Financial Fellow

Written by J.P. Wicklein

     Whether you’re looking to create wealth, or just add a few bucks to your bottom line, I’d suggest exploring sources of residual income. 

What is residual income?

     Residual income is money you earn over and over again without performing any work.  A common example of residual income is the interest paid on a savings account.  Although you may have worked hard to earn the money in your savings account, the interest your deposit earns requires no additional effort.  Admittedly, though, the interest rate paid on a savings account is very low.  If you want to generate a large source of residual income you’ll probably need to look elsewhere.

A great source of residual income         

     Long-term gains offered by stocks in a diversified retirement account can be an excellent source of residual income.  For example, let’s assume you invest $5,000 of your hard earned money in a stock index fund, each year, for 40 years.  Over the course of 40 years you would have contributed $200,000.  If, over the 40 years, you earn an average annual return of 7% (very attainable) you’ll wind up with $1,000,000. Even though you would’ve only saved $200,000 you’ll haul in $800,000 of residual income! 

More sources of residual income

·         Websites:  Another great way to generate residual income is through a website – such as this one.  Through Financial Fellow I earn income from advertisements (albeit a small amount) whether I’m working on the site or not. 

·         Real estate investments:  Renting out real estate can generate a steady stream of income over a long time.  Your home can also be a source of residual income through appreciation (although I wouldn’t advise buying a larger home in hopes of greater appreciation).

·         Dividend producing investments:  Many stocks will pass profits onto shareholders in the form of a dividend payment. 

·         Royalty payments:  If you’re talented enough to write an IPhone application, invent something, author music, or write a book you could set yourself up to receive royalty payments. 

The bottom line

     The beauty of residual income is that it keeps generating money long after you’ve stopped working for it.  It even enables you to make money in your sleep. 

     Although it may require a bit of work in the short term to generate a residual income stream, the potential for a long-term payoff is huge.  Further, if you’re looking to get rich you probably won’t succeed without some form of residual income. 

Photo by:  zzzack