Passive income is the best type of income available to most people. You can continue to earn money day after day after day, without much, or sometimes any, additional effort. Passive income is usually based on a previous activity but sometimes needs nurturing to keep it coming.
Understanding the idea of residual or passive income is easy if you consider the word “residue”. Residue refers to something left behind as a result of something else. Residual income is left after the work is finished and keeps paying over and over again for the work you have previously done, even if you stop working on that project.
Linear income or Earned Income is basically a one-time compensation or payment in the form of a fee, wage, commission, or salary. Linear income is directly proportional to the number of hours being invested or a number of products/services sold. You do something once and you also get paid only once. It is probably the type of income you receive from your job right now.
The vast majority of people work each day and earn a linear income. For most people, the effort they put in is directly proportional to the income their employer pays out. This is not bad, but it is not great either.
The problem with linear income is that if your work effort drops or stops due to sickness, lay off, etc., your income drops as well. Your current check will only reflect your most recent effort. With linear income, No work = no money. Residual or passive income allows you to change the normal flow and make money even when you are not working.
9 Benefits of Passive Income
- You can make an initial effort to get a residual income stream started, then do minimal work or none thereafter, resulting in earning more money for little to no effort.
- You can have the freedom to choose when and where you wish to work.
- You can worry less about getting sick or being disabled and unable to work.
- You can have the ever-so-fun feeling of earning income even when you are not at work. It is a great feeling!
- You have the ability to increase your income whenever you want by working and creating additional income streams.
- You can have all the usual benefits of working from home.
- You can have more free time to spend time with your family, friends or go on vacation or create more income streams.
- You can do it in your spare time if you choose. Don’t want to work full time? No problem!
- You can prepare for future expenses easier. – Ex. Know you want to buy a car in 12 months? Instead of saving your current income to pay for it, you can create a new income stream that will cover the car payments. Same for college or retirement.
Drawbacks of Passive Income
Creating your first passive income stream is often difficult as the payoff can be uncertain and often far away. For all its disadvantages, linear income is predictable, consistent, and usually comes 1-2 weeks after you finish your work.
Residual income will require dedication and work. This is why most people never bother to develop a residual income stream. They don’t reach their expectations in time so they quit before they even really begin. Others have estimated that this usually happens somewhere between 1 and 12 months.
One of the first things you need to realize is that success and a better financial situation will not happen just overnight. Apparently, it usually takes anywhere from 1 to 6 months to start seeing results of your work with residual income — depending on the type of the business model, the opportunity, compensation plans, and other factors.
Know this going in, but also consider that once you start seeing results you will never look back. Your motivation, your excitement, your satisfaction, your determination, and ultimately your income will all skyrocket.
Examples of Passive Income
- Rental from property How to get it: Purchase a home, apartment complex, office building or other real estate and charge people to live or work there.
- Royalties from publishing a book, singing a song, being involved in a movie or from licensing a patent or other form of the intellectual property How to get it: Write a book and get it published. Get a song on the radio. Produce or act in a movie/T.V. show/commercial. Invent some cool gadgets. Make a neat software program.
- Earnings from a business that does not require direct involvement form the owner or merchant; How to get it: Create and grow a business and then sell it to someone else or have a manager run it for you.
- Pensions How to get it: Work at some job for a long, long time and then retire.
- Percentage of the revenue from a company that drills on your property. How to get it: Buy some property, hope it has cool stuff like oil/gold/diamonds underground, and then let a company start drilling.
- Interest income or dividends. How to get it: Buy a bunch of stocks/bonds or leave a bunch of money in a savings account.
How to make Residual Income Online
- Create and Market Your Own Information Products – the web is a great place to sell an eBook that makes life easier for people.
Why sell an ebook?
A. Cheap and easy to make. B. Takes a short amount of time – you can create an eBook in a day or two if you really want. C. Self-publishing your own information products is a great idea. The main advantage is that as a publisher you get 100% of the profit, versus a small percentage of royalties through traditional publishing companies.
Also important is that you get to decide when, where, and how to market your product. Complete control.
Write articles – In addition to writing articles that generate affiliate sales, you can write for various websites and share in the income your article generates. ex. include, eHow, ReviewMe, etc.
- Creating software products – if you have an idea for a software product that will help people do something faster, better, easier or teach them something, then go for it.
- Referrals – create a network of people. Ask for a commission every time you refer someone to a product or business.
- Become a Reseller – resell other people’s services/products.
- Advertising commissions – if you have a website/blog/newsletter/ebook that attracts lots and lots of visitors you can offer to place a banner or link on your site for a fee that you collect each month.
- Create a membership site – if you are knowledgeable about a subject, you can charge a monthly fee to gain access to your membership site. More subscribers = more money.
- Affiliate Programs – Join affiliate programs. Companies arrange such programs to compensate affiliates for promoting their products and services.
Affiliate Programs with Residual Income
The concept of affiliate marketing is very easy. You simply join with a merchant as an affiliate, promote their products on your website/blog/newsletter, etc., and receive a commission when someone buys something from them.
The company you join with creates, maintains, supports and provides the products, tracks the sales and gives you a commission for each sale. Your job is to drive traffic to the pages/site that promotes affiliate products.
The more traffic, the more commissions. It is like word-of-mouth advertising except you get paid for the referral.
Affiliate marketing is a great way to earn passive income
The customer gets useful information and buys a product or service with more knowledge than they normally would have. The business gets a new customer they would not have had otherwise. The affiliate makes money.
Note: There are two ways to get residual income in affiliate marketing
- Promote products that include an option for residual income
- Get your affiliate pages into web searches where people can find them on their own
If you have an affiliate program where you constantly have to find customers to buy your affiliate’s products, you are back to a sales job with linear income. To avoid this, find companies that will track clients for multiple sales over a long period of time so you can get recurring commissions.
A few companies will pay you as long as the customer you found for them buy products or services. Also, try to get ones that offer multiple tiers of sales so that you still get paid if one of your affiliates makes a sale.
Building multiple passive income streams is a great way to prepare for the future. You never know if you will be laid off from your regular job, get too ill to work, have an unexpected expense, or just get too tired of your job.
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