Tuesday 14 May 2013

Residual Income


Some people go through their entire lives without being exposed to the term residual income, however with our education background and experience in wealth creation we feel that it is our duty to let people know that there is a better way.
Residual income, also know as passive income, can be defined as income streams that are generated from the past efforts of an individual and/or current effort of others. A good example of this includes the additional pay given to a performer for re-runs, repeated use of a film, radio or TV commercial etc., in which the performer appears.
To fully appreciate the concept of residual income we must first understand the way in which most people get paid, and that is in the form of linear income. Linear income refers to trading hours for money. For example, most people go to work for 8 hours a day and get paid for 8 hours work. The problem with linear income is that there are only so many hours you can work and the minute you stop working, you stop getting paid.
In my early days, I graduated as an engineer, found myself a job and like most people every fortnight I got paid a check for 80 hours of work. After a couple of years of working as an engineer, I got married to my lovely wife and before long we had our first child. Three months before our first child was born I filed for paternity leave. It was on this day, I learnt that I would not get paid for paternity leave and I would have to take holiday leave to receive payment. Living with a mortgage, I was forced back to work so we could pay the bills when I would have preferred to be at home, looking after my first child and my wife.
I’m telling you this story because many of you may find yourselves in a similar situation, where when you stop working so will your pay - this is the limitation of a linear income.
It was at this stage of my life I knew I had to find a way to make money even when I wasn’t at work. As the law of attraction took effect, it was not long after that an old university mate called me to catch up. When I told him my dilemma he basically told me there was a better way. He explained that if I implemented the right strategies I potentially could stop work, travel around the world for 6 months, lazing in the hot sun sipping on a margarita in the Caribbean and my income would continue to roll in. This kind of income sounded very appealing, as I’m sure it does to you. My friend then went on to explain the concept of residual income and I have not looked back since.
After doing a bit of research and reading a few books on the issues, I discovered residual income was not a new concept and that the wealthiest people in the world today do not trade their time for money, instead they earn their wealth through the means of residual income.
To demonstrate how residual income works, let’s use the example of a well known actor such as Mel Gibson. Mel started his film debut at the age of 18, starring as the lead role in the movie Mad Max, which was first released on 12 April 1979. The film was independently financed and had a reported budget of AU$300,000 — of which $15,000 was paid to Mel for his performance. To date, there has been over a $100 million dollars in profits made worldwide from this production.
For fun, let’s say there has been 10 million DVDs sold with a profit of $10 each, totalling the $100 million in profits made. Now let’s say that Mel made a deal with George Millar, the producer, to receive 50 cents for every DVD sold. Despite the fact that Mel only made $15 000 for initially starring in the film, to date he would have been paid $5 million dollars in royalties for the 2 years work he did almost 30 years ago.
Now I’m not sure if Mel was savvy to this way of making money back then, but he definitely is now. Today when Mel Gibson stars in a movie, he may get paid more than $20 Million dollars up front for the role, but as a smart businessman he also ensures he gets paid royalties, meaning that he continues to get paid a small commission from related merchandise item sold. Although Mel has finished making a movie which can take 12 months to complete, he will continue to get paid for the rest of his life. Now that’s residual income.
Other examples include writing a book or a song where you continue to get paid a royalty each time the book is sold or the song is played on the radio. I know you’re probably thinking yeah, but I’m not an actor or I can’t write or sing, well neither can I, but what I do know is that there are other ways that allow the average person to earn a residual income. I just encourage you to do your research to see which method works best for you.
The good news is that there are several avenues to generate a residual income, some of which are discussed below.
Operate a traditional business

In this option you choose to start your own business and sell or resell goods or services earning a profit on each item sold. Although many people initially consider this option they soon learn that this method usually requires a major financial investment which many do not have. Additionally there is the need to have a good understanding of cash flow, marketing and management skills and if your business succeeds you won't have just one boss; every customer becomes your boss.
Although some may find owning a traditional business rewarding, this risky venture usually requires a huge commitment with very long hours where you basically become a slave to your business. This is not to deter people from looking at this option, as with the right approach it can be financially rewarding. Research does however suggests that the odds are against success, especially if you begin without substantial funding. About 80% of small businesses fail within their first year. A further 15% will fail within 5 years. Out of the 5% left very few will be around for another 5 years.
Investments

Stocks and bonds, real estate, venture capital, and other investments are proven ways to earn residual income - but they require substantial up front capital. For your money to earn money, you must have a great deal of it to start with, which is great if you do, but unfortunately most people don't. The current average superannuation payout is about $226 000. If this amount was invested at the current interest rate of 5% this would equal $11 300 p/a in interest or $217 per week to live on. How much do you live on now? Are you willing to give up your quality of life, or is there a better way?
Direct & Internet Marketing

This method of delivering goods and services to the public is creating one of the fastest growing industries across the world, offering distributors a residual income in return for a low risk investment. In particular there are about 150 000 people entering the network marketing industry every single week, all hoping to capitalise on this growing trend that is being endorsed by leading financial businessmen worldwide.
Robert Kiyosaki, famous author of many wealth creation books including the "Rich Dad Poor Dad" series, has been a big advocate for the network marketing industry for many years. He explains that anyone with drive, determination and perseverance can build wealth and residual income through a revolutionary business model that is designed for people who like helping people.
For people who desire residual income who don’t have the capital to earn it through investments, or the talent to earn it through royalties, network marketing is a growing trend that offers a simple business model that is proven to help everyday people earn financial freedom through residual income.

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