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Step 1
First of all, you need to understand what residual income is not.
Residual income is not get-rich-quick. Anyone who tries to tell you that it doesn't take effort to create is probably trying to scam you. It is however a smarter and more productive way to make money than what most people are taught to do, and it should get better and better over time. -
Step 2
Residual income can be defined as repeat income over time for a single span of effort.
This differs from linear or job income, where you're paid for your effort once. You do a job for two weeks, you get paid for those two weeks. Then the cycle starts again. In this scenario, your income is always tied to your time and effort.
With residual income, you may not see the money immediately--it may come days, weeks, months, or even years down the road. Your main focus is on creating income sources that work for you long-term, hopefully for the rest of your life and later for your children.
An example I'm familiar with is books. I know how much time and effort it takes to create a novel, but once it's finished it doesn't require my physical presence to make me money. It took work to write and to set up the distribution process, but with the Internet I can be selling books while I'm working on other projects. While the first book is selling, I'm working on the next book--and the income builds from there. I do the same thing on a smaller scale with online articles--I still make money on eHow from articles I wrote over a year ago, and I just add more to them to make more income.
The same concept can be found in the music industry (royalties from each sale of an album that only had to be recorded once) and in any type of business where your intent is to set it up so it can make money without you being there. -
Step 3
The way people retire earlier than normal using residual income is by creating enough income sources (also called income streams) that what they bring in equals or surpasses their living expenses.
Again, this is not something that happens overnight, but it can be done. At 25 years old, I still have a part-time job--but I also have hundreds of residual income sources in the forms of articles, books, and advertising revenues from websites. My husband and I have combined this with paying down debt (Dave Ramsey has a great method for this) and living within our means. Getting yourself on a focused plan will help you, as will reading enough financial books until you understand how money works. -
Step 4
There are thousands of ways to make residual income, but the ones I'm most familiar with involve writing.
Below under the Resources tab, you'll find a series of links that I hope will help you--including a list of books that helped me understand this concept better. These can be found at your local public library. Best wishes to you!
Comments
godfather25 said
on 10/15/2009 Great article on understanding the basics of residual income.
ljstraight said
on 9/7/2009 Well written with much food for thought. 5 stars
blakeurban said
on 7/29/2009 Interesting topic and indeed a useful one. Always think of the future and save, save, save. This is truely inspiring. Great work Patricia!