Financial Freedom: Understanding Working VS Residual VS Passive Income
Oct 24, 2024
In high school, we didn’t exactly have a course called "How to Make Money." Instead, we learned subjects like algebra, trigonometry, and calculus—skills we rarely use in everyday life. Sound familiar?
Unfortunately, the education system is still geared toward preparing us for traditional jobs, but it doesn't teach us what to do with the money we earn or how to build real wealth. The era of staying in one job until retirement is gone. Whether you're an employee or entrepreneur, to achieve financial freedom, it's essential to understand the three types of income and how to use them to your advantage.
Let's break them down...
WORKING INCOME
Working income is the most familiar type—it’s the money you make from exchanging your time and skills for a paycheck. This could come from:
- A salaried or hourly job
- Commission-based work
- Running your own business
- Working as a freelancer or contractor
While working income covers your daily living expenses, it should be viewed as "seed money" to fund investments that grow over time. Relying solely on earned income won't lead to financial freedom. That’s because as income rises, so do expenses.
For example, when you get a raise, you may start spending more on things like a nicer home, better car, or other luxuries. This happens because most of us aren't taught how to invest that extra money wisely, so it often gets spent on things that don't contribute to long-term wealth.
RESIDUAL INCOME
Residual income allows you to make money after the initial effort is done. Examples include:
- Network marketing with monthly auto-ship products
- Subscription boxes
- Membership services
The beauty of residual income is that it grows over time without adding more workload. Here’s an example:
- Month 1: Sell 5 subscriptions at $100 each = $500
- Month 2: Sell 5 new subscriptions, plus 5 residual subscriptions = $1000
- Month 3: Sell 5 new subscriptions, plus 10 residual subscriptions = $1500
- Month 4: Sell 5 new subscriptions, plus 15 residual subscriptions = $2000
Residual income builds as more customers stay subscribed, and you keep earning without constantly needing to chase new sales.
PASSIVE INCOME
Passive income, often seen as the "holy grail" of financial independence, is income that doesn’t require you to be actively working for it. Think of it as making money while you sleep or relax on the beach! Although it typically requires a significant investment of time and effort upfront, passive income streams can eventually run with little to no maintenance.
Here are some ways to generate passive income:
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Write a Book: Writing a book is a time-intensive project, but once published, it can earn you royalties for life. Self-publishing has made it easier than ever to get your work out there, and as an entrepreneur, a book can also establish your authority in your industry.
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Create a Digital Course: Teach others what you're great at. Once your course is created, you can sell it endlessly. Using platforms that integrate with funnels, email marketing, and payment systems, like Kajabi, makes this process seamless. Grab a 30-day Free Kajabi Trail here.
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Start an Affiliate Program: Develop a product or service and create an affiliate program so others can sell it for a commission, expanding your reach without extra effort.
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Hire a CEO to Run Your Business: Many successful entrepreneurs have multiple businesses because they hire skilled CEOs to manage operations, freeing up their time while still earning income.
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Investments: Let your money work for you. Investments that pay dividends or appreciate over time are perfect examples of passive income streams.
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Automate Sales: Use technology like chatbots and automated funnels to handle the sales process. Once you’ve fine-tuned your sales strategies, automating them can save you time while generating continuous income.
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Stock Videos & Audio: Actors, musicians, and creators can sell stock footage or audio on platforms that pay royalties. This way, your work can earn you money long after you’ve created it.
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Monetize Social Media: Platforms like YouTube allow you to earn through ad revenue. Whether you’re using social media to drive sales or directly earning from engagement, it's a great passive income opportunity.
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Real Estate: Owning rental properties gives you immediate extra income, while holding onto properties for the long term can lead to big payouts when you sell.
The key to passive income is finding what aligns with your passions and strengths. Ask yourself: "What do I love doing, and how can I turn it into a source of passive income?"
The main takeaway is that understanding different income streams, especially residual and passive income, can give you the freedom to work because you want to, not because you have to.
Here’s to your journey toward financial freedom! Cheers!
Ready to learnt the ins and outs of how to create Passive Income? Join Amanda Rose for PASSIVE PROFITS.
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