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Active income is income for which services have been performed. This includes wages, tips, salaries, commissions, and income from businesses in which there is material participation. Passive or Residual income is an income obtained on a regular basis, with little effort needed to maintain it.
Portfolio income is income from investments, dividends, interest, royalties and capital gains. Portfolio income does not come from passive investments and is not earned through normal business activity. Normally, income from interest on money that has been loaned does not count as portfolio income.
Now, looking at the sources of residual income, we are going to move from the ones that we think are the most difficult to make to the ones that are the easiest to create. Here we go.
7. Royalties: the creation of audio, books, inventions, machines, patents. A royalty is something you have created or sold and place it on a platform that you do not run and then get compensation based on when the item is purchased or used. The majority of us do not have the potential to rapidly create royalty streams.
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This is the purest type of passive residual income, if you can attain it. .
6. Network Marketing: Network marketing is a unique business model and has created more millionaires than any other business. The industry as a whole is growing and more companies are trying to leverage referrals or direct sales to increase revenue and market products. On the other hand, the industry as a whole is confusing to many and demands a tremendous amount of mental and emotional fortitude to make residual income potential.
The effort you must put in is important to consider. .
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5. Subscription Models: Subscription models/Customer Hubs/Member Places All these are businesses like Netflix, Costco, Sams Club. The subscription model has become almost its own category. But it's considerable cost and you must continuously create and cultivate content and value. The income is remaining and combines devotion and education with community.
A fantastic book that explains this version of residual income is Your automated Customer by John Warrillow. He walks through, in plain English, the various styles of subscription versions and the way to potentially apply them to This Site your business.
4. Affiliate marketing: Getting paid to tell folks what you like and showing them where to get it. As a Dad, I tried 3 large seats prior to finding the Bumbo. Now if I blog about the Bumbo and link for it for my Amazon account, and someone buys it, then I can earn a commission.
A great illustration of this will be Pat Flynn at PassiveIncome.com as he walks through how to establish your own system to optimize and profit from your passion.
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3. Business: As I mentioned, not all businesses are created equal when it comes to residual income. Lets have a look at a local taco stand. Sure, that taco stand may have loyal patrons and also make the best damn beef taco youve ever needed, but they also need to wake up every day and turn the lights on and fire up the grill to get compensated for their particular tacos.
So, literally I am going to earn a fee if I go in or not. Sure, I must maintain relationships to keep earning that commission, but truly that the income is residual because once I sign up one client I am going to earn money off of the money perpetually.
Why do we call them the Power 2 Because these demand less specialization and experience, and together with all the leveraged use of debt that is smart, can work together.
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2. Real Estate: Property is #2 for one reason, leverage using intelligent debt and other peoples money. When looking at real estate rents and the potential for income real estate supplies, it's the trifecta of residual income. First, a home or rental property can appreciate, so capital appreciation is the first long-term benefit of owning a house.
Other people are paying off the mortgage, insurance, property taxes and maintenance at the same time you own this piece of real estate. Third, tax protection. Rental income is taxed at a lower rate than ordinary income and you can depreciate property by taking a newspaper deduction on your annual tax return not to mention expensing the cost of mileage, mortgage interest, and updates to the property.
The fourth and maybe most hidden, but important benefit is that over time rents rise, protecting your cash-flow against inflation, while your mortgage interest can be in a fixed rate potentially. .
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1. The final and most powerful type of residual income, in my opinion, is investing and insurance. The majority of us have 401Ks and IRAs, therefore that I am going to leave that for your investment side. Within that, I think our Foundation Freedom Phases is undoubtedly the simplest, safest and most powerful tool for several reasons: a.