Understanding residual income

Residual income, also known as passive income, refers to earnings that continue to be generated after the initial effort has been expended. Unlike linear income, which is tied to the number of hours worked (like a 9-5 job), residual income streams continue making money with little to no ongoing work.

Building residual income allows you to generate passive earnings and achieve financial freedom. Here’s a guide on understanding residual income and how to build multiple streams of it:

Understanding residual income
 

Residual income is income received on an ongoing basis for work done or investment made once. Some key features of residual income include:

• It consistently helps you earn money after the initial effort is made. The income stream continues flowing in with little to no additional work.

• It allows you to leverage your time. Once set up, residual income allows you to make money from the same effort multiple times.

• It provides financial security. Residual earnings provide cash flow regardless of your active work status, providing a safety net.

• It enables wealth creation. When reinvested, residual income can enable exponential growth of wealth over time.

• Examples of residual income include royalties earned from a book or video/film, rental income, dividends on existing investments, interest income on a fixed deposit, affiliate marketing earnings, among other side hustles. The key is the income continues with minimal ongoing effort.

How to build residual income streams
 

Here are some of the most accessible and effective residual income methods you can adopt:

Invest in real estate
 

One of the most popular residual income ideas is investing in real estate and earning rental income. You can buy a property and rent it out to generate monthly passive earnings. The key is buying in a location with good rental demand. You can also partner with friends or business associates to jointly purchase bigger properties. Higher the risk, higher reward!

Reinvesting rental income to buy more properties enables compounding gains over time.

Fixed deposits and bonds
 

Fixed deposits with banks and bonds offer guaranteed returns over the tenure and hence make for steady residual income. The interest earnings continue to be credited periodically with no effort.

IDFC FIRST Bank provides flexible fixed deposit and recurring deposit options that offer higher interest rates. You can pick according to your tenure preferences.

Dividend income

You can build a diversified portfolio containing investments across asset classes that can offer regular residual earnings. For instance, stocks of dividend-paying companies and dividend plans of mutual funds.

Affiliate marketing programs
 

Signing up for affiliate programs of major e-commerce companies like Amazon, Flipkart or Myntra can help you earn commissions by promoting products. Any sales made through your affiliate links give you a percentage as commission.

You can earn every time a customer purchases through your shared links. Build an audience and promote affiliate links to monetise your influence. The commissions keep flowing month after month with minimal effort.

Sell digital e-learning products or content
 

Creating online courses, e-books, templates, illustrations, videos, etc., and selling them can offer residual income. Once created, digital products can be resold again and again with an effective subscription model.

Identify high-demand niche skills around which you can create courses – your expertise or awareness on the same is also important so continue to upskill yourself with similar courses and build a strong profile. Upload such courses on online learning platforms or self-host and sell online.  Based on the uptake of the program, you can either licence it to platforms who aggregate such content, or even set up a paid channel for people to view/download the content after paying a one time or subscription fee.

Work smart, not hard with residual income
 

In the beginning, it may take time and effort to set up diversified residual income sources. However, once that initial bit is done, residual income enables financial freedom and security in the long run. By being strategic and patient, you can set up consistent passive revenue streams that last and allow you to work smart, not hard to meet various financial goals.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.