There’s no better way to earn money than through residual income. It’s all about sitting back and reaping the rewards of work that you’ve already done.
If you can figure out how to set up a smart system that brings in cash on its own, you can benefit from it — without thinking too much about it afterward. It’s not too good to be true when your investment, idea, or product can bring value to people without your active involvement.
Although the idea of residual (or passive) income isn’t new, the internet has provided many more opportunities for ordinary people to generate it. This post will take you through some of the classical and new ways of making residual income and give you some advice about the best choice for you to set up a passive income stream.
If you’ve ever wondered how to earn residual income, just read on!
What Is Residual Income?
Before we get into the ideas for investments and businesses, it’s essential to clarify what counts as residual income.
In essence, residual income is any money that comes in after the work that produces the income has already been done. For this reason, it’s also known as passive income.
To make this clear, here’s an example: imagine two people involved in a plumbing company. One person invested money at the start and takes in a percentage of the profits without involvement in the company's day-to-day operation. The second person goes out on jobs, fixing peoples’ sinks and toilets, getting paid for the amount of work he or she does.
In this example, the first individual receives passive income, while the second receives active income in exchange for services.
Since the definition of residual income is so broad, there are all sorts of activities that can generate it. Residual income streams are as diverse as Wall Street investors buying stocks to collect their dividends and musicians selling music and merch on their website.
If you fit somewhere between these two types of character, there’s likely a way for you to be earning without actively working.
What Are the Benefits of Residual Income?
When compared to active income, earning residual income has many unique benefits.
First of all, there’s the obvious point that you don’t need to use any time or energy to make money once the income source is up and running. You get peace of mind from knowing that your financial circumstances are improving even while you sleep.
You can use that free time as you like, either by chilling out or concentrating on other ways of making money. For instance, you can hold down a job that brings in active income while also making passive income. Dual income is twice as nice, they say.
Another option is figuring out and setting up additional streams of passive income. Not only do you have time to look for opportunities and gaps in markets, but you can invest the money that previous projects are bringing in. Many of the most secure and profitable passive income streams take a lot of capital to start up, so you might want to start smaller and work your way up.
An older person can rely on stable and permanent sources of passive income to help fund their retirement. Not only will the money keep coming in after they stop working, but the profits of passive income sources could have been going into a retirement fund for years and years.
Types of Residual Income
Wondering how to earn residual income?
Well, there are many different types of passive income sources and many different strategies within each. Here’s a quick look at some of the most popular ways to earn passively.
Investing in the Stock Market
Once you decide to invest in a stock and put the money down, there’s no more work to be done. You just hold onto it and wait for the dividends—portions of a company’s profits that are distributed to shareholders—to roll in.
You don’t have to invest in a single company; there are also index funds or exchange-traded funds (ETFs) that contain many different stocks that are a safer option.
Real Estate Investments
Buying real estate and then renting it out is one of the best ways to earn large amounts of passive income. You can either find long-term tenants or do short-term rentals through an agency or websites like Airbnb.
Investments in Small Businesses
Investments in small businesses can often lead to a greater stream of income than investments in the shares of large corporations that provide dividends.
That’s because you’ll own a larger percentage of a small, local business than if you put the exact same amount of money into a giant like Apple or Amazon. If a restaurant you’ve invested in does well, a lot of that success will directly impact you.
Artists and writers that sell their work only need to create it once. After that, whenever someone buys their book or plays their music on the radio, the artist gets a royalty payment with no extra work. It’s also worth looking into posting your work on streaming services like Spotify that pay per stream.
Providing Virtual Services
There are lots of opportunities to earn passive income on the internet.
For instance, once you send a tweet or write a blog post with an affiliate link, you’ll make money every time someone clicks on it—even months or years later. If your content is evergreen, the traffic you generate can be substantial for an extended period of time.
You can also sell subscriptions to services that you’ve already produced. For example, if you’ve got a lot of knowledge in a particular field, you could think about making a masterclass for it and charging people to access it. Likewise, premium podcasts can bring in money even a long time after you originally posted them.
How to Choose Which Residual Income Stream is Best for You
There’s a lot of options for generating passive income. But it might not be so apparent which of them is best for you to take a crack at.
To be perfectly honest, the question is a difficult one that doesn’t have any right answer because it depends on so many factors like one’s skills, interests, and current financial situation. Each person has to judge for themselves what will work for them and, like everything else in business, bear the costs if they get it wrong.
What Skills Do You Have?
Different people have different skills that open up or limit their ability to take advantage of a particular type of residual income.
Someone without musical or artistic talent can’t just make an album or write a book because they like the sound of consistently making royalties. However, that same person could have an eye for real estate, and can see what areas of a city will become hot and start to draw in tourists.
What Can You Invest?
Notice the question isn’t just how much can you invest?
Although the amount of money you have that’s earmarked for your project makes a huge difference, there are other things you can invest in a project. Your time, for instance, is an important commodity. If you have lots of free time, you can use it to start up a more initially labor-intensive type of passive income that requires less monetary investment.
However, the opposite might hold; perhaps you have lots of money but little time. In that case, expensive but low effort types of residual income are a better choice. Investing in mutual funds or stocks with high dividends takes up much less time than writing a novel or building an online following for affiliate marketing.
How Much Risk Are You Willing to Take On?
Managing risk is the essence of business in general, as well as residual income. There’s always a chance that an income source won’t pan out and that the initial investment and work won’t ever be worth it.
Some types of passive income streams are riskier than others. However, you shouldn’t always avoid risk because it often carries the possibility of higher reward.
For instance, investing in stocks is always a risk because the company’s value could fall or their dividends get smaller, but at the same time, the company could grow after you invest in it and become an even better source of passive income.
Both your personality and financial situation will dictate just how much risk you are willing or able to take on. Try to find a balance between being too risk-averse and too cavalier.
Now that we’ve taken a look at questions like what is residual income, why is it beneficial, and how you start earning it, it’s time for you to get going.
Be sure to research the particular kind of passive income you’re interested in learning, as each has its own promises and dangers. But, once you’re ready, don’t wait. Each day you’re not earning passive income is a lost opportunity!