Why you must understand residual income before you can gain wealth.

Residual income lifestyle 23 Nov

Why you must understand residual income before you can gain wealth.

Most wealthy people have a residual income. They understand what it means.

What Is Residual Income?

 ‘Money that comes to you regularly whether you work or not’

Or as Investopedia says in a very long drawn out explanation:

“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 the work has been completed, or as the income left over after paying all personal debts and obligations.”

To start receiving residual income one must Invest in thyself!

To become wealthy from nothing is not so much about luck but about knowledge, knowledge costs time and effort, and getting out of your comfort zone to make some positive changes to your life. So how can you go from zero to hero in the financial world.?

 First you must use some effort to start reading and read more to educate yourself, almost everyone on Earth has access to some books or an internet café somewhere, so that is no excuse, also don’t be shy, find wealthy people to ask for advice, believe it or not wealthy people actually love being asked for advice and will give it freely over the price of a coffee!

Wealth starts when you invest in your knowledge

Some guys have all the Luck (Labouring Under Correct Knowledge)

Wealthy people are not in the main lucky, they were just taught by wealthy people and or learned everything the hard way by making what they thought were original mistakes or as we entrepreneurs call it ‘life learning’ to get the experience that is needed to become financially sound.

Before you become wealthy, you really must define what is wealth and what it means to you. I have met some people working in bakeries and pubs serving customers all day who are wealthy, because they have found what made them happy, it is never for us to judge what makes our fellow beings happy!

 So, ask yourself what makes you happy, and what do you have to do to find that bliss, life is short start today!

Time and money.

There seems to be two kinds of people I have met:

One is the corporate slave, he has what most would deem ‘the lifestyle.’ The house the car, the holidays, kids at good schools with a bright future, robust medical, all the things that society has taught you will make you happy!

But underneath all this Corporate slave is miserable, he knows that one wrong word to the boss can take all this away and leave him with very little and at his age he would struggle to get anywhere near what he has now, the bank would be completely callous if his monthly payment stopped and the bills piled up.

Corporate slave is cash rich and time poor!

The second stereotype I have met is:

The hapless dreamer or the ‘Beach Bum’, who wakes up each day with the beach lapping at his door and the sweet song of the birds, no boss to answer to and tells himself the freedom is worth it. However, he lives in a dilapidated old camper Van, and wonders where the next meal is coming from, and dreams about winning the lotto or how his latest online scheme will make him rich overnight and get his wife back and the kids will adore him again. He is always waiting for the perfect wave.

Beach Bum is time rich and cash poor!

What is real wealth? To me is to have enough money and the time to spend it.

One way the rich find their wealth is understanding what residual earnings or recurring payments is. 2 basic ways to gain residual income are:

Becoming a Zombie property Investor.

The most popular and easily understood is rental income. People invest in property, invest in the repairs and make it habitable again, and then rent it out and receive lease payments each month. Or sell for a tidy profit.

It all looks so easy on the television as so many television shows are dedicated to following people at auctions who buy up derelicts and fix them up and then get a tenant in.

Apocalypse Villa

To me the television shows are not really painting a fair or accurate picture, they are always going to show success stories because they sell better than misery.

I believe behind every successful zombie property investor is someone who over many years bought, lost, cried real tears, went back to work at a job, saved up again, bought, made a bit, hired and fired, lost friends, lost money, good workers and rehired again then started to see some success, and spent time and effort to learn the trade.

It would not surprise me to find that most successful landlords spent much of their life on construction sites learning the basics as apprentices.

Also it seems to me that the investors who now have the time and money have numerous properties in their portfolios not just one or two, so they either start with one that may take a year or so to buy, fix up, advertise and rent out. Then spend 5-10 years repeating the process to get a few good properties behind them and maybe even outsource to a rental payments company to collect rent, make evictions, advertising, and general ongoing maintenance of properties easing the burden on the original investor, so they can start to enjoy time and money!

Equities

Investing in stocks and shares are the very foundations of every pension and savings policy that ever was and ever will be.

Your pension company did not take your cash each month whilst you were working hard and stick it in a bank! You would end up with a few pounds over what you have saved over your lifetime! No, they take your cash and each month invest in stocks, shares and a balanced portfolio of high-risk investments, to low-risk investments over a period between 10-50 years and your savings start to accumulate and interest starts to grow and grow leaving you with much more than your basic capital you saved!

Investment is a study of time like geology, the most successful investors understand that real growth comes from time, not the daily goings on of the markets.

Time and knowledge will see your cash multiply on itself to leave you a lump sum that you can take a percentage of each month to live on when you stop work. That is the very nature of investing. It should be a very boring job like farming because seeds grow so slowly in the beginning and at the end always grow fast.

Investing in stocks over a balanced portfolio over time is a safe as houses, as long as you balance the risk, accept the losses and accept the gains with the same composure.

But again, you must take the time to educate yourself how the stock market works, it is  not so much how every single political decision in every single country effects the prices each day, be like the Omaha Oracle Warren Buffet who confessed he just reads headlines of the financial papers, unless he is really interested in a particular company and always invests in things he likes, simple advice from one of the most wealthiest investors ever!

Over the past 200 years investing in the stock market has made long term investors very good returns, sure you can recite so many burst bubbles where the stock markets plunged disastrously in particular years. But look over the long term and you see constant growth!

Dow Jones – DJIA – 100 Year Historical Chart

Many market depressions over the past 2 centuries cleaned out unsophisticated investors (ordinary people with no financial acumen after fast buck).

one of the most famous was 1929 crash on Wall Street on the American markets which influenced the whole world, history has taught us that greed and over speculation by nonprofessional investors who were mostly to blame for a massive fall.

Come out of the little picture and see the big picture!

I am talking over many years the cash has always grown. Investors dusted themselves off and came back and learned to expect downturns, they are part of growth. Even the stock markets itself learned many lessons over time and brought in many rules to protect the investors.

Just take the last 1000 years of blue-chip stocks as an example:

Point is if you left 100 U.S.D. in the bank over the last 100 years and your left it to your grand kids in your will they would be lucky to have 1000 U.S.D. whereas the Grandad that stuck 100 U.S.D. in the stock markets in 1920 in a reputable company who practiced balanced investing, well his grandchildren would probably not need to be a corporate slaves on the residual income from such a massive inheritance to be able to live on a beach in a really amazing camper van eating oysters and caviar each day, if that’s what made them happy!

To find your happy, have a chat with our safe and profitable financial people who can help you make balanced choices where to put your savings.