable cost and you have to continuously create and cultivate content and worth. 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 the way 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 seats prior to finding the Bumbo. Now next if I blog about the Bumbo 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 at PassiveIncome.com as he walks 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 take a look at a local taco stand. Surethat taco stand might have loyal patrons and also 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 paid for their particular tacos.
So, literally tomorrow I am going to earn a fee whether I pop over here move in or not. Sure, I must maintain relationships to keep earning that fee, but truly that the income is residual because once I sign up one client I am going to earn money from the money .
Why do we call them the Electricity 2 Because these require less specialization and expertise, and together with all the leveraged use of debt that is smart, can operate together.
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2. Real Estate: Real estate is 2 for one reason, leverage using smart debt and other individuals money. When looking at property rents and the potential for income real estate provides, it's the trifecta of residual income. To begin with, a home or rental house can enjoy, so capital appreciation is the very first long-term benefit of owning a home.
Other people 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 can depreciate property by taking a newspaper deduction on your annual tax return not to mention expensing the cost of mileage, mortgage interest, and updates to the home.
The fourth and maybe most hidden, however important benefit is that over time rents rise, protecting your cash-flow against inflation, although your mortgage interest can be at 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, therefore 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 several reasons: a.