Types of Residual Income

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Residual income is often called passive income, which is the ability to earn money when you are not working. It is also considered income that is earned from a single effort. There are lots of professionals who earn residual income, including Internet marketers, insurance salesmen, software entrepreneurs and even shareholders. Some even earn multiple types of residual income.

Dividends

  • People who own stock often receive quarterly dividends from the companies that issue the stock. Dividends are based on the companies' profits. Dividends are usually extremely small and are based on the number of shares you own. For example, if you receive a 10-cent dividend for 100 shares of stock, your quarterly payment would be $10. The dividends may vary over time but you can usually keep earning them as long as the companies are profitable.

Leveraged Income

  • Leveraged income is earning profits off the efforts of others. Network marketing is an example of leveraged income. For example, you may join a nutritional network marketing company that sells a line of diet products. As an independent distributor, you recruit your first six distributions, which are considered your downline members. Everyone is required to purchase $50 to $100 worth of product a month, and you earn 10 percent off the purchases of your six distributors. Over time, your six distributors will recruit people into the business and your downline will grow many levels deep. Hence, you are making money from the efforts of others or earning leveraged income. Many successful network marketers actually make more off the leveraged income than from their own efforts.

Renewals

  • Insurance agents, license bureaus and magazine publishing companies count on renewals for a large percentage of their profits. People who are buying car or homeowners insurance essentially renew their policies when making quarterly or semiannual payments. The insurance salesman only approaches these customers once to get their business. After that, he may try to upsell on occasion, but his earnings are mostly residual. Similarly, state license bureaus count on people to renew driver's licenses and tags, though people are forced to do so legally. Magazine subscriptions work the same way. Some publishers may get you to renew your subscriptions months in advance.

Royalties

  • Actors, singers and writers earn royalties from their movies, songs or books, respectively. Often, entertainers and authors receive royalties for many years, even after they die. Posthumous payments would go to your estate or heirs. Royalties are unique in that successful entertainers and writers can find new audiences among different generations. For example, book publishers sometimes repackage and market popular books 20 years later. Scenes of old actors can appear in television commercials, which earns them royalty payments. Royalties are usually paid on a quarterly basis.

References

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