No doubt you have seen or heard this phrase, before:
“The poor get poorer and the rich get richer.“
This quote is often used to explain how the wealthy are doing something unfair to keep the poor in their condition. But when you really look at it, the poor and the rich have vastly different ways of looking at money. It impacts how they handle money and how they make money. One of the key principles is that the rich know how to answer the question, “What is residual income?”.
For the sake of this conversation, let’s keep things simple and talk about two different types of income: Linear Income and Residual Income.
What Is Linear Income?
Linear income is the money we make as a direct result of the work we do. Whether in the form of wages or salary, the basic idea is that we are only able to make money when we are working. This is how it works for most of us. Cooks, wait staff, doctors, plumbers, attorneys, truck drivers, are all examples of people earning linear income.
What Is Residual Income?
Residual income is the money that keeps coming in after the work is done. Examples could include royalties from books, movies, or songs. Income that comes from real estate or business investments where you don’t actually have to be in the office would be another good example.
There is still work to be done when creating residual income. An asset must be built first. The author must first write the book. The songwriter must first write and produce the song. The landlord must first buy or build the house. The investor must use the money they earned on the job to purchase investments. The network marketer must build a downline and get customers to create the monthly commission checks.
Once the asset is created, the residual income begins coming in. This should not be confused with the idea of “passive income”. Richard Branson doesn’t actually work in the many companies he owns, but he checks the numbers and keeps tabs on his businesses on a regular basis.
For some people, working on residual income brings up an image of lounging on the beach doing nothing while the money comes in. The reality is that most people who have put in the work to create residual income would be far too bored to live like that. They usually love what they do and want to stay involved in it, launch new projects and stay connected to their passions.
If you have not yet reached a place where you are enjoying residual income but you are working on it, remember Jim Rohn’s saying:
“I’m working full-time on my job and part time on my fortune. But it won’t be long before I’m working full-time on my fortune. Can you imagine what my life will look like?”
Stay the course. Keep doing the work knowing that the day can come where you can begin go enjoy the fruits of your labor.