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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 received on a regular basis, with very 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 actions. Typically, income from interest on money that has 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 will be the most difficult to create to the ones which are the easiest to create. Here we go.
7. Royalties: the creation of music, books, inventions, machinesand patents. A royalty is something you have created or sold and place it on a platform that you do not run and then receive compensation based on when the merchandise is bought or used. Most of us do not possess the potential to rapidly create royalty streams.
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This is the most straightforward form 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 become almost its own class. But it has considerable cost and you have to continuously make 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 Customer by John Warrillow. He walks through, in plain English, the various styles of subscription versions 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 receive it. As a Dad, I tried 3 large chairs before finding the Bumbo. Now when I blog about the Bumbo and link for it for my Amazon account, and someone buys it, I can earn a commission.
A fantastic illustration of this will be Pat Flynn in PassiveIncome.com because he walks through how to set up your own system 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. Sure, that taco stand might have loyal patrons and make the best damn steak taco youve ever had, but they also have to wake up each day and turn the lights on and fire up the grill to get paid for their particular tacos.
So, literally I am going to earn a fee if I go in or not. Sure, I must maintain relationships to keep earning that commission, but really that the income is residual because once I sign up one client find here I am going to make money from their money .
Why do we call these the Electricity 2 Because these require less specialization and expertise, and with the leveraged use of smart debt, can operate together.
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2. Real Estate: Real estate is #2 for one simple reason, leverage using intelligent debt and other individuals money. When looking at property rents and the potential for income property supplies, it is the trifecta of residual income. First, a house or rental house can enjoy, so capital appreciation is your 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 that 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 paper deduction on your annual tax return not to mention expensing the price of mileage, mortgage interest, and upgrades to the home.
The fourth and maybe most hidden, but important benefit is that over time rents grow, protecting your cash-flow against inflation, while your mortgage read more interest can be in a fixed rate potentially. .
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1. The final and most effective type of residual income, in my opinion, is investing and insurance. Most people have 401Ks and IRAs, therefore that I am going to leave that for your investment side. Within this, I think our Foundation Freedom Phases is by far the easiest, safest and most effective tool for many reasons: a.