Residual income or passive income is money that you continue to receive from work or investments performed once. A couple of examples of residual income are royalties paid to an author for writing a book or dividends you continue to receive from buying a stock. There are many ways to make residual income, and this article will guide you to build your residual income streams from a trickle into a consistently flowing river of money every month.
There are two basic types of residual income; residual income from work you perform (time investment) and residual income from investments that you make (money investment). Since we are starting from nothing, we will begin with ways to invest time to build residual income streams and then use the money coming in from those streams to invest in other residual income sources. This strategy creates a cumulative effect, leading to steadily increasing residual income month after month.
The easiest way to start earning residual income is to create content for the internet and submit it to article sites. Some popular sites that pay well are (in order of potential income): eHow, Examiner, Infobarrel, Associated Content, Bukisa and Xomba. You just write articles and submit them; then you earn a percentage of the advertising income generated when people visit the site to read your article.
Once you have a little money coming in from your articles, you can use it to start affiliate marketing. Affiliate marketing is a little more involved because you will be building websites designed to sell a specific product or line of products, but it is still easy to do and costs very little. For example, you can get your own self-hosted, custom designed Wordpress site up in minutes for less than $10 a month at Dreamhost. Just find a product with high search volume and low competition in the search rankings, and build a page around it. The site will have your affiliate links so that when people click to buy the product through your site you get commissions.
If you have a good amount of time and are creative, you could even develop your own products to sell. One classic example of residual income is to write a book and earn royalties for years every time a copy is sold. You can do the same thing on the internet with no monetary investment by creating an e-book or other informational product. You could create training videos in an area of your expertise, write a how-to book or even try your hand at writing some fiction or poetry. The possibilities are endless and since it costs virtually nothing to produce, it might be worth a shot. Once your informational product is created it could earn residual income for years with a little promotion.
After the money starts flowing in from the article and affiliate residual income streams, you are ready to funnel it into earning even more residual income. This is achieved by earning residual income from investing your money wisely and safely. The goal is to earn steady, consistent residual income over time. This does not mean investing in the hottest new technology or flipping houses trying to get rich over night, you are looking for low risk, consistent residual income that will continue making money for years. The three ways to do this from the easiest and lowest risk methods on up are: peer-to-peer lending, stocks and bonds, and real estate.
Peer-to-peer lending is simply people lending money to other people without going through banks. An example of this is the site Lendingclub. On this site, you as a lender can choose who to lend money to based on their creditworthiness and other factors. The historical default rate for peer-to-peer lending is actually lower than default rates that banks report and you can get decent returns ranging from ~7-18% depending on the credit rating of the borrower (higher risk = higher return). The best part of this type of investment is that you can start lending money to other people with as little as $25. So you can start investing as soon as you start to see the income from your other residual income streams roll in. Every time you make $25 from your articles or affiliate marketing, invest it in a Lendingclub loan.
Only when you have a high, steady stream of residual income should you consider the next phase of this plan - investing in stocks and bonds. The reason you want to wait until you have a decent amount of money built up first is that you need to invest a lot in stocks and bonds in order to overcome transaction costs such as commissions, diversify your portfolio to lower risk and still see good returns. Stocks and bonds are the classic residual income stream model; you make investments and receive dividends or interest payments indefinitely.
If you are a beginner then you should stick to mutual funds and ETFs rather than investing in individual stocks or bonds. Again, the goal here is to build a consistent residual income stream not bet it all on one potential superstar investment. Bonds are lower risk than stocks, but they also generate lower returns. To invest in bonds, find a mutual fund that has low fees but good variety of types of bond funds to invest in. You can spread your risk and gain better returns by investing in a couple of funds from tax-free municipal bonds up to corporate bonds. When investing in stocks you are looking to diversify your portfolio and get better returns than bonds can offer. For the lowest transaction costs, start off investing in an ETF or mutual fund that tracks a major index such as the S&P500. By investing in an index fund you are automatically diversified and they have fees as low as 0.15% vs up to 5% for a managed fund. And index funds have been shown to historically beat managed funds over time, mostly due to the fees that they charge.
Now that you have a high flowing, consistent stream of money coming in from your other residual income streams, it might be time to consider the ultimate residual income vehicle - real estate. Once again, this does not mean flipping houses or buying condo timeshares; we are talking about wise investment choices aimed at providing a steady income month-after-month no matter what happens in the housing market.
This real estate residual income stream comes from buying properties and renting them out. This investment will take the most upfront research and effort to find the right property. You will be looking for real estate that will provide enough income from rents to cover costs, with some left over so that you get a check every month. The equity of the property should grow over time as well, but that is just gravy. You are not speculating on rising property values and want to stay focused on finding something that pays now and doesn't need constant reinvestment. The main things to consider are the location of the property and the potential of the neighborhood. You want to compare other rents in the area for the same type of property. You want to make sure to consider all of the costs of ownership, including vacancy rates, maintenance, repairs needed, management fees and your loan terms. The most important thing about real estate investing is to do all of this research and calculations before you invest, that way you can be sure that you will be getting residual income from your investment and not losing money every month instead.
So there it is, just like a river being fed from many small streams, you now have residual income from a bunch of different sources coming in every month! And there are many benefits from using this strategy. One is that it is diversified; if one stream has a slow month you will still be getting income from the others to compensate. Another benefit is that having different residual income streams is cumulative. You will still be making money from your first residual income streams month-after-month, but also since that money is constantly being reinvested it will keep growing over time. And probably the biggest benefit of all is that it is fun! You can start right now with no money and no experience, just write a couple of articles on topics that interest you and start submitting them. You'll see how easy it is to create your own river of residual income.