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Residual Income: What Is Residual Income?
The article defines the term residual income, and progresses to explain its connotations in our daily lives. Learn how it can affect you and how you can make the most of it. |
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| What is residual income? |
Trying to find out what the term “residual income” really denotes? You can derive various meanings from it – depending on the context. It is the money that remains with you each month - after all the bills have been paid including your mortgage and personal debt. It is also income that is self- replenishing – that recurs or regenerates each month so that it accumulates' that is “residual” for you. Basically' it is income that is consistently added to your total income' usually calculated at the end of each month after all your expenses have been covered. And it’s better than linear income.
How?
Linear income is the money you make at any regular job. The hours spent working translate to the amount that is given on your paycheck i.e. directly proportional to the time invested. Residual income beats this simply by being money that you actually “have”. It requires some effort initially to generate income' but continues to regenerate from then on' with no little or no additional exertion!
Example- You allocate a certain amount from your income to go towards mortgage payments each month. Once the payments have been made to completion' the amount that “remains” with you is residual income. Most people try to procure means to make a residual income to supplement a regular linear income. They do this by renting out property' looking for opportunities on the internet which require just a little input to assure returns or just any other realistic option available.
Residual income is important. Why? It stays with you. You get to decide what to do with it- whether you want to save ' donate or invest. It is not the income we think we are left with each month' because we spend so much of it as taxes' living expenses and “things we need”' in order to maintain the life we are used to. To measure your residual income' you need to deduct ALL your expenses from your net income.
If the need to secure a loan ever arises' a bank or any other investor will study your residual income over a considerable period of time to ascertain your eligibility. You qualify if your residual income would make monthly return payments affordable. It ensures the lender that the borrower has sufficient funds to provide a return on their investment. Residual income is important to you- it is the “actual” measure of your monetary wealth' month after month. |
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