There are so many different ways to invest. When we talk about investments, it’s not just stocks, bonds, and mutual funds, although those can be a part of the picture, but not the whole picture if you want to invest the uncommon way.
Investing the uncommon way brings the 7 Sources of Residual Income into play. Once you’ve developed a budget and a savings plan, we want you to use as many of these sources as makes sense to help you go from zero to sixty when it comes to building wealth.
When clients work with us personally, we help them understand these potential sources of income and develop plans based on their experience, capital, and passion.
The common way of investment means putting your money in the stock market. The uncommon path, and what we are inviting people to do, is to invest in yourself – your passions and your expertise.
Here is a brief rundown of the 7 Sources of Residual Income. For a more detailed description, click here.
1. Banking – Interest on Savings
This is what we call Uncommon Banking, and it centers on leveraging cash-value life insurance. The way we look at these policies and the power you have to leverage them runs counter to almost everything you and I were taught about money and certainly about life insurance.
How does it work? In short, somebody is using the money you pay towards your life insurance policy and it might as well be you. As you pay the premiums on this policy, it might as well be you leveraging the cash value to invest in yourself now, rather than waiting until you are 60 or older.
2. Real Estate
Real estate leverages the power of other people’s money. Real estate provides the trifecta of residual income. First, a home or rental property can appreciate in value, so capital appreciation is the first long-term benefit. Second, through rent, other people are paying the mortgage, insurance, property taxes and maintenance expenses that you incur as the owner. Third, rental income is taxed at a lower rate than ordinary income. You can depreciate real estate by taking a paper deduction on your annual tax return.
When you do rentals correctly, they can generate almost double what the stock market can in dividends and interest. There are so many rental niches, like student housing and short-term rental (Airbnb), making real estate a source of income with tremendous upside potential.
3. Investments – Stocks, Bonds, ETF’s and Mutual Funds
There is certainly nothing wrong with the prudent traditional investment. The stock market and bond market are great for passive income and long-term inflation-adjusted income. At its core, the stock market is a reflection over the long-term of a company’s profitability and cash flow. As companies earn more money over time many remit some of those earnings and cash flow as dividends, preferred dividends, and/or bond interest and principal payments.
As stockholders, we make money when the company makes money.
You can purchase stocks and bonds from nearly anywhere in the world. You can also hire someone to manage your investment portfolio. Money in stocks and bonds is very liquid and transferrable.
Owning a business can be a great source of residual income. A business is unique because it allows you to not only leverage debt to grow your business, but also leverage other people’s time and efforts. These two factors, in harmony, can generate profits above and beyond the cost of running the organization.
This is not about creating an anchor around your neck. As Robert Kiyosaki talks about in Rich Dad, Poor Dad and in The Cash-Flow Quadrant (two books definitely worth reading) the goal is to have a business that can run without you there day-to-day. Being self-employed (think taco stand) and owning a business (think taco stand franchise) are two different things.
5. Digital Assets – Subscription Models and Affiliates
You are probably familiar with subscription models through big players like Netflix, Costco, and Sam’s Club. But there are thousands of micro-subscription businesses that bring in six or seven-figure annual incomes. Many of them have no brick or mortar location, existing entirely online.
With this model, you need to continuously create added value and cultivate relationships with members. The income is residual and combines loyalty and education with community-building.
A royalty is an income earned from creative content like music and books, or through inventions, machines, or patents.
Royalties are an income stream that requires more of a long view. You need to hone your creative craft AND demonstrate the value to others in offering that creativity or inventiveness for sale in exchange for a royalty percentage. Since you are creating something and then continue to receive revenue from it, this is the purest form of passive residual income.
7. Network Marketing
Network marketing is a way for a company to sell directly to consumers, with a compensation structure based on selling the product as well as recruiting new distributors to sell under you.
You join a distributorship, sell the product, and recruit new distributors who become your “downline.”
The power of network marketing comes from your own personal network. In talking with friends and family, in your social media presence, the products you are selling – whether they are science-based toys for toddlers or vitamin supplements for older adults – might strike a chord with people in your networks. The freedom of creating your own schedule around another job or just your day-to-day life is also an upside to network marketing.
What are your interests and passions? What are you good at? These can be the starting point for building a strong investment portfolio through one or more residual income streams.
Want to explore ideas further? We’d love to talk. Contact us to set up a conversation.