Being able to do the work once and create perpetual residual income is truly the brass ring of wealth building. If an individual can do this they can free themselves of their time being linked to the generation of income.
In the last couple of posts, I’ve been comparing and contrasting the different forms of employment. One of the most important aspects from a wealth building perspective is that how you generate income should leverage your resources in as many ways as possible and ideally should ‘outlive’ just the one occasion when your time was originally expended; using other people’s time (OPT), other people’s money (OPM) and digital platforms is a way to do this.
The truth on Passive Income
In the wealth building space it’s now become the default conversation to talk about ‘passive income’ (which I believe is a misnomer in most situations outside of owning paper assets like index funds, stocks and bonds) as the only type of income and as if it’s as easy to develop as it is to spout off about it.
However, the truth of the matter is that ‘true’ passive income outside of paper assets is nearly impossible to generate. The reason for this is that at least at some point ‘something’ had to be done to create an asset that is able to generate income.
Take for instance the creation of a digital online course. Many of the wealth building gurus expound about online digital courses as being ‘passive income’ but the truth of the matter is that in order to create these courses the creator had to spend dozens and perhaps hundreds of hours ‘upfront’ in order for there to have been an asset to begin with.
It took time to create most Passive Income opportunities
Now in fairness, there might not be many hours if any at all to maintain this asset once it is up and running on a digital platform but it did take time to create it in the first place.
Therefore, I call all pursuits other than buying and owning paper assets (which I call true ‘passive income’) ‘low maintenance income’ assets.
The reason that I call them this is that I acknowledge that it may take months to create them on the front end but once they’ve been created there might be very little to do to keep them generating income. Examples of these types of assets might be an online course, a book or e-book and an e-commerce business.
Notice that these examples…an online course, a book or e-book and an e-commerce business are a far cry from working for someone else and trading your hours for dollars and having none of your effort ‘outlive’ when it was expended.
The reason for this is that the one type of employment or better stated, form of generating income, that is the ultimate form in wealth building is Residual Income.
Residual Income defined
Now what is Residual Income? I like to think of Residual Income as those activities where I expended time on them once but they continue to generate income for me even when I’m not spending any time on them now. Great examples are online digital courses and books. No one can argue that an author may have spent 6-months to a year, or more, of their time creating a novel.
However, by the same token that author now gets to sell that original ‘time’ over and over again for as long as that asset is available to be sold. Is it hard to believe why the author Stephen King continues to be amongst the top wealthiest individuals in the world decades after many of his books were first written? THAT’s the most powerful illustration of residual income in action!
Ideally, we as wealth builders want to build a life whereby we strive to pursue residual income opportunities as a default state versus the conventional life plan of pursuing a job working for someone else trading expended time on a one for one basis for dollars. If there was any higher goal from a perspective of pure income generation and wealth building, I’m not aware of it!
Whoa! I can hear the haters now! “Not everyone can simply get up and quit their job to proclaim themselves as a residual income generator!”. Yup.
They’re right! They can’t. However, what I am saying is that the ultimate GOAL in wealth building would be to work towards that moment in time where we would only be involved in residual income and passive income pursuits. THAT is the brass ring!
In order to be able to do that over time we may need to take a job trading hours for dollars, just like I have, to begin with in order to be able to bridge that income generating gap until we are at that place where we have a full residual income generating life created.
What might that look like? I’m not suggesting that this is something that happens overnight, in a year or so or even in a decade. However, what I am saying is that it is entirely possible given the right skills, talent, timing….and YES…luck!.
Take for example an individual who creates an online physical products brand selling bass fishing gear. Over time that same individual gets involved in interviewing bass fishing experts, product manufacturers and even bass fishing professionals on a YouTube channel.
That individual then creates a series of incredible online digital courses on several specific bass fishing tactics and gear outfitting packages. S/he then creates a monthly subscription service that entitles members to premium content and a special lure/technique of the month. In addition, that individual starts to brand and sell a guided fishing service with employees s/he hires for one-on-one and group bass fishing expeditions.
Conclusion
See where this can go? This by all practical purposes started out as a passion project at nights and on the weekend and then turned into a full-blown incorporated business generating some serious income utilizing a fair amount of ‘low maintenance income’ assets.
Now, take these profits realized from this business and purchase paper assets such as stocks, bonds and index funds and you have a life literally built upon the concept of residual income and passive income! Guaranteed? Of course not! Possible? Absolutely!
So where does Residual Income stand in a wealth builder’s strategy? I would humbly argue that I think it has to be at the very core of your wealth building strategy.
In fact, IT should be what we all strive for so as to not be in a situation where we expend our time on a one for one basis. We ultimately need Residual Income to create wealth and in order to get there we need to break the default mode set for us of working for someone else!
