How to earn residual income

How to earn residual income

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Passive income is a cash stream that requires little or no daily effort to maintain, unlike active income, such as cash earned from working at a job or as a contractor.

You can create passive income through investing in certain financial products or by starting businesses that, after an initial investment, start to generate income without regular work. The taxes you’ll pay on passive income may vary depending on the source of the money, so make sure you keep careful records of your earnings.

Here are some of the most common ways that investors can earn passive income.

1. Dividend stocks

One way to build an income stream is to invest in dividend stocks, which distribute part of the company’s earnings to investors on a regular basis, such as quarterly. The best ones increase their payout over time, helping grow future income.

Dividend stocks typically are less volatile than growth stocks and help diversify your portfolio. Investors can also choose to reinvest dividends (learn more about dividends and how they work ).

How to earn residual income

Making money while you sleep.

Has a nice ring to it, doesn’t it?

After reading books like “Rich Dad Poor Dad” and “4 Hour Work Week,” I became interested obsessed with making passive income.

Whenever someone needs additional income, the stereotypical suggestion offered is to “get a part-time job.”

But what if you don’t have the time or energy to put in all those extra hours?

I know I didn’t. Plus that wasn’t as appealing as making money while I was trading time for money.

For that, you may need some passive income ideas — ways to make money with little investment of time and effort on your part.

Here’s a list of quite a few passive income ideas, so it’s likely that you’ll be able to find at least two or three that will work in your situation.

1. Try out index funds.

Index funds provide you with a way to invest in the stock market that is completely passive. For example, if you invest money in an index fund that is based on the S&P 500 Index, you will be invested in the general market, without having to concern yourself with choosing investments, rebalancing your portfolio, or knowing when to sell or buy individual companies. All that will be handled by the fund which will base the fund portfolio on the makeup of the underlying index.

You are also free to choose a fund that is based on any index that you want. For example, there are index funds set up for just about every market sector there is — energy, precious metals, banking, emerging markets — you name it. All you have to do is decide that you want to participate, then contribute money and sit back and relax. Your stock portfolio will then be on automatic pilot.

2. Make YouTube videos.

This is a venture that is growing rapidly. You can create videos in just about any area that you like — music, tutorials, opinions, comedy, movie reviews — anything you want . . . then put them on YouTube. You can then attach Google AdSense to the videos, which will overlay your videos with automatic ads. When viewers click on those ads, you will earn money from AdSense.

The keys will be to create compelling videos, to promote those videos on social media websites, and to create enough of them that your income will be coming from multiple sources. There’s a good bit of work that goes into creating videos, but once a video is done it can become a completely passive cash flow source for a very long time.

Don’t think you can find success with YouTube? You sure can. Emily Eddington used her love for makeup and YouTube to quit her full-time job. She has received over 66 million views on YouTube. This former morning news anchor took her passion — makeup — and turned it into a phenomenal success.

3. Try affiliate marketing and make sales.

This is a passive income technique that is better suited to people who have blogs and active websites. You can sign up to promote certain products or services on your site, for which you will be paid either a flat fee or a percentage of the amount of the sale completed.

This isn’t as hard to do as you might think, since there are thousands of companies in the world who want to sell their products in as many places as they can.

You can find affiliate offers either by contacting vendors directly, or on dedicated websites, such as ClickBank. It’s always best if the product or service is one that you are either very interested in or is highly relevant to your website.

How to earn residual income

How to earn residual income

How to earn residual income

What Is Residual Income?

Residual income is income that one continues to receive after the completion of the income-producing work. Examples of residual income include royalties, rental/real estate income, interest and dividend income, and income from the ongoing sale of consumer goods (such as music, digital art, or books), among others. In corporate finance, residual income can be used as a measure of corporate performance, whereby a company’s management team evaluates the income generated after paying all relevant costs of capital. Alternatively, in personal finance, residual income can be defined as either the income received after substantially all of the work has been completed, or as the income left over after paying all personal debts and obligations.

Residual Income

Key Takeaways

  • Personal residual income is not the result of a job or hourly wages—it requires an initial investment either of money or time with the primary objective of earning on-going revenue.
  • Residual income is regularly referred to as “passive income” for individuals or businesses.
  • Examples of residual income include real estate investing, stocks, bonds, investment accounts, and royalties.
  • For equity valuations, equity charge is calculated as the equity capital multiplied by the cost of equity.
  • Corporate residual income is leftover profit after paying all costs of capital.

How Residual Income Works

Residual income measures net income after taking into account all required costs of capital related to generating that income. Other terms for residual income include economic value-added, economic profit, and abnormal earnings.

Although residual income is sometimes known as passive income, side hustles can be used to boost personal residual income.

Types of Residual Income

Equity Valuation

In equity valuation, residual income represents an economic earnings stream and valuation method for estimating the intrinsic value of a company’s common stock. The residual income valuation model values a company as the sum of book value and the present value of expected future residual income. Residual income attempts to measure economic profit, which is the profit remaining after the deduction of opportunity costs for all sources of capital.

Residual income is calculated as net income less a charge for the cost of capital. The charge is known as the equity charge and is calculated as the value of equity capital multiplied by the cost of equity or the required rate of return on equity. Given the opportunity cost of equity, a company can have positive net income but negative residual income.

Corporate Finance

Managerial accounting defines residual income in a corporate setting as the amount of leftover operating profit after paying all costs of capital used to generate the revenues. It is also considered the company’s net operating income or the amount of profit that exceeds its required rate of return. Residual income is typically used to assess the performance of a capital investment, team, department, or business unit.

The calculation of residual income is as follows: Residual income = operating income – (minimum required return x operating assets).

Personal Finance

In personal finance, residual income is known as disposable income. The residual income calculation occurs monthly after paying all monthly debts. As a result, residual income often becomes an essential component of securing a loan.

A lending institution assesses the amount of residual income remaining after paying other debts each month. The greater the amount of residual income, the more likely the lender is to approve the loan. Adequate levels of residual income establish that the borrower can sufficiently cover the monthly loan payment.

Choosing investments that fit your portfolio is critical

How to earn residual income

How to earn residual income

How to earn residual income

In finance, passive income describes money from a one-time investment that continually generates income flows, without requiring the investor to monitor or actively adjust their holdings. Passive income, like active income from working, is taxable, but often is given different treatment by the IRS. For instance, passive losses can be used to offset passive gains.

Aside from the difference in tax classification, many individuals seek passive income to bolster cash flows, and the term has grown in common parlance to include activities like working from home or side-gigs that require little effort (even though they may be taxed as active income).

Some ways to generate passive income involve becoming a limited partner in a partnership. However, ordinary individuals can look to other ways to put their money to work for them. The passive investing strategies below warrant a closer look.

Key Takeaways

  • Passive income describes money earned from doing very little active work or labor.
  • Some investments that generate passive income include rental real estate, dividend stocks or funds, and limited partnerships.
  • Passive investing in stocks involves replicating a broad market index, and is sometimes called indexing.
  • Some people may also consider side-gigs or work-at-home jobs as a form of passive income.
  • The IRS distinguishes between passive and labor income, and treats them slightly differently. Passive losses can be used to offset passive gains for tax purposes.

1. Real Estate

Despite fluctuations over the recent years, real estate persists as a preferred choice for investors looking to generate long-term returns. Specifically, rental properties can furnish apartment owners with a regular income source. The investor can easily acquire a property for a 20% down payment, then install reliable tenants who keep the money flowing.

Those who don’t want to manage rental properties can look to real estate investment trusts (REITs) instead. REITs pay out 90% of their taxable income as dividends to investors. On the downside, dividends are taxed as ordinary income, which may be problematic for investors in higher tax brackets.

Real estate crowdfunding presents a middle-ground solution. Investors have their choice of equity or debt investments in both commercial and residential properties. Unlike REITs, crowdfunding lets investors enjoy the tax advantages of direct ownership—including the depreciation deduction, without the added responsibilities of property ownership.

2. Peer-to-Peer Lending

Although the peer-to-peer lending (P2P) industry (aka crowdfunding) is just over a decade old, it has grown by leaps and bounds. It is defined as the act of directly lending money to a person or a business entity, where lenders and the borrowers are connected via online platforms such as Prosper and LendingClub. Returns typically range from 7% to 12%, and there’s very little the investor must do after initially funding the loan.

P2P programs generally have fewer barriers to entry than other types of investments. For example, investors can fund loans with investments as small as $25. While Title III of the Jumpstart Our Business Startups (JOBS) Act allows both accredited and nonaccredited investors to invest through crowdfunding, each P2P platform has its own set of participation requirements.

3. Dividend Stocks

Dividend stocks are one of the simplest ways for investors to create passive income. As public companies generate profits, a portion of those earnings are siphoned off and funneled back to investors in the form of dividends. Investors can decide to pocket the cash or reinvest the money in additional shares.

Dividend yields can vary significantly from one company to the next, and they can also fluctuate from year to year. Investors unsure about which dividend-paying stocks to choose should stick to the ones that fit the dividend aristocrat label, which means the company has at least a 25-year track record of paying out substantial dividends.

4. Index Funds

Index funds are mutual funds or exchange traded funds linked to a particular market index. These funds aim to mirror the performance of the underlying index they track and are passively managed. Therefore, their underlying securities don’t change unless the composition of the index shifts. For investors, this translates to lower management costs and lower turnover rates, which makes them more tax-efficient vehicles than many other investments.

Things to Consider When Choosing a Passive Income Investment

Passive income is earnings from a rental property, limited partnership, or other business in which a person is not actively involved. This implies a sort of set-it-and-forget-it mentality that can take place among these investments. However, many passive investments still require some degree of active management or attention. Take real estate, for example. An investment property must be maintained and issues with tenants must be addressed and rectified. Landlords must also often maintain insurance coverage and meet safety and other standards.

Passive index investing, too, requires some attention because as different stocks rise and fall within an index, the relative portfolio weights will need to be adjusted and rebalanced over time. How frequent or at what point to rebalance must be determined by the investor.

What Is the Highest Paying Passive Income Investment?

The best passive investment will vary over time and from year to year depending on various circumstances. Historically, real estate (either directly held, or indirectly in the form of real estate investment trusts (REITs)) and dividend-paying stocks have tended to outperform other asset classes.

Are Passive Income Investments a Good Idea?

In general, passive income investments allow you to use money to make money — putting your money to work instead of yourself. In that sense, they are often a good idea. However, beware of pitches that sound too good to be true or “get rich quick” ads that promise easy money with no effort, such as multi-level-marketing (MLM) and other work-from-home schemes. Some of these will end up costing you money.

How Do You Get Started with a Passive Income Investment?

If you have money to invest, purchasing the appropriate passive asset, whether it be a REIT or an index ETF, will allow it to start working for you. You may need to open a brokerage account in such a case in order to transact and hold your investments.

The Bottom Line

Passive income investments can greatly simplify an investor’s life. The four options above represent differing levels of diversification and risk. As with any investment, it’s important to weigh the anticipated returns associated with passive income opportunities against potential losses.

How does one make a passive income in the next iteration of the internet, the Metaverse?

How to earn residual income

The Metaverse is not a new idea but it has only recently been a hot topic of conversation and boomed in interest. In fact, chances are you’ve seen Metaverse memes circulating social media (e.g. the meme below).

So what’s changed? Why are people only now interested in this concept? What’s in it for the individuals and companies that do embrace the Metaverse?

How to earn residual income

In simple terms, the Metaverse is a virtual world that parallels our real lives. It is an evolution of the Internet and a virtual space where people can interact with digital objects and one another as avatars. Those spaces are constantly running; they do not shut down when you stop using them.

Many people say that the Metaverse already exists in the digital worlds of Roblox, Minecraft and Fortnite, which enable gamers to get together in 2D environments.

Mark Zuckerberg introduced the rebranding of Facebook as Meta and its newfound focus on building the “Metaverse” in an hour-long presentation at Connect 2021.

But where did it all come from? The credit of coining the term Metaverse goes to the author Neal Stephenson. He used the term in his 1992 sci-fi novel “Snow Crash,” in which he envisioned lifelike avatars who met in realistic 3D buildings and other virtual reality environments.

Since then, various developments have been made towards a real Metaverse, an online virtual world that will incorporate VR headsets, mobile devices, personal computers, cloud-connected servers, 3D holographic avatars and other means of communication. As the Metaverse expands, it is expected to offer a hyper-real alternative world for individuals to coexist in.

“ The Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments,” defines venture capitalist Matthew Ball in the foreword of his outstanding nine-part essay on Metaverse — The Metaverse Primer.

Calling the Metaverse a “ quasi-successor state to the mobile internet”, he writes, “ the Metaverse will not fundamentally replace the internet, but instead build upon and iteratively transform it.”

Due to the fact that the concept of the Metaverse is still a developing one, there is a possibility that it would be much greater and complex than it is being imagined and discussed today.

Now, let’s get into the reason why we’re here — to understand how we can earn a passive income in the Metaverse. Ultimately, we do not want to just adapt to the changes brought about by the Metaverse; we want to thrive in it.

1. Be a part of a virtual real estate trust

In Dec 2021, MetaSpace Real Estate Investment Trust (MREIT) went live on the crypto trading platform PancakeSwap.

Its objective is a simple one: get premium Metaverse real estate, build high-value virtual structures, and rent them out for profit.

Similar to a traditional real estate trust. MetaSpace creates a way for people to hold shares in profitable real estate projects in the Metaverse.

2. Buy your own property

You do not need to be a part of a virtual real estate trust in order to become a landlord in the Metaverse.

In fact, you could buy your own property and later rent it out to users or organizations.

This is what users on gaming platforms like Second Life have successfully done for years.

3. Get a commercial venture

Instead of renting out properties, consider building virtual malls, hotels and casinos before charging people. It is up to you to decide what you want to construct and how you want to profit from it.

With more brands getting involved in the Metaverse, becoming a commercial landlord can pose a massive benefit to you. Rent out a building, charge admission fees or sell advertising space.

Additionally, owning the virtual property itself can be a long-term investment with a rising value.

4. Take advantage of advertising

By owning land in the Metaverse, marketers could flock to you for advertising.

Why would they do that? First and foremost, if millennials and Gen-Zers live in the Metaverse, that’s where companies would have to come to reach out to them.

See it as a new social media platform. If tomorrow a new social app becomes a sensation, companies will soon follow and capitalize on the opportunity to stay in touch with the audience and build brand awareness.

The same is happening with the Metaverse. This would be a new opportunity for brands to reach the target market and interact with them through augmented reality ads.

5. Throw a virtual party and concerts

On the Ethereum blockchain, projects like The Sandbox allow users to buy land, build properties and host the activities they want. Even Snoop Dogg has a virtual world called Snoopverse built on the Sandbox platform.

“ I’m always on the lookout for new ways of connecting with fans and what we’ve created in The Sandbox is the future of virtual hangouts, NFT drops, and exclusive concerts,” Snoop Dogg said in a press release, according to Decrypt.

In his mansion in this Sandbox Metaverse, he is offering VIP tickets to his live show. If you manage to mimic this strategy with a virtual party or concert of your own, get ready to make money.

6. Create a business

Much like we do in real life, the Metaverse provides an opportunity for users to create their own business in the virtual world and start selling things digitally.

Perhaps you already have a small business IRL and want to bring it to the virtual world.

Afterwards, also consider advertising your business in the Metaverse to give your customers a sense of what your business is about and what you are offering.

The opportunities to make money and earn a passive income in the Metaverse are limitless. The pandemic has allowed us to unleash our creativity and find ways to experience the world through a new lens (literally!) and thrive in this digital era. There is so much more to discover in the coming months and years. The virtual world as we know it is evolving at a rapid pace.