Here is the definition of residual income from Investopedia:
“Residual income is the amount of net income generated in excess of the minimum rate of return. Alternatively, in personal finance, residual income is the level of income that an individual has after the direction of all the personal debts and expenses have been paid.”
While this may be what you think of when you hear “residual income,” it is not what I am referring to here.
Residual income, as I and most entrepreneurs refer to it, is income that comes to you regularly – every month, week, year, perhaps every day – with or without effort to maintain the flow. It does not include a “regular job” with a boss and benefits. A regular job is commonly referred to as “earned” or “active” income.
Active income is earning money at a regular job.
Residual income comes to you regularly from sources outside of a normal job and may require effort on your part to initiate and maintain.
Passive income is money that comes to you regularly; however, while it may have required some effort to instigate, passive income streams require little or no effort on your part to sustain.
Passive residual income is the Holy Grail of residual income. We seek it because it comes in on a regular basis every month, but requires little to no action or effort to maintain. It lies at the core of financial security, independence and wealth. With it, you are likely secure. Without it, you are likely not.
In a side hustle, you have control. True, you could be working for someone else on a 1099 basis, meaning that you are working as an independent contractor and will receive a 1099 tax form which verifies your income when you submit your taxes. But, you control when you work and when you don’t work. And it can be a temporary or even an occasional side gig that you can do or not in your spare time as the need or interest arises.
Consider driving for Uber, Uber Eats, Lyft, affiliate marketing, dog walking, being a virtual assistant… You control the times that you work. You put in the time that you want and no one tells you when you must be there, how long you must work to earn more money as you need it – and when you can leave.
Rockefeller said, “I would rather earn 1% of a 100 people’s efforts than 100% of my own efforts.” Warren Buffett ups the ante by saying, “If you don’t find a way to make money while you sleep, you will work until you die.”
Combine these two philosophies and you’ll understand the “why” behind creating residual income (especially passive residual income) and a significant part of why those guys were stinkin’ rich! They earn residual income from the efforts of others. They did so consistently because they had a money mindset that habitually seeks and considers sources of residual income streams.
As I was writing this, I saw a cartoon on Facebook that was so relevant – and funny – that I reposted it on my Facebook page guide. [link] It was a photo of a Lamborghini with the caption, “My boss arrived today at work in a brand new Lamborghini. I said, ‘Wow, that’s an amazing car.’ He replied, ‘If you work hard, put all your hours in and strive for excellence. I will get another one next year.’”
That’s a great example of how to benefit financially by leveraging the efforts of others, but you really don’t have to be selfish about it – you can both have a Lamborghini. You can help others create residual incomes as you develop yours!
Are You Lucky?
We tend to think that people like Warren Buffett and John Rockefeller were lucky. Well, yes, they were – in a way. They were lucky enough to have instilled in them, or developed on their own, a money mindset [link] that constantly considers the possibility of creating additional passive residual income streams.
The fact is, that even people who are born into money create or maintain financial security – hence are “lucky” – because they are prepared when opportunity happens. Prepared how? They are geared to recognize opportunity and are willing to take a risk or two as they sort out how to turn something into a residual income stream.
That is the core attitude or position required to build a reliable, worthwhile residual income which creates financial security – and you have that capability yourself or you would likely not be reading this.
So preparedness (including the willingness to take a risk) and opportunity (including the ability to create opportunity) combine to create income – and not just any income. The focus of this article is helping you create residual income – that continues to flow to you with or without residual effort.
Doesn’t that sound pretty “lucky?” When “preparation” and “opportunity” meet, what happens? They get married and have a baby. However, they don’t name it “Luck”, they name it “residual income.”
The ancient Roman philosopher, Seneca, said that luck is what happens when preparation meets opportunity. I’d like to rephrase his wisdom a bit, and suggest that “residual income” is what happens when preparation meets opportunity – it’s the best part of “luck.”
That is what I want for you. If you want to get stinkin’ rich like Warren Buffet or John Rockefeller, that’s great. Of course, you will need to have a lot of residual income to make that happen (or bump off a rich uncle).
I like my uncle, so my focus is not on the amount of money I get, but the steadiness and reliability of it. That is what financial security really is.
So, let’s continue the discussion on residual income, what it is and why it’s necessary for you to create it in order to be financially secure.
How to Create and Build a Residual Income
There are several paths that you can take to build a residual income and each path has its own set of steps. The first step isn’t doing, it’s about thinking. It’s about thinking in a way that helps you achieve a money mindset. Your new mindset will help you continually see opportunities and the possibilities that create residual income streams.
I own the URL, NeverHadaRealJob.com. I’m proud of the fact that, aside from a few temporary part time jobs as a student or new graduate, I’ve never had real job (with a boss and benefits). All that I am or ever hope to be I owe to residual income (and a patient and understanding wife).
Popular Residual Income Sources
Why is Residual Income Important?
Do we really need residual income? Yes – unless you have thousands of dollars in your savings account. Why? We are residual spenders. Our mortgages, car payments, credit cards and other similar obligations don’t stop at the end of the day, they don’t adhere to a nine to five schedule, Monday through Friday, they continue 24/7.
These “residual obligations” do not take a vacation, therefore, it only makes sense to be a residual income earner.
Everybody thinks rich people are lucky – and brilliant. They really aren’t rocket scientists. They are fairly normal people, but they have a monetized mindset that is conditioned to notice opportunity when it knocks and are willing to take the risk to let it in.
Is it Hard to Create Residual Income?
Some people suggest that generating passive income is not as easy as it seems. That depends on your definition of “easy.” If you have developed a money mindset [link to article] and you are in the habit of noticing and responding to opportunity, you will find it easier and more enjoyable than you might think.
The key elements to creating residual income, and earning passive income, are being aware and prepared to walk through the door of opportunity when it opens. The great thing is it’s never too late to create financial security by creating streams of residual income – especially passive residual income.
Some months ago, my friend and editor said, “Bart, the core of your mission is ‘hope.’ You create or restore hope when many people think they are too old or too stuck to even hope for financial security.
I never realized the surge of hope that my message brings people especially as I help them develop residual income ideas, especially passive income ideas, and develop their own long term streams of residual income. Maybe I was lucky to have a father that inspired in me the ability to create residual income without the aid of a “real job.”
It isn’t work because it’s fun – and it’s especially fun because it works – for me and those who sign up for my training, follow my advice and create multiple streams of residual income.