Passive Income

difference between residual and passive income

What is the Difference Between Residual and Passive Income?

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Before we discuss residual income, let me clarify the misunderstanding that has been created by the term ‘passive income’. The terms ‘residual income’ and ‘passive income’ have become interchangeable but there is a subtle difference. From a marketing point of view, the term passive income is very seductive as it equates to “No work”, “No brainier”, “Easy”, “Just sit back and relax and money will come rolling in.” People get excited and join a business opportunity thinking that there is no work involved. They get disillusioned when they find that income is not passive after all.

Nothing can be further from truth. To create residual income, there can be a huge amount of time and effort required. It may take an author months or years to write a book. There is no income upfront. But once the book is published, royalties from it can flow for years to come giving passive income.

Residual implies that some work must be done before you can reap the rewards for years. There is no such thing as “100% passive income.” Every income stream you create will require some effort initially and also some maintenance to sustain it as passive income. You must keep these two work factors in mind before embarking on creating a residual income stream. So you have to roll up your sleeves and get to work to start a residual income stream.

The good part is that once you have created your residual income stream, it will create a full-time income for you with very few hours of work each week. There was a point in my life when I took a decision: I will not devote a single hour of my time in generating linear income to make someone else rich. This is the best decision I ever took in my life.

Someone rightly said, “Wealth is not a material gain, but a state of mind.” It took me several years of financial education to gain the state of mind that prompted me to stay away from the pitfall of linear income and focus only on creating passive income.

You will need some involvement in management of your assets, although it may not require day-to-day direct involvement. The trick is to put systems into place to minimize your time involvement even if it comes at a slight price. Your free time is the most precious commodity that will not only improve the quality of your life but also help create additional income streams.

difference between residual and passive income

creating passive income

The Three Best Offline Business Ideas for Creating Passive Income

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There are hundreds of ways in which you can create passive income. Let us first look at the three best offline business ideas that are easy to implement.

Start a Bulk Candy Vending Business

You must have seen vending machines in cinema halls or lobby of hotels and restaurants. Have you wondered who owns these machines? Most of these machines are owned by independent business entrepreneurs who have negotiated to place the machines with the parent business owner either by paying a fixed rent or giving them share of the profits.

Vending machines business needs small initial investment; it has a very low maintenance cost and provides excellent return on investment and its success depends upon finding good secure locations.

This is an excellent way to start building your residual income if you do not have large capital or do not qualify for a loan to start buying real estate. The difficult part of this business is to find good locations. You may have to knock on several doors before you secure your first location. Once you are in business and have built a good profile, it will become relatively easy to find and secure new locations.

Network Marketing

Network marketing is perhaps the most misunderstood and the most controversial concept of passive wealth creation. It generates strong emotions. Most of us were invited to a fancy presentation and got excited with the prospect of working from home, firing our boss, no office politics or commuting to work. There was also no cap on the income potential.

The prospect of generating great amount passive income excited us as it would give us time with our families, travel the world and pursue our other fantasies. It was better than any retirement plan or job security. It could be started part-time with minimal start-up costs. There were dreams in our eyes of a better future. But then what happened? Reality broke through: we suffered rejection from our friends and families. Our recruiting drive never took off. We never saw those fancy checks) coming into our bank accounts.

On the other hand, there are people generating great amounts of passive income through their efforts in network marketing. Network marketing is an industry that is experiencing an exponential growth with a turnover of billions of dollars and over 55 million distributors worldwide. It is being taught as a subject in many business schools around the globe. People like Warren Buffet and Donald Trump, who are not only some of the richest people on the planet but also have the most astute business minds, own direct selling companies.

Richard Bronson, who owns over 300 companies worldwide, is involved in network marketing. Robert Kyosaki, the author of ‘Rich Dad Poor Dad’ book series and one of the greatest financial educators recommends network marketing as the ‘Perfect Business’ to achieve financial freedom and security.

creating passive income

Why are these business leaders staking their name and fame to promote a business model that has generated so much debate and negativity? They believe network marketing is the wave of the future.

Many highly respected companies such as AT&T, Direct TV, Gap, Google, Macy’s, Nordstrom, Travelocity, and tons more have started to borrow from the concepts of network marketing. These companies have realized that the impact of their multi-million dollar advertising budget pales in comparison to the power of word-of-mouth advertising.

What most people do not realize is that how much the network marketing industry has evolved. Network marketing is a relationship building and mentoring business. To succeed, you must build a network of strong relationships and train your distributors to replicate the business model. The internet has made these tasks easier. You no longer should drive long distances to meet people. You can use ‘skype’ or send webinar recordings to give product demonstration.

There is big residual income to be made in network marketing—make no mistakes about it, it is a low investment business model that gives huge returns if you do it properly and sustain your effort.

Set up an automated eBay Business

If you can source a reliable wholesale product, then you will have over 50 million customers on eBay to whom you will be able to market your product. You can fall into the trap of making your eBay business into a full-time day job. To create residual income you have to automate the whole process. There are hundreds of software programs available to automate the eBay auctions.

The software will automatically start a new auction as soon as an item sells. It will do everything for you except ship the product. Even shipping of products can be outsourced to make it a complete hands-off business that generates residual income for you.

The key to success and profit from eBay business is to source the right product to sell. You can buy these products at a huge discount from eBay itself from the “Wholesale Lots” section. You can then turn around and sell them one at a time for a profit.

 

 

how to create passive income

How to Create Passive Income on Limited Income?

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In most cases, people start to question how to create passive income on limited income? They consider their jobs as their primary source of income. You have to start using a part of your actively earned income into generating passive income on a regular basis. You will be surprised at how fast your residual income will grow if you start out early.

Your investments will multiply if you apply the power of compounding properly. A dollar a day if invested correctly will make you a millionaire before you retire.

If you are new to the stocks and mutual funds, then I advise you to go for investing in indexed funds using Dollar Cost Averaging. This strategy gives highest returns with minimum amount of risk. Let me explain:

Indexed funds

Indexed funds are a type of mutual funds with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund provides broad market exposure and low operating expenses as no fund manager is involved.

The lack of active management generally gives the advantage of lower fees and lower taxes in taxable accounts. This increases your returns as an investor. It has been found that indexed funds outperform funds managed by fund managers as there is no human intervention and mistakes.

Dollar Cost Averaging

This technique involves buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. Eventually, the average cost per share of the security will become smaller and smaller.

Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time. No financial expert has been able to predict the behavior of stock market accurately.

Dollar cost averaging will reduce your risk considerably. In dollar cost averaging, you will need to decide on three parameters: the fixed amount of money invested each time, the investment frequency, and the time horizon over which all of the investments are made. The longer the time horizons, the better are the results—the minimum recommended period is 12 months.

The best way to start building residual income is to combine investing in indexed mutual funds using dollar cost averaging strategy. This way you will get the highest returns with minimum risk. Many fund managers will advise you against this strategy because they do not benefit from it.

Take the human element out of investing – let the market magic work. It has shown time and again that index funds beat the performance of most fund managers. The exception to the rule is Warren Buffet! If you can find a fund manager backed with 20 years track record of beating the market then go for it … I am yet to find one.

linear income

What is the Problem with Linear Income?

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You have only 24 Hours in a Day

The main problem with linear or earned income is that you are trading your time and skills for money. Your earning power will be limited by the time and skills you personally have which is a very inefficient and arduous way of earning wealth. You have only X number of hours in a day and there is a limit to the skills you can acquire—these limiting factors will put a cap on your income.

Linear Income Dries up Quick

As soon as you stop working and your skills become outdated, your income will stop. You can take time out to upgrade your skills but during that period, your income level will either drop or stop altogether.

When it comes to linear income, you are the golden goose. As you grow older, your physical and mental capacities regress. This will reflect directly on your earned income. In case of an adversity, your income will drop to a virtual zero.

Linear Income Gets Taxed at Higher Rate

Another major issue with earned income is that in virtually every country, it is taxed more heavily when compared to investments or residual income.

linear income

The biggest financial outflow in your life are the taxes. You pay virtually 40–70% of your earnings to the government in the form of direct and indirect taxes. These include: income tax, GST, customs and excise duty, capital gains tax, estate duty, stamp duty, service tax, VAT, property taxes, regional council taxes etc. Some of the indirect taxes are invisible and you don’t even come to know about them.

Linear or earned income has a limited number of loopholes to save on the taxes. If you are working as an employee, you have to start investing or start a part-time business to save on the taxes that will provide you with additional funds to build residual income for you and your family. This may seem unfair but it is true. Most governments want you to invest your money so that capital formulation creates more jobs. This is why they give huge tax breaks to investors and business owners. You should take advantage of these tax breaks to create residual income for yourself.

Why People Seek Jobs if Linear Income is so Bad?

If earned income has so many drawbacks, why most people seek jobs? The reasons are unequivocal: jobs do not require a start-up capital, nor does it come with a risk. Most people when starting out in life do not have capital and are risk-averse. The fault also lies in our education system which was designed during the industrial age to train people for jobs that the industries run by capitalists required. Things have changed dramatically with the advent of the information age; it is now possible to earn residual income with very little or virtually no start-up capital and risks.

There is no harm in starting out with a job because of economic circumstances. A job may also be essential for some people because it can instill discipline and teach skills that are required to succeed in life. The trick is to convert your linear income into residual income within the shortest period of time.

What is True Wealth?

Can you become wealthy from earned income? It depends on your definition of wealth. Some professionals like doctors, investment bankers, lawyers and engineers are highly paid. But are they really rich or simply appearing to be rich? Do their jobs provide long-term financial security? Can they sustain their lifestyles if they lose their jobs for any reason?

According to me, the true secret of wealth is not that you have more money but that you have more freedom of time—you do not have to trade your time for earning money! You will be rich when you not only sustain your lifestyle without working, but also improve on it. In that case, you have sufficient residual income to not only sustain your lifestyle but also make your wealth grow by further investments into generating passive income.

When you are trading time for money, you do not have time-freedom. You can definitely become wealthier if you invest a part of your earned income into creating residual income, which in due course of time can surpass your earned income.

type of investor

What Type of Investor Are You?

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Investment basically means, ‘Make money with money to become wealthy.’ As an investor, you are interested in Return on Investment (ROI).

You can either be an employee, self-employed or a business owner to be an investor. They all may be investors but they operate at different levels of cash flow and knowledge. For example: an employee invests money that grows with time. This is because the principle of compounding works with time. On the other hand, a business owner –when he buys a new business – is basically leveraging other people’s time to grow rich. We will look at this in more detail later.

Types of Investors

There are basically two types of investors:

Passive Investor

type of investor

A passive investor is the one who is either an extremely busy person or a person who lacks the knowledge to make investments. These people either trust their money to fund managers or buy mutual funds to diversify the investment risk. This generally results in very slow growth of investment portfolio. In the majority of the cases, these investors only make money if the market is moving up. Their investment loses value if the market value of the investment goes down.

Active Investors

These are investors who take the effort of learning about investing. Most active investors take time to analyze and find deals that are below market value and therefore give higher returns. They actively follow the market trends and carry out both technical and fundamental analysis of their investment before buying. They make money irrespective of market dynamics, whereas passive investors are satisfied with a 10% growth in their investment each year an active investor looks for 20–50% or more. They understand risk and take steps to contain than risk.

Types of Investments

There are basically three types of investments:

Real Estate

This is simple, robust and most forgiving to mistakes. Property prices move very slowly and therefore do not require constant monitoring. Real estate investment also provides financial leverage that investing in stocks and businesses do not provide. It, however, requires a deposit and cash flow income for banks to approve your loan.

Stock Market

Investing in stocks requires knowledge to get started or you may land up losing your principal amount. You also have to monitor your investment regularly as stock prices fluctuate constantly.

You have to buy stocks at market value. They can never be purchased at a discount. There is very little financial leverage as banks hesitate to give loans against shares.

stock market

To make serious money out of stock market you have to become sophisticated and accredited investor. For this, you need assets worth $ 1 million and an annual income of over $200,000 in USA. This amount can differ in other countries. Once you are an accredited investor, you will be able to invest in securities that give higher returns but also carry higher risk.

If you have limited knowledge or no time then stick to buying mutual funds. Buy index funds that track markets such S&P 500 funds, BSE, ASX etc. These funds operate without interference from fund managers and carry no management load and therefore give higher returns. It may seem strange but statistics show that very few fund managers beat market on regular basis.

Businesses

This gives the highest returns if you can buy low performing businesses for cents to a dollar and turn them around for profit. However, you need to have experience as a business builder to turn around companies in your area of expertise. For inexperienced operators and first time buyers, it is advisable to either buy a reputable franchise business that have all the systems in place or a well-run business.

After you have gained experience in operating a business for couple of years and gained some confidence, you can look to buy businesses below their value and increase profitability by increasing the turn over and reducing costs through better management.

financially stable

Are you Financially Stable?

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For Financial Stability Stand on Two Legs

Have you tried balancing on one leg? It will be extremely hurtful and probably, you will fall after some time. It is not only stressful but highly risky to stand on one leg – the same holds true in your financial life. If you stand on one leg, you will definitely fall and hurt yourself, yet so many people keep standing on one leg financially all their lives.

To be financially stable you must stand on two legs:

  • Employee + Investment
  • Self Employed + Investment
  • Business + Investment

Investing is the key to be financially stable, whether you are an employee, self-employed or in business. Most people opine that the clear majority of people in jobs who do not invest are financially vulnerable. You will be surprised to learn that even very smart businessmen do not invest and their financial empire collapses because of this reason. There are smart guys who build a great business and sell it for a profit of millions of dollars. They then want to repeat the process and start a new venture only to lose their entire capital.

Businesses as they grow demand more and more money. In some cases, businessmen continue pouring money in expansion of their business rather than investing a part of their profits outside their business to gain financial stability.

Even a most profitable business standing on one financial leg is unstable. Smart businessmen, however, choose to do otherwise: Bill Gates sells his shares of Microsoft every year and invests in other areas to continue growing rich.

Max Stability

The strongest two financial legs are: business + investor, because you generate excessive cash flow from a well-run business to invest in passive income investments. Employees and self-employed people are limited in their capacity to create huge cash flow because they do not have tax advantage, leveraging power or time freedom for wealth creation. They can become wealthy if they invest intelligently but will find it extremely difficult to create accelerated wealth.

Let us examine in detail on how you can systematically graduate from your current situation to create not only financial stability but sustainable wealth that can last for generations.

In this commandment, we will focus on how you can create sustainable wealth by standing on two strong financial legs.

Sustainable Wealth – Rich Vs Wealthy

What is sustainable wealth? The answer to this question is in this statement by Robert Kyosaki: “The rich have lots of money but the wealthy don’t worry about money.”

It is important to understand the difference between being rich and wealthy. A rich person can have a lot of money and possessions but a wealthy person has adequate passive cash flow to fund his or her lifestyle whether they work or not. You will be surprised to know that there are very rich people in high paying jobs who will not be able to sustain even a very basic lifestyle if they were to lose their job for some reason.

Why High Income Earners are not always Wealthy?

financially stableYou will also be surprised to learn that a very large percentage of high income earners such as sports persons, movie stars, doctors, engineers etc. who buy expensive cars, boats, houses, clothes, jewelry and even fancy planes to impress people; they do not believe in investing and lead financially unsustainable lifestyle. They often appear to be rich but are going nowhere – they have money they spend recklessly, but a lot of expenses that keep them worried at night.

Have you heard about Mel B of the Spice Girls fame? She earned over $50 million and blew it all up on fancy cars, private jet holidays, clothes and shoes. It is claimed that she never wore a dress twice. Her financial miss-management highlight was a gift of an island to her beloved husband who later divorced her and sued her for money – Mel is the perfect example of being rich and not wealthy.

What is Wealth?

Wealth means number of days/ months/ years you and your family can survive without physically working and still maintain a standard of living you are used to. If you can survive only for a few days or months, then you are not doing well. If you can sustain your lifestyle indefinitely without working, you are wealthy. You are super wealthy if you not only sustain but constantly keep increasing your wealth each year without working.

Creating Sustainable Wealth

Your aim should be to create sustainable wealth. This is only possible by standing on two strong financial legs—one of which is investing. If you wish to be wealthy, you have to continually buy assets that give you passive cash flow. As you buy more and more assets, your cash flow will grow and make you wealthy.

As a matter of principle, you have to keep your expenses less than the cash flow your assets are generating and with the surplus cash, you need to continuously buy income producing assets –this will not only keep you ahead of inflation but also compound your wealth.

Your first step to financial freedom should be to become wealthy. Your next step should be to become rich and wealthy.

business owner

How to avoid Pitfalls of a Business Owner?

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A business owner has huge rewards but problems as well.

Cash Management

business owner cash managementA business owner, probably, will be making more money but it will not be enough. One of the byproducts of growth is the shortage of cash. To grow, you will need more and more cash. Cash management becomes crucial to your success. You will also need organizational changes, build systems and leadership within your organization.

Employees

As your business grows, you will hire more employees. There is a saying, “employees cause more headaches than machines.” You will be let down time and again if you do not hire properly qualified manpower and train them for their tasks, unfortunately, instead of relaxing, your problems will grow exponentially and you will find yourself working harder and longer hours.

Hiring a Manager

At times, the situation becomes so stressful that an owner wants to hire a manager as you have money to do so and run away from all the problematic issues. If this is done pre-maturely, it can cause a company to collapse. You will need to place systems, checks and balances in place before you can think of handing over your business to someone else and retire.

Handing Over Control of Business

On the other hand, there are owners who find it extremely difficult to hand over managerial control of a company they have worked so hard to build—it is their baby, after all! They think that no one can do a better job than them.

To succeed at this level, you must first find someone who is perhaps as smart as or better than you to run your business. Once you have found such a person, you have to develop the mindset to let go – it may sound simple but is very difficult as you have been the hands-on person all your life.

You should trust the person you have appointed to run your business and refrain from interfering daily in running of the business. You are now an owner/leader and no longer the hands-on person … it is time for you to now relax and work towards a strategic view of your business and growth.

Finding New Investments and Growth Opportunities

Your focus now should be on finding new investments and increasing the profitability of your business. Maintaining a healthy cash flow is the responsibility of your manager. Although you are not involved in running your business on day-to-day basis, you must keep a tab on your business from monthly/ quarterly or through annual reports. You should intervene only when things are not progressing as planned.

Once you reach this stage, you no longer have to perform any physical activity in running your business. Your income from the business becomes passive—this is where the fun begins. You will be devoid of any daily pressures of running a business. This will give you time freedom to read, meet people, grow your business network and prepare yourself to next step of financial growth and challenges.

At this stage, your focus should be on building capital to invest in other businesses. This is important if you wish to become rich and wealthy. After this stage, you simply become an investor. You buy assets that will give you even more passive cash flow.

active investor

What Skills Are Needed to Become a Knowledgeable Active Investor?

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Many active investors make huge loses because they lack financial skills or do not have adequate control over their investments. To become a sophisticated investor, you have to master the following skills:

Knowledge of Taxes

Taxes can make or break an investment. An otherwise attractive investment opportunity may have a huge downside after taking account its tax implications. It can erode the bottom-line.

You must have knowledge or seek advice on the tax implications of an investment. This will differ from person to person depending upon the financial situation. A knowledgeable investor can gain higher returns with low risk after studying the implications of tax law, corporate law, securities law, capital gains tax, stamp duty etc.

Management of Investment

When making an investment you must take into account on how you will manage the investment.

active investor

Some investments are messy and very difficult to manage even though they may promise very high returns.

For instance, it may be very attractive to buy a property or business overseas as it shows excellent cash flow and growth prospects. Your financial analysis may be right but before making such investments, you should take into account travel and administrative costs to manage the investment.

You will need to create legal entities in a foreign country, hire a tax accountant and managers to look after your asset. You have to understand time and management cost of an investment before rushing to make a decision.

Brokerage

High brokerage fee can sometime make an otherwise good investment into an average one. There are many investments that have re-occurring brokerage fees. Many times, it is only the broker who makes a profit and not you. An example of this is when you buy a property in an area that does not have stable tenancies. Re-leasing cost will dramatically reduce the net return from your investment.

Control Over Income and Expense

A good investment is when you can exercise control over income and expense of your investment. Investing in hotel units on profit share basis may sound very attractive especially when you can live in them for 2 to 4 weeks each year. Unfortunately, in such investments you neither have control over the income or expense. In most cases, returns from such investments are extremely poor.

Information

Information is the key to making sound investment decision. If you do not have adequate or transparent information about an investment, refrain from buying it. Always cross check the information provided to you for its authenticity.

Don’t get duped by slick salesmen who appeal to your greed and put you under time pressure into making decisions with incomplete facts about an investment. Warren Buffet says that secret to his success is that he spends 80% of his time reading financial reports.

Terms and Condition of Agreements

It can be tedious reading through fine print in most agreements. This is especially true for agreements drafted by crafty lawyers of big corporations to be signed by small-time unsuspecting investors.

Most novice investors sign agreements without knowledge of the implications of certain clauses in the agreement. These can come to haunt you when you least expect. Ask anyone who has gone through an insurance claim.

If you are not sure about a clause, seek legal advice. It may cost you a little in the beginning but save you considerable amount of distress later. Best situation is if you have the control of setting your own terms and condition of an agreement.

Buying and Selling

You should have control over buying and selling an investment. There are investments that have long lock-in periods. It is best to avoid them.

By having control over buying and selling, exiting an investment if things go wrong becomes possible. It can also give you much needed liquidity in times of distress or if you wish to invest in a better opportunity. Remember there will always be a time when you will need to sell a long-term investment to maximize your profit.

Management Control

This may not be possible for small-time investors but when you make major investments then always endeavor to have some management control. This will give you inside information regarding your investment.

While starting out, you may not be able to gain control in large corporations. It may be better for you to investment in small and medium size companies depending upon your budget. Better still, start your own company that gives you total control over your investment.


Business Entity

A knowledgeable investor creates entities not only to take advantage of taxes but also to protect the asset. These include forming Corporations, Limited Liability Companies, Trading Trusts and Family Trusts. It is best to seek legal advice as this will depend upon your situation, country you live in or location of your investment as laws differ for each country and sometimes states.

how to create passive income

How to Create Passive Income Investing Either Time or Money?

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A lot of people are asking how to create passive income investing either time or money? You will need to make a significant initial investment to create a passive income, which can be in terms of money or investment in time.

Investing Time

how to create passive incomeMost time investing, passive incomes comprise of ideas that will need energy inputs as well. Generally, you will be turning your spare time into some sort of product that will provide a steady stream of income over time.

Everyone has some unique knowledge or skill that can be converted into electronic books and sold on the internet to create passive income. The beauty of life is that each one of us has a unique experience that can be shared with others in form of blogs and books. I have written a few books. These books are working for me as passive income generators. I am simply sharing my experience with others and creating value in their lives. Each book that I write is a new source of passive income for me.

Publishing books was a problem earlier on as only few big authors were accepted by publishing houses, which is no longer the case. You can now self-publish a book with Kindle, Barnes and Noble, Nook etc. The options for self-publishing are getting better and better with each passing day.

You can also create blogs with the information you wish to share with others and monetize them. Once the blog is in place you will be required to spend some time developing links to it so that Google can find it. After that, your blog or website will keep generating a steady trickle of advertisement and referral revenue.

Investing Money

If you have money to invest then you can simply invest that money into generating passive income for you. You can consider some of the following paper assets to generate passive income:

Dividend-bearing stocks 

If you buy, let us say, $20,000 worth of Coca-Cola shares then you will be entitled to receive regular dividend payments that will give you passive income. Over a period, your stock will multiply and gain in value increasing your dividend payments. You should choose a very stable company that pays out a very steady dividend, this type of approach can earn a very reliable income for you. You might also want to invest in mutual funds that are indexed to spread out your investments over a large number of stocks (less risk.) I will cover more of this strategy later in the book.

Treasury inflation-protected securities (TIPS)

Tips are bonds that you can purchase from the government whose face value adjusts according to the rate of interest, so that when the TIPS matures, you will be able to sell it for more than the initial purchase price. TIPS return is at a very low rate but they have the advantage of being rock-solid investments that will match inflation growth when you sell them.

Savings accounts and CDs

CDs are similar rock-solid investments. They are also very liquid (meaning you can cash out your money whenever you need it). The interest rates are generally on the lower side. There are, however, times when a savings account or CD is very solid.

Annuities 

Annuities are investments you can purchase from an insurance company that will pay you a certain amount of residual income every year for the rest of your life. The younger you are, the smaller will be your contribution. Let’s say, for example, that you purchase a $30,000 annuity, one that the insurance house quotes at 4%. It would mean that you would receive $1200 each year for the rest of your life from that company. The risk you have here is that the insurance company may eventually become insolvent, leaving you with nothing at all. You must therefore seek out an insurance company with a long history of stability and good bond rating. You must also diversify across multiple insurance houses.

residual income

Which is the Best Kind of Residual Income?

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Simply put, residual income is an income that is not dependent on your time or effort. It is dependent on an asset and management of that asset. You have to leverage other people’s time and money to create residual income and manage your assets.

Replace Yourself

Businesses can be a source of passive income only if you can replace yourself. If you are directly involved in your business on a day-to-day basis, then it cannot be termed as passive income. To turn your business into a residual income source, you have to put the right kind of people and systems into place so that it operates without your presence and interference. Most entrepreneurs  start businesses to generate millions but instead land up shackling themselves to their business and can’t even afford to take a holiday in years.

Control Asset Without Involvement

The best kind of residual investments are those where you – as the owner of the asset – can exercise active control even when you are not involved in regular operation. You must have adequate control over your assets so as to positively impact the level of generated income.

Use Other People’s Money

residual incomeUsing other people’s money and resources is the key ingredient of creating residual income. It buys you time and effort. Once you start creating residual income, you will start attracting more and more of other people’s money to grow even richer. If done correctly, you will get caught in an upward spiral of residual wealth creation.

Residual income, without a doubt, is the holy grail of investing and the key to long-term wealth. This is a critical step on your road to wealth creation. The earlier you begin this journey, more success you will achieve. You can create a tidal wave in your financial security and prosperity if you do not waste a day. It is simple and easy. You just have to begin and there is no better time than today.

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