Last week I wrote a post on how abundance truly lies in simplification. This is one side of the equation when what you’re after is financial freedom.
The other side of the equation is creating streams of passive or residual income.
As a reminder, you are financially free to the extent that your passive or residual income is greater than your living expenses.
This week I’m getting down and dirty with what passive/residual income actually is and how to make it.
(This is a bit of a departure from the usual musings on being human that I write about here. But how do you think I have the time and space in my life to ponder, philosophize, and write? You guessed it: passive and residual income.)
Let’s start with definitions: passive or residual income is money that comes in over and over again from work you did once.
Diving a little deeper, passive income indicates money that comes in regularly without you having to do much of anything to keep it up. Great examples of this would be income from investments in paper assets (like stocks and bonds), real estate, and businesses in which you’ve invested money but don’t participate on a day to day basis.
Residual income, on the other hand, usually indicates earning money over time from work you put in once like writing a book, recording an album, or earning repeat commissions on a product you sell that people reorder every month.
And now, for some myth busting. There’s a lot of hooey here on the interwebs about passive and residual income so I’d like to set some things straight:
1. Passive or residual income can be earned without any effort.
Anyone who’s making this type of income has had to work their tush off to get it. They’ve poured their souls into intellectual property (or art), they’ve researched and executed profitable real estate deals, or they’ve been incredibly smart in terms of where they’ve chosen to invest money they already had so it could grow. The difference between people who hustle their heineys working for someone else or creating business models in which they trade hours for dollars and those who get paid multiple times for work done once is not hard work. The difference is in what activities are being pursued during the hustle.
Hustling is inevitable. But suffering is not so choose where you put your hustle wisely. (Click to Tweet)
2. You have to already have money in order to earn passive or residual income.
Not so, my friend. If you’ve got a great idea, an incredible service that you can scale, or are willing to do what most people aren’t willing to do for a few years, you can create streams of passive or residual income. Most of the people I know who are the smartest about creating income streams that come in whether they’re working or not have not gone to college. A few of them barely made it through high school. And most of them had no inheritance or access to significant money. They simply hustled in the right direction for a while so they could create freedom for themselves.
3. You have to be famous to create passive or residual income.
Most people who have financial freedom are living quiet, enjoyable lives all around the world and you’ll never hear of them. And they choose that for themselves. It’s true that getting a Platinum record or writing a NY Times Bestseller can create some great residual income through becoming well-known, but it’s certainly not a requirement. If you want to get famous, do that on your own time. But don’t confuse financial freedom with fame. They are NOT the same thing and many people who are famous aren’t financially free.
My recommendation is to choose one stream of passive or residual income to focus on first. A smart financial freedom plan will include several streams of income rolling in whether you’re working or not, but start with one.
Ways to Create Passive and Residual Income:
- invest in real estate and earn cash flow from rental income
- invest in stocks and bonds and benefit as their value increases
- invest in businesses and earn a percentage of their growth or interest on your initial investment
- start a network marketing business (this is the path that I chose first)
- create intellectual property: write a book, record a CD, produce a digital/online course, codify some of your wisdom so it can be digested by your audience in a repeatable way
I’m not the word’s leading expert on all methods of creating passive and residual income. There are pros and cons to each and I would recommend reading Robert Kiyosaki’s book Rich Dad, Poor Dad to get your research started.
Commit to taking one action step towards increasing or creating passive or residual income and share what that step is in the comments.
Are you aware of other ways to create passive/residual income that I didn’t mention?
Does this post inspire you?
Do you have any additional questions? I’d love to hear them!
P.S. Come hang out with me in New York! I’m going to be speaking at Nitika Chopra’s Empowering Women to Heal Themselves event TOMORROW, October 25th, and will also be speaking at Hay House Ignite – November 3 & 4th! Join me!