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Taking Control of Your Finances: Building Residual Income

Aug 17, 2007
There is no better feeling than taking control of your finances. Just imagine being able to, on the spur of the moment, take that Caribbean vacation you've always dreamed. Maybe you want to help put your kids through college. Or maybe, you want to start to put into motion that plan you and your loved one have always had of having or building a home of your own.

The nine to five daily grind can be a tough thing. Most times, it's hard enough to make regular ends meet with day to day employment, let alone live happily off of the income your day job generates. Most regular employment doesn't afford spur of the moment vacations, or lofty castles in the sky such as building or maintaining a home of your very own.

This is the point where it's important for you to take control of your finances. Implement a stream of money that your household budget hasn't already consumed. Building residual income in alternative ways is a great way to start this.

Residual income is income that is generated from somewhere other than your primary source of income. Residual income occurs after the effort to generate the income has already occurred, such as purchasing real estate for rental properties. Purchasing the rental property is the event that has occurred to generate the residual income, which is the actual rent that is being paid to you for use of your rental property. And it didn't even take away from your day job!

Be sure not to confuse residual income with linear income, a term that is often used in conjunction in general discussion. Linear income is generally classified as income that can be calculated using a numerical formula; it is directly related to the number of hours that are invested in creating the income. Having a day job lined up usually qualifies as having a linear source of income; having rental properties as well as a day job qualifies as having residual income as well, or multiple streams of income. This is a good thing!

Building residual income is one of the best things you can do to ensure financial security for not only yourself, but your family and generations to come. It's a way to make sure that, even though the primary source of income may dry up due to illness, lack of work or other issues, money is still streaming into the household. It is income that occurs outside of your primary employment, hence the word "residual".

Building residual income does not always involve work though. There are many ways of doing it, it's really just a matter of how quickly you would like this extra income generated. Stocks and bonds are a source of residual income, as is a savings account that you earn interest on. Normal savings accounts don't usually have an interest rate worth mentioning as a source of residual income, but it certainly is a start!
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