What is Residual Income? 10 Easy Ways to Start Building it
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Creating several streams of income can help you weather a financial storm. What if your day job wasn’t your chief source of income?
If you could generate income while you sleep or when you’re on a beach sipping a margarita?
While many rely on their day job for most income, there are other passive income options to make money. Almost anyone can generate residual income if they know where to look and how to set up their income streams.
Here’s what you need to know about residual income and how you can set up your own residual income stream(s).
What is Residual Income?
Residual income is passive income that continues to make money for you after you’ve done the work. Unlike passive income, it should require minimum input to keep it going and generate cash while you go about your life.
Active income is income you make by being paid for providing a service.
This can include your salary from a day job, tips, bonuses, commissions, or any active business income. If you’re a freelancer, you get money by serving your clients.
When you make residual income, you don’t have to be present to get paid.
You don’t get compensated for the services you provide but earn money based on work you have done in the past. It should require little to no active involvement on your part.
Generating residual and active income can help you supercharge your savings and speed up your pace toward building wealth and becoming financially independent.
How Do You Build Residual Income?
How you build residual income depends on your skills, knowledge, and resources. You can start slowly and build more residual income as you learn more and have more money to invest.
Some ideas require little to no work, while others will be more involved. After the initial setup phase, you should be able to generate residual income with little input.
Top Residual Income Ideas
If you’re looking for the best way to make residual income, below is a list of ideas to consider. You can start with one residual income idea to keep things simple so you can learn how the process works.
Keep adding residual income streams as your knowledge and resources allow. You may even be able to replace your active income with residual income.
1. Open a High-Yield Savings Account
If you have money in your regular bank account, consider moving it to a high-yield savings account. While this is not a glamorous investment, it’s a safe and easy way to generate residual income with a little work.
One advantage of a high-yield savings account over a CD is that you get competitive interest rates without locking in your capital. However, rates can fluctuate, so always do your research to find the best rates available at the moment.
Make sure you look for high-yield savings accounts that offer the FDIC insurance protection of $250,000 so that your money is safe in case something happens.
2. Create a CD Ladder
CDs (Certificates of Deposit) offer another safe way to earn residual income on money sitting around in your savings account or under your mattress. Nothing is as low risk and passive as using a CD to stash your cash.
A CD works similarly to a high-yield savings account but with a catch – you can’t touch the money until the time frame on the account expires. If you try to access them earlier, you will pay a penalty.
CDs can have a varying length of maturity from a few months to a few years. If you want a steady stream of residual income, you can build a ladder with CDs that mature every few months (or even every month).
Once the CD term expires, you can collect the interest and reinvest the money into another CD to continue your CD ladder. How much you make depends on the current interest rates for CDs and how much money you have to invest in this income stream.
3. Invest in Real Estate Investment Trusts
Real Estate Investment Trusts (REIT) pool money from many investors to own and manage income-producing properties. As the company makes money from its properties, it distributes profits to investors. This is a very common way to make passive income.
Some REITs require you to be an accredited investor to get started and come with high investment minimums, so you need to do your research. The U.S. Securities and Exchange Commission (SEC) defines an accredited investor as someone with an earned income of more than $200,000 or a net worth of more than $1 million, excluding the value of a primary residence.
REITs are exempt from paying corporate tax. You don’t have to have a corporate finance degree to figure out how REITs work.
In recent years, more companies have offered simple REIT investment options for non-accredited investors. Two good options include Fundrise and RealtyMogul.
Fundrise can help you build a portfolio based on your financial goals, such as residual income. The minimum to get started is $10, which makes this an affordable option.
RealtyMogul offers non-accredited investors the option to invest in multi-family properties, debt, and debt-like securities. You can start with as little as $1,000 to build your residual income stream.
4. Invest in Dividend Stocks
Dividend stocks are paid out by publicly traded companies that share part of their earnings with investors.
Companies pay out dividends when they report their earnings, usually quarterly, although sometimes it can be bi-annually or annually.
Unlike stock appreciation, you need not sell your shares to receive dividends. This is one reason investors like this form of residual income.
Companies that pay out dividends are established and choose to share part of their profits with investors rather than reinvest them for growth.
Dividends can be a great source of residual income but keep in mind they are not guaranteed. Companies have been known to cut back on dividend payouts or eliminate them.
5. Buy a Rental Property
Buying a rental property is not the right fit for everyone, but it can be an excellent source of residual income.
You will have to put in upfront work in researching, evaluating different options and finding the right cash flowing property.
Once you buy the rental, you can hand over finding renters and managing the property to a company for a fee. This will allow you to earn residual income while going on with your life.
Keep in mind you will give up part of your profits to the property management company, which will reduce your earnings.
In addition, you may have to spend some time working with the company if there are large expenses or tenant turnover, so be sure to manage your net income.
6. Try Peer-to-Peer Lending
If you want to make residual income by helping individuals or businesses, consider investing your cash via peer-to-peer lending.
You can select the person or business you want to lend to based on the amount of risk you’re willing to take. When the borrower makes payments, you receive the principal plus interest.
One popular option is Prosper. Potential borrowers create a profile and fill out the necessary information, such as credit history and income.
Prosper assesses their risk profile and gives an interest rate that matches.
On the other end, lenders can create an account and buy the debt. As a lender, you will get paid monthly when the borrower makes payments.
7. Sell your Photos Online
If you have an eye for photography, this could be a lucrative way to make residual income. Websites like iStockPhoto and Shutterstock allow you to upload and sell your photos to individuals or businesses looking for stock images.
Once you take the photo, you can continue to earn royalties as a passive income stream month after month as long as it’s popular. To optimize your earnings, upload images regularly and grow your online portfolio.
8. Write an eBook
If you have an idea for a book, why not to self-publish? Platforms such as Kindle Market are a great place for many self-published authors to get started and grow their following, which can lead to deals with publishing houses.
You will have to put in the work up front from writing the book to getting it edited, formatted and uploaded to the platform.
In addition, you will have to market it and get it in front of readers who are interested in what you say.
The great thing about eBooks is that you will continue to receive residual income every time a book sells. If you’re looking for a tried-and-true guide on self-publishing an eBook, check out Kindlepreneur.com.
9. Start a Blog
While blogging can be a great way to make money, it’s not easy to build a lucrative blog. It’s very cheap to get started but requires learning the ins and outs of making money online, which takes more than great content.
Making money with a blog takes time, so the sooner you start, the faster you can get it going. If you put in the time and effort, you can grow a blog into a lucrative residual income stream.
Start by coming up with a subject for your blog, registering a domain name, and selecting a hosting plan. Bluehost is a suitable option for beginning bloggers since you can get started for as little as $2.95/month.
10. Build Affiliate Income
Affiliate income is the money you earn for promoting a company. When a reader or a follower clicks on a link you provide and purchases a product or service, you will earn a percentage of the revenue.
You need not have a blog to earn affiliate income, although it can make it easier. Many social media influencers also make their money via affiliate marketing and receive kickbacks from sharing products or companies with their audience.
The larger your following, the more opportunity you will have to earn an affiliate commission. It’s a great way to make residual income since you can post the content once and continue getting paid every time someone buys using your referral link.
Summary
Building residual income streams is a great way to diversify your earnings and build net income. While some ideas can take some time and upfront work to set up, once they are in place, you can continue making money with little to no effort.
Find one or two options that work best for you and get started. Eventually, you will calculate residual income and see that you are well on your way to making money outside of your day job and diversifying your income streams.