About Passive Residual Income

July 22nd, 2007 | stacey | Passive Income, Residual Income

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According to Robert Kiyosaki, author of Rich Dad Poor Dad, passive income basically flows into your bank without working for it. Another excellent book outlining passive income concepts is The Richest Man in Babylon.

There are two types of passive income, residual income and leveraged income. Residual passive income continues to yield income after the initial effort is made. Examples are insurance agents who earn annual renewal commissions on policies or an author who receives ongoing royalties. Although the agent has to sell the original policy and the author has to write the original work, if their work is successful income will continue to flow in.

The other form of passive income, leveraged income, uses the work of others to earn income. Examples include companies who use salespeople to market their products, contractors who give work to subcontractors and franchisors who get a cut of sales from franchisees.

You may also be actively involved in earning passive income, such as running a training session where the more people attend, the more profit you make.

A basic rule of thumb to yield passive income from investments and to determine the capital you need is to take the annual passive income you want and multiply it by 20.

Passive income seems easy to earn, but there is a great deal of effort and planning that goes into building a passive residual income situation that is profitable on an ongoing basis.