Four ways to earn income

3. Residual Income - Work once and get paid again and again.

If trading time for money can be considered as "today's income" then residual income would be "tomorrow's income".

What is residual income?  Simply put, it is income that is created from work that you have done sometime in the past. Common examples of this are the performance & intellectual property businesses, (books, CDs, Movies, Computer programs, etc.), and is often referred to as "mail box money". When an author or an artist creates something, they usually get a royalty; a payment for each time their creation is purchased or performed. In most cases, as time passes, the amount of income received will diminish and eventually ends.

Now, most of us are probably not going to create a blockbuster book, CD, or movie that will provide us with royalties, but there are other ways to build up a residual income that will continue, and even increase), as time passes.

One way is to become securities licensed as an agent or broker. Financial services companies need agents and brokers to met one on one with clients and help them with their investment portfolios. A portion of the management fees earned by the company is paid to the agents each year. As the size of the portfolio grows, through both the increase in value, and influx of new clients, the amount of the commissions grows.

When an agent or broker helps a new client, they often get paid a commission for setting up the account or investment, and then they receive a portion of the annual management fees as each year goes by.

For example, I am aware of one company where, for a portfolio of $10 million, (that's not really all that much), the management fee paid to the agents ranges from about $60,000 to $112,000 a year, (depending on if they are part time or full time with the company).

Interestingly enough, the process to become a licensed agent is relatively simple and inexpensive. So for all of us that don't have a blockbuster movie or book, we still have the opportunity to earn a significant residual income, by helping other people find the financial solutions that they are seeking.

If you are interested in becoming an agent and getting licensed, fill out the information below, (click on "Referral Form" link below), and we will find an office in your area that can help you become a licensed agent or broker.

Referral Form 

The above information is for illustrative and educational purposes only and does not constitute any type of promise or guarantee.  Not all licensed individuals earn the above noted income.

Four Ways to Earn Income

2. Earn income when others work

The word for this is “over-rides”.  The concept is simple.  Every time someone else does something to earn money, (work, sell, construct), you earn some of the income they generated.  Now before you get upset and say that is somehow immoral or dishonest, let me explain.

Let’s say that you own a hot dog cart and sell hot dogs downtown during lunch hours.  On an average day, (about 4 hours work), you sell 100 hot dogs for a total income of $250.  After you deduct the cost of the dogs, buns, toppings, etc., your net income for the day is $160.  Not a bad income, ($40 an hour). 

(Side note: If you are the business owner and have to be at the business to earn income, then you are just trading time for money, see "Trading Time for Money").

One day you want to take your kids to the zoo, (to see the llamas), but you don’t want to lose out on a whole day’s income.  So you find a person who needs to earn some extra cash and offer to pay her $60 to operate the cart for the day.  I would say that is a pretty fair deal.  She gets a $15 hour job and you get $100 and weren’t even there. 

Congratulations, you have just discovered the power of over-rides, making money when someone else works by using a basic business model: hiring someone to sell your product to the public.  (Now tell me, how was that dishonest?)  The person you hired is making money they need and you are getting a return on your financial investment, (the cart and inventory).  It doesn’t take long to realize that if you had two, three, or more carts, you can make some very good income, all without having to trade your own time for money.

Let go a step further.  You like the person you hired to run your cart and want to give her a chance to run her own business.  Here is your offer.  You will buy another cart and let her run it herself, all she has to do is give you $20 each day and 50 cents of every hot dog she sells.  Our friend now has a chance to earn $160 for herself, (or she can do like you did and hire someone to run the cart for her).  You make about $70 each day without having to worry about managing inventory or running a business.

Find three or four other people that want to run a hot dog cart and now you are making a great income without having to worry or care about employees, inventory, dealing with customers, etc.  This is the basis for what is called “Franchising”. 

The bottom line:  our entire economy is built on this simple financial principal, every time a product is sold or someone is paid a wage, there is someone who gets paid an override.  It can be a person, or an entity, (company, stock holders, etc.), but that is how it works.

What you may not realize is how easy it is to become someone who earns money via over-rides.  The reason most people don’t feel that the average person can build a business for themselves is simply because they don’t know where to look, or what to look for, (more about that later).

Next Post: The third way to earn income

When Does $28,000 equal $148,000?

A Tale of Two Investors

Bob is 21 years old. He starts saving money in what is called a “qualified” retirement investment, (an IRA for example). He puts away $4000 each year, without fail, until he is 28 years old. At that point he stops and never puts another dime in his account. He just lets it sit until he is 65 and plans to retire.

Dave is 21 years old. He is busy with life and things and he doesn’t save any money. Then on his 28th birthday, he realizes that he had better get with it and start saving for retirement. He starts putting $4000 each year into the exact same type of retirement investment that Bob has. He keeps making his deposits every year from age 28 until he retires at age 65.

How will it turn out for these two gentlemen? Bob has put away a total of $28,000. Dave, a total of $148,000. Who will come out on top of the retirement game? Would you be surprised if I told you that Bob would have more money?

Let’s look at what happened.

Just to keep things simple I will use a flat 10% rate of return. Now we all know that life and the world of investing doesn’t work quite like that, but for this exercise it is an easier formula to work with than a more complex algorithm and it will adequately illustrate my point.

That said, we calculate that Bob’s investment of $28,000 could grow to $1,616,310.30 by the time he reaches age 65. Meanwhile Dave’s investment of $148,000 could grow to $1,566,251.85 by the time he retires at age 65. That is a $50,000 difference. That means that in order for Dave to get essentially the same result as Bob, he has to invest $120,000 more than Bob does.

Waiting for 7 years will cost Dave more than $17,000 each of those years.

This simple illustration shows just how powerful an ally time can be when you make it your companion in your personal investment program. It also shows us the high cost of waiting.

Time and Consistency are your friends.

(Disclaimer: This is an illustration for educational purposes only and is not an attempt to project or guarantee any particular investment performance, nor is it intended to advocate any particular type of investment method or product)