Do the work once, get paid over and over again. That is what residual income is all about. It’s the royalties that authors, song writers, and performers get paid. It’s the continuing income stream to which some financial brokers have access, and it’s more.
Derek has written about passive income multiple times – creating income streams outside of your day job that require little if any effort. So how is residual income different than passive income?
Residual income (to me) is money that just keeps on rolling in on a regular basis, that you are not doing a darn thing to earn, because you already did the work to make it happen. It is passive income, but with a narrower definition.
How can you get into this wealth stream – especially if you aren’t a world famous author or the next hot singer?
This post will dig into some of the ways you can position yourself to earn residual income for years to come with effort (or money) you expend now via your career or part time gig. Part Two on this topic will delve into non-career options to obtain residual income.
Achievable careers that enable making residual income.
Your career choice CAN influence how much residual income you are able to earn. Some careers let you build up residual streams, others don’t. Here are a couple that do:
If you sell me an insurance policy and I have to pay ongoing premiums, you get a commission each time I make a premium payment. According to the small business section of the Houston Chronicle commission structures are regulated by state law. Depending on your state, though, you could receive an income stream from your sale to me of one policy, for up to 10 years. Of course, if I cancel my policy, your initial commission has to be paid back to the company and you don’t get any residual income.
It isn’t as easy as it sounds, its a sales job. You need to work hard to get those sales, you need good sales techniques and good product and you need a network of prospects. My next door neighbor used the contacts from her husband (a master plumber with his own business) to leverage into insurance sales and is doing better than her husband’s business after only 3 years! In ADDITION, she will have residual income for several years following each sale.
We all know that brokers work for commissions. Most of you probably know that a broker position (especially at a full service brokerage firm) is a high pressure job. But, did you know that the broker selling you a mutual fund gets an ongoing commission (or at least used to) in the form of 12b1 fees?
The Morningstar forum posted a comment that says:
“A 12B1 fee on mutual funds is paid out forever and broker gets a cut from brokerage house.”
A 12b1 fee was originally intended to compensate the brokerage firm for ongoing customer support on the account. In 2010, the SEC was proposing changes to the 12B1 rule that allowed funds to pay this fee (and ding you the mutual fund customer). The changes would have allowed fewer dings to you and may have changed the name of the fee.
Why I didn’t include multi level network marketing.
Many of you are at least aware of (if not participating in) network marketing product sales. In these multi-level marketing structures, you start out getting commissions on your own sales, but if you are successful in collecting people to sell under you, you get a cut of their commissions on their sales to their customers.
I didn’t include these endeavors as residual income producers because I have watched multiple people struggle very hard to get and stay on top of that marketing pyramid. I don’t think that is passive at all!
Creative careers that provide residual income.
If you write a book – electronic or print – and it is published and sold, then you may receive a royalty from the sale of each book forever. On the other hand, you may just receive a flat fee depending on the situation and not be entitled to any royalties. This is usually the case with magazine articles.
How much do you get in royalties? I don’t personally know, but Write 4 Kids claims that:
“The royalty is specified in your contract and varies by publisher, but a common royalty rate is 10% for hardcover sales and 6%-8% for paperback. Traditionally, publishers paid the royalty on the actual retail price, but more publishers are moving to paying royalties on the net price,”
Since 2010, according to the Huffington Post, Amazon Kindle books can earn the outstanding royalty of 70 percent after delivery costs.
“Those costs generally amount to less than 6 cents per book, meaning authors will be able to earn $6.25 per copy on a book that sells for $8.99”
There are some significant conditions, which you can check out at Amazon.
Music related royalty residual income.
If you are a talented songwriter, singer, or other talent in the music industry, you can also earn residual income. I’m not associated with the musical world, but the royalty structure sounds very complicated, based on this pretty detailed How Stuff Works post which starts out with this warning:
“Making money in the music industry is tricky. Recording contracts are notoriously complicated, and every big recording artist has a small army of legal representatives to translate and negotiate these deals.”
It goes on to explain the many types of royalties, who gets them, how they can be reduced if you perform multiple musical functions as well as organizations that help you get your royalties.
Photography related residual income.
If you own a decent camera and like to take pictures, you can make some small residual income streams by selling your photo’s as stock photos online.
ProByte2u on Hub Pages explains how and shares how much he made at various times.
Would you consider basing your career choice on the existence of the possibility of earning residual income? Why or why not? Also, please share in the comments if you know of other careers that include residual income!
This post has been written by Marie from FamilyMoneyValues.com. Be sure to visit her site if you’ve enjoyed this post.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.