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Residual Income: What Is It and How Does It Work?


A residual income stream will earn you money even when you're not on the clock. Owning rental units, collecting royalties or investing in a savings and investment program are examples of such passive income.

Residual Income: What Is it and How Does It Work?

Wouldn’t it be nice to earn money while not working? That money is called residual, or recurring, income. It's what can happen after you put a lot of time, effort and sometimes money into a job to continue to get paid for the work months or years after it's done. (Salary jobs are part of linear income. This income is directly related to the number of hours you work. If you work 40 hours, you get paid for 40 hours of work.) Once you set up your business to earn residual income, you continue to make money while doing other things – maybe even starting a new business to generate more residual income!

Types of Residual Income

Some examples of residual income sources include:

  • Royalties from intellectual property, such as books and patents
  • Subscriptions, advertisements, donations or affiliate links from your blog or website
  • Transferring the rights to a song you recorded, a book you wrote, a software program you created or a gadget you invented to a company agreeing to pay you a percentage of each copy of your work sold
  • Purchasing an office or apartment building and leasing or renting out the properties
  • A savings and investment program that earns interest
  • E-book sales
  • Stock photography royalties

Does the Money Just Keep Rolling In?

The ideal residual income stream will produce money 24 hours a day, 7 days a week and you don’t have to personally market or interact with the business in any way. All you have to do is watch your bank account grow.

But that’s more like a fairytale. You’ll have to put in some effort to continue receiving residual income on the business you started. Talking to your managers and representatives will help them be more productive and run your business better. Marketing your online sales through social media and your network will help earn you more money. But you just won’t have to work at it as your full time job. Think of it as a part time job that can potentially bring in full time pay.

Advantages to Residual Income

  • You do have the potential to be financially independent if your residual income produces enough money.
  • Having residual income allows you to do more important things with your time. Whether that’s a hobby or another job, making money from your residual income stream won’t be the primary focus of your life.
  • No matter what, you will have a constant flow of income (however large or small it may be). This is critical if you get injured or sick, can’t work because of another emergency, or if you just want to take an extended vacation.
  • You will make money no matter where you live, unlike a linear income which ties you down to your position.

Of course, before the money starts rolling in you will probably have to put a lot of time, effort and money into the business or project. You’ll need a lot of patience and determination to see the residual income in the future. Instant gratification is not possible when it comes to residual income.

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