Residual income is one of my favorite topics. It is essential for any wealth creation plan and for us to attain true financial freedom.
Financial freedom means living life on our own terms. It means doing what we want, when we want, with whom we 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 lying on the beach, sleeping or spending time with your loved ones.
To illustrate it let’s 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….as long as it sells of course.
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.
Of course the Global Financial Crisis (GFC) changed all of this!
Many people around the Globe lost their savings and retirement funds. Many people lost their jobs.
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, loss of loved ones 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 this last year 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 it to build it up so we are truly 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 or royalties
- Musician – sale of music
- Income from rental property
- 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
- Network Marketing
Residual Income – the true road to freedom
It is only by having a residual income that you will build true freedom. This is not only for our retirement, it is for everyone. 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?