Linear vs Residual Income

“No one would remember the Good Samaritan if he only had good intentions. He had money as well.” – Margaret Thatcher

We know that one of the secrets of the financially wealthy lies in their ability to increase their asset base and reduce their liabilities. Well, we can build on this with another truth; they’ve learnt to invest their time instead of just selling it. I’ll explain. There are two ways in which we can make our money in life; linear income and residual income. Most of us have been taught through our educational systems or families that the way to succeed in life is to work hard, become qualified in a good profession and command a higher paying salary. This is a noble path, but it’s neither the only nor necessarily the best path. Whether the person is a road sweeper or a qualified accountant the end result is that they are selling their time for a salary. One may have greater disposable income than the other, but the equation remains the same; to earn more money they must exchange more of their time. We call this linear income. Even a dentist with his own practice can’t escape this. He may be able to charge a higher rate for the service he provides but he can’t escape the fact that his presence will always be needed for him to provide the service he offers. Hence the number of clients he can have on any given day, at any given hour is limited by his ability to be in one place at one time.

Earning residual income is a whole different ball game. Residual income says “Take the time to plan, strategise and work hard at the beginning and you can continuously reap a harvest in the future…even when you’re not present.” In essence you are investing your time. With residual income you create a product or service, or have a system in place that allows you to make money while you are not immediately present. Robert Allen tells of how back in 1980 he wrote a book called ‘Nothing down: How to Buy Real Estate with Little or no Money Down.’ He put in over a 1000 hours of hard work writing the book and it was over two years before any money started to flow but in the end it was worth it. Robert didn’t want just a salary, he wanted a royalty. That book has now netted him millions of dollars because he took the time to invest in and package a concept that solved a problem. Hey, I bet there’s at least one good book in you that might help solve a problem for others.

Let’s look at some areas you might consider building residual income:

Author/Writer

Can you write? Do you have an area of expertise you could teach others? Have you overcome a problem where others are desperate for your solution? Or maybe you just have a fascinating story to tell. Writers earn royalties. You could even record your information as an audio book or CD. Imagine, you spend 5 weeks or even 5 months to write a book but you get paid for the next 50+ years every time a copy of your book is sold. Could your place of employment give you such an offer? I doubt it.

Song writing

Maybe you don’t want to write a book but have loads of songs in your heart. Well what are you waiting for? Like writing you also get royalties for song writing.

Visual and technical art

Maybe you’re visually or technically creative. Artists such as games designers and software creators get royalties every time their game or software is sold.

Inventions

Hey, do you have an idea for a unique or useful invention. Inventors also get royalties. I read of how an inventor came up with the idea for the battery tester you see on the Duracell batteries. While other battery companies rejected his idea, Duracell saw the brilliance of it and accepted to pay him just a few pennies for each pack sold. Well those pennies added up and earned that man millions.

Network marketing

If you’re passionate about working with people network marketing might just be for you. Not only will you be building your own business, but you’ll continue to accumulate residual commissions every time someone that you helped builds their business.

Investments

Maybe you have some extra money stored away doing nothing. Why not invest it? Stocks, bonds and the like get dividends and interest, plus they can appreciate in value. Why not take the time to learn more.

Real Estate

Real Estate owners gain continual income from the properties and estates they own. They’ve learnt the art of using other people’s money to generate long term profit and equity.

Entrepreneur

Perhaps you have a good product that you know would be of benefit to others. Entrepreneurs are often able to market and mass produce their products – their reward is their profits.

Franchise

Or maybe you already have a business; perhaps a restaurant or hotel. Franchisors like Mc Donald’s built a strong brand and are now are able to license the rights to use their brand and hence obtain franchising fees.

Some food for thought. If you believe and want more then don’t just stay stuck in a 9-5 mentality. Think outside of the box, step outside of the box. Keep your eyes on the goal ahead.

God bless and protect
Chidi

www.thetotalman.com

Quote of the week:
“The plans of the diligent lead surely to plenty, but those of everyone who is hasty surely to poverty.” – Proverbs 21:5

 

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