The Power of Residual Income
Residual Income is power. Or, is that “Money is Power”? I was always one to believe that information is power. Without information, there is no money. Without money, there is no residual income. Information is Power. The Journal of Accounting and Economics, in their Empirical Assessment of the Residual Information Model agrees with me. I’ll try not to argue over who thought of it first.
The definition of residual income has taken a beating. Simply put, residual is a remainder. Income is financial gain. Translation: Extra Money. Investopedia, affiliated with Forbes, uses the common definition of residual income as “the amount of income that an individual has after all personal debts, including the mortgage, have been paid. This calculation is usually made on a monthly basis, after the monthly bills and debts are paid. Also, when a mortgage has been paid off in its entirety, the income that individual had been putting toward the mortgage becomes residual income.” Residual Income is more commonly known as “Value Added” income or equated with “Economic Value” income in the financial world. As defined by MIT: “Residual Income for Equity Holders is the Net Income minus the Capital Charge.” Alternatively, it can be defined as: “Operating Income minus an Imputed Interest Charge for Investment.” Another term for Residual Income, according to MIT, is “abnormal earnings.” I prefer to call it “the stuff left over.”
On the web, residual income is equated networking, MLM, affiliate programs, work at home programs, tiered commission based referrals, and a multitude of other options for anyone seeking to earn some extra money. This often refers to residual income from multiple divisions or multiple people and is similar to dividend cash flow.
The power of residual income is that it is yours. You create it, and you make it. The power of information can help you decide what to do with your income and how to do it. It is important to use the power of information to evaluate the risks/return relationship, the economy, the costs, and the time and investment involved, as well as the level of personal sacrifices you are willing to make. As with any investment, it is important to plan and determine your business goals and objectives before diving in.
If money is the power you’re looking for, then invest your residual income to make more residual income. Investments are best tailored to your individual strengths and weaknesses. If you’re a financial whiz and like to take a chance, you can invest in the stock market. If you’re a pro at sales and enjoy teaching, you might be interested in network marketing. If your residual income is substantial; the real estate market is always a source for investment. Develop an Internet site about your own little niche. Sell those 57 Chevy parts on the web. Like some of the great philosophers say, “do what you love and the rest will follow naturally.” Hopefully the “rest” includes residual income.
