Residual Income: Definition, Formulas and Examples

aroundknowledge.co.id – If you're like most people, you probably think financial freedom is for the few. There are CEOs, high earners, and people of varying skills. But the reality is that anyone can accumulate wealth and gain the ability to make residual income and choices in life.

Contrary to popular belief, the size of your salary does not determine your wealth. Instead, wealth comes from your ability to support yourself if you lose your main income.

By earning Residual Income here, you can build wealth and achieve financial independence. Not familiar with this type of income? No need to worry. In this post, we outline everything you need to know about residual income.

Find out what Residual Income is, how it differs from other incomes, and how you can earn it to build true wealth.

What is Residual Income?

A Google search for “what residual income means” turns up dozens of interpretations, some of which state that residual income is the same as passive income. And this is true to a certain extent.

The reason people often use “Residual Income” and “Passive Income” is because passive income creates a surplus. For example, a blog owner (let's call him Tom) decides to make money passively. To do this, he inserts affiliate links in some of his posts.

When visitors to his blog click on the link, he generates passive income. The commissions that Tom pays to his affiliate partners and the taxes he pays on the total affiliate income are deducted to arrive at the remainder of the income.

The main idea of ​​Residual Income is to account for the costs associated with generating a passive income stream.

Types of Residual Income

Residual Income can mean different things in different circumstances. Here are some common areas that take advantage of this revenue.

Corporate Finance

Residual Income is a way of calculating profit in the world of corporate finance. It can be used to identify a company's net worth by subtracting the opportunity cost of equity from its annual operating income.

And if you want to know the value of your equity in a company, you can use residual income to estimate the intrinsic value of your stock. To do this, companies are valued on the basis of the present value of their book value and the projected future salvage value.

Simply subtract net capital costs from net income. The figure you get will be net profit after adjusting for the cost of capital.

Personal Finance

You can also use your Residual Income to determine your creditworthiness. Banks and other institutions often use this income to determine whether a person has enough money to get a loan and cover expenses.

So, if you have significant money left after paying off all your debts and monthly payments, you can get loan approval by proving your finances.

Online business

If you are starting an online business, your residual income will be the profit you make after you make the initial effort.

For example, you can open a Shopify store to sell profitable items. Starting and running a business requires effort and investment initially. So at the end of each month, we subtract these items from our generated income to get our Residual Income.

Usually, after the initial effort, little work is required to keep your income flowing. Therefore, in the context of online business, residual income is also called passive income.

How to Make Residual Income

Creating Residual Income can change everyone's life. Whether you're in college or successful in your career, consider the opportunity to earn repeat income. Here is a list of Residual Income that you can try:

Start a Dropshipping Store

A dropshipping shop is basically an online shop where people come to buy different things. When a customer requests an item, the order goes to a third-party vendor who ships the product directly to the customer.

This means you don't have to worry about keeping inventory or how to ship items to your customers. So, running a dropshipping store can be one of the best sources of residual income.

Activities such as delivery and customer service become less active when suppliers are addressing key aspects of their operations (such as product fulfillment). To get started, you can create an online store on Shopify. Once done, install the Automizely app to find dropshipping suppliers for your business.

Start a Subscription Business

Starting a Residual Income business requires some initial work, but if you do well, you will see the money in your bank account add up automatically. There are many products that can be sold through a subscription business, from clothing to shaving products.

And you can hire a fulfillment provider to package and ship your products and subscription boxes. Companies like Cratejoy can even handle the new customer onboarding process, so minimal work is required once your business is up and running.

Real Estate Rentals

With remote working becoming a trend, you may not be using your house or apartment as much as you used to. Instead of leaving it blank, register on Airbnb or a similar platform to create a Residual Income stream.

Renting extra rooms can also generate additional income if you don't want to rent out the entire property first. The tip for success with this strategy is to keep your tenants happy.

Too many homeowners fall into the negative stereotype of being greedy, ignoring worries and problems, and generally ignoring expectations of amenities. To become everyone's favorite (recommended) landlord, call your tenants daily and resolve any inconvenience ASAP.

Crowdfunding Real Estate

Real estate crowdfunding relies on the small investment of many people to buy a property or finance a property development.

You can register as an investor and easily get residual income. Websites like Fundrise and RealCrowd allow people to participate in different stages of investing.

As soon as the investment is processed, you become an equity shareholder in the real estate venture and begin generating income passively through regular dividend payments.

You can also benefit from increasing property values ​​over time. When the value of an investor's assets increases, the dividend yield also increases.

To get started, you'll need to sign up for a few real estate crowdfunding sites. Having access to multiple sites means you should have access to between 4 and 8 new real estate deals every month.

Create Application

If you have some skills, creating apps can be a great way to earn residual income by leveraging your existing knowledge.

You can configure expense tracking apps, news apps, to-do list apps, or recipe apps based on what people find useful. Or, if you have an idea for a game app like PUBG, give it a try. It can be the key to great wealth.

If you don't know how to code but have a great idea for an app, consider hiring a developer and coder from Upwork or PeoplePerHour.

After hiring someone and building your app, you can earn residual income from advertising, paid access, and additional features that users can purchase to make your app more pleasant.

Publishing Books

This is one of the best ways to create Residual Income. Whether you choose the services of a traditional publisher or self-publish through a print-on-demand service, book publishing is a very smart financial move.

Earnings will continue to come through royalties and purchases, and there are even opportunities to make thousands of dollars if your books continue to become bestsellers. The best way to start is to make a plan rather than writing down what comes to mind.

That said, when thinking of a title for your book, consider what you enjoy or are good at. It's also a good idea to evaluate whether the information you want to share will be relevant 5 to 10 years from now. This will help get people to buy your book.

Selling Photos

Are you familiar with the camera? Do you like taking candid photos of people in public places? Consider selling your work on websites like Getty Images or Shutterstock.

Countless websites use stock images every day in their blog posts and social media, and owners are willing to pay for the right to use them.

So why not sell the rights to your image collection? You can potentially license a set of photos and sell them multiple times with minimal effort after the initial upload. All of the logistics of selling your images are managed by the platform you use to sell your photos.

Sell ​​Digital Products on Etsy

Etsy has an instant download page where you can sell all kinds of digital products. These are items that you ship electronically, not physically. You can sell anything from birthday or graduation cards to wall prints, inspirational text, or digital copies of your art.

The obvious benefit of this is that once you've created your digital file, you can sell multiple copies by listing them on the platform. Selling digital products also has less overhead costs because there is nothing to package or ship.

Collect Instagram Followers

Naturally, this requires hard work at the start. But once you build a loyal fan base, earning residual income becomes easy.

To get started, create an Instagram profile and start posting content about your particular niche. Meanwhile, use Instagram hashtags to reach more people with your posts.

You may not get as many followers as top Instagram stars do, but there is a lot to be gained by running a small, niche-focused Instagram account.

The business in your niche is what the people you attract will find valuable to them. This is because they are more likely to target a similar audience. And if they choose to sponsor your content, you can get paid handsomely.