Residual income is one of my favourite topics. It is essential for any wealth creation plan and for us to attain true financial freedom.
Financial freedom means living life on your terms. It means doing what you want, when you want, with whom you want.
What is residual income?
Residual income is also called passive income and recurring income. It is income that continues to generate after you have done the initial work. It is income that comes in while you are on vacation, sleeping, or spending time with your loved ones.
To illustrate it let us take a freelance writer who writes for clients. He/she gets paid for each article written. In contrast, if this writer writes a book, he/she will be paid for each sale. If the book continues to sell in years to come the revenue will also continue.
Do you see the difference? Writing one off articles for a client is trading time for money. Writing a book is creating a residual income, assuming it sells.
Why do you need a residual income?
I will share a little of my history to answer this question.
I started out my career as an accountant – a CPA and then later built a Financial Planning Practice with two other partners. During these years, my focus was about helping people build up retirement incomes so the day would come when they would no longer have to go to work.
We recommended various investments including Mutual Funds (called Managed Funds in Australia). It was in a time when jobs were more secure, and people were building their retirement funds with the confidence that they could live off them in their later years.
The Global Financial Crisis (GFC) and now Covid-19 have changed job security.
Many people around the Globe have lost their jobs, savings and retirement funds.
During my years in the finance world I met Robert Kiyosaki, the author of Rich Dad Poor Dad. It was the first time I had really heard the term passive income.
He was advocating 20+ years ago that we should all be building a residual income. I shifted my focus from saving for retirement to creating a residual income.
Robert’s game Cashflow teaches us that when we have more residual (or passive) income than our monthly expenses we are out of the rat race. That means freedom.
I later went on to become the CEO of the company that partnered and promoted Robert Kiyosaki in Australia and New Zealand. I learned more from Robert about wealth creation than I did at University and in my financial studies!
Life happens to us all
If we have enough income coming in to meet our expenses, then no matter what life throws at us we can take time out without financial stress.
We all have times when illness, the loss of a loved one or some other situation takes us out of our game. It is part of life. Do you see how having a residual income at these times is a good thing?
When we do not have to worry about money, we can take care of the things that matter to us.
During 2016 I faced a serious health challenge. While my husband and I had some residual income coming in each month it would have been more comfortable if we had more. My focus now is to build it up so we are totally free.
Ways you can build your residual income
There are various ways you can build a residual income. Here are just some of them:
- Author – sale of books and royalties
- Musician – sale of music
- Income from positively geared rental property
- Network Marketing
- Dividends from shares or mutual funds
- Create your own products – digital is a good idea
- Some affiliate products pay a residual income if they are subscription based
Residual Income – the true road to freedom
It is only by having a residual income that you will build true financial freedom. I see a growing number of young people building their residual incomes online. Some of them are traveling the globe and following their dreams.
Please leave me your comments below. Do you see the importance of building a residual income? Are you building yours?
