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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 actions. 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 which we think will be the most difficult to make to the ones that are the easiest to produce. Here we go.
7. Royalties: the creation of music, books, inventions, machinesand patents. A royalty is something you've sold or created and put it on a stage that you do not run and then get compensation based on when the merchandise 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 most straightforward type of passive residual income, if you can achieve 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 most and demands a tremendous amount of mental and emotional fortitude to produce 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 These are businesses like Netflix, Costco, Sams Club. The subscription model has become almost its own category. However, it's considerable cost and you must continuously make and cultivate content and value. The income is remaining and combines devotion and education with community.
A fantastic book that explains this model of residual income is Your Automatic Client by John Warrillow. He walks you through, in plain English, the numerous styles of subscription versions and how to potentially apply them to 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 high chairs prior to finding the Bumbo. Now when I blog about the Bumbo and link to it to my Amazon account, and someone buys it, then I can earn a commission.
A great example of this will be Pat Flynn in PassiveIncome.com as he walks through how to set up 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 take a peek at a local taco stand. Sure, that taco stand may have loyal patrons and make the best damn beef taco youve ever had, but they also need to wake up every day and turn the lights on and fire up the grill to get compensated for their special tacos.
So, literally tomorrow I am going to earn a fee if I go in or not. Sure, I have to 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 .
Why do we call them the Power 2 Because these require less specialization and experience, and with the leveraged use of debt that is smart, can operate together.
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2. Real Estate: Real estate is 2 for one simple reason, leverage using smart 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. To begin with, a house or rental house can enjoy, so capital appreciation is the first long-term benefit of owning a home.
Other people are paying why not check here the mortgage, insurance, property taxes and maintenance while you own that piece of real estate. Third, tax protection. Rental income is taxed at a lower rate than ordinary income and you can depreciate real estate by taking a paper deduction on your annual tax return not to mention expensing the price of mileage, mortgage interest, and upgrades to the home.
The fourth and possibly most hidden, however important benefit is that over time rents grow, protecting your money against inflation, while your mortgage interest can be at a fixed rate potentially. .
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1. The final and most effective type of residual income, in my opinion, is investing and insurance. Most people have 401Ks and IRAs, so that I am going to leave that for your investment side. Within this, I think our Foundation Freedom Phases is by far the simplest, safest and most powerful tool for many reasons: a.