How Residual Income Works: What You Need To Know

residual income falling

Are you stressed out by your paid-by-the-hour job? Do you feel like you’ll never make a substantial income? Then you should take some time to learn how residual income can help you relax and increase your profits at the same time. Are you ready?

Linear Income vs. Residual Income

The Definition of Linear Income

With linear income, you do work and get paid once. Pretty simple.

Like many of you, I was raised as a kid to produce linear income. I was told by teachers that the way to make a living was to go to college, get a steady paying job, and support a family. All of that is great, but the “steady” part led me to believe that I had to make a linear income–doing the work that would pay me once for the effort involved. I believed that the only “steady” paying jobs were the ones where income was immediately realized yet low in compensation.

So, I took up several jobs where I was paid by the hour with no chance of a reoccurring income. I’d work for my $10 per hour and then consider the transaction finished.

Many years later, I’d discover something entirely different–something called residual income. This proved to be pretty exciting.

The Definition of Residual Income

With residual income, income is generated on a reoccurring basis after the initial effort has been expended. This is a bit more complicated to learn and implement.

I first realized the power of residual income when I started working part-time from home. I had written a few pieces online that were earning some advertising revenue–long after I finished the work. These small victories showed me the value in trying to obtain residual income. Although, at that time, I didn’t know what to call it.

Yesterday I listened to a podcast by Dan Miller, author of 48 Days to the Work You Love: Preparing for the New Normal. In it, Dan explains that he vastly prefers residual income as opposed to linear income. He is always evaluating new opportunities to see whether they would provide him the reoccurring income we’re talking about.

The only problem with residual income is that the income sometimes takes months or years to be fully realized. Linear income, on the other hand, often has an immediate payout. This is not always the case for residual and linear income, but I think you’ll find it is often the case.

How to Make More Residual Income

The podcast by Dan Miller got me thinking about ways I could start making more residual income. Also, I started to question whether or not I should only seek work that pays on a reoccurring basis. How might I make that transition? What’s a good balance?

Differentiate Between Your Linear and Residual Income Opportunities

The first step in making more residual income is to list all your job opportunities–current jobs and potential ones–and determine if they are linear in nature, residual in nature, or a little of each.

For some of you, listing your jobs is going to be easy, as you only really have one income source. For those of you who are self-employed at least part-time, you might have a handful of different types of jobs to bring in money. Just write down everything.

Next, go down your list of jobs and identify as many residual income opportunities as possible. You might find that the potential opportunities you’ve identified lead to even more ideas.

Eliminate Some Linear Income Opportunities

I work in a variety of different capacities online. I won’t bore you with all the details, but some of the work I do provides linear income while other work provides residual income. Writing a product review for my website can produce residual income, while writing a non-linked article for another website produces linear income.

If you ever decide to learn how to make money with a blog, you’ll find that the Internet holds many residual income opportunities–but you can also find yourself with a lot of linear income opportunities as well. This is what happened in my situation, and now I understand that in order to succeed in the longterm I’m going to have to continually evaluate whether an opportunity is residual or linear in nature. The point here is that I know I need to let go of a few linear income opportunities in order to take on the residual ones.

By the way, if you’re interested in becoming a professional blogger, I’d recommend checking out Blogging Your Passion University (founded by Bob Lotich of ChristianPF.com and Jonathan Milligan of CPACareerCoach.com). It is currently helping me identify the most important blogging practices, and know it will help you as well.

Transition Income Models Very Slowly

If you’re like me and want to transition from a completely linear income model to a mostly residual income model, I’d recommend making the transition slowly. The last thing you want to do is jump ship into the icy seas of a risky business venture. Test the waters first.

For example, if you have a full-time paid-by-the-hour job and want to start experimenting with making some residual income, perhaps you should cut your hours down to part-time if you can afford it and get your feet wet by trying some residual income opportunities. Once you’ve successfully created a reoccurring income, it will be easier for you to pursue even more residual income opportunities.

Remember That Linear Income Isn’t Bad

By no means am I saying that linear income should be avoided at all costs. After all, if you can find a high-paying job you love that compensates you based on a linear income model, go for it! There are still a select few linear income jobs I still hold that provide excellent income. But I’m going to ensure I don’t overwhelm myself with jobs that pay only one time–I prefer those opportunities that provide reoccurring income!

Ultimately, you have to determine how much of each form of income is right for you. Everyone’s ideal work situation will be different, so figure out what best suits your time and talents.

Are you as excited about residual income as I am? I truly believe that if you try and focus on working on projects that will continually provide an income, you’ll live life with less stress and with more money in your wallet.

What residual income opportunities do you have? Brainstorm some ideas in the comments below and let’s explore this topic together.














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9 Comments
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  1. Thank you for this information. We just started a blog and enrolled in the blogging university. Hoping to set us up for some residual income! Love all the content on this site!

  2. John,
    Great article and especially important for those that are looking to retire some day. I am approaching 61 and my wife and I are still working full time and earning that linear income. Of course there is a form of residual income if you have a pension. We are all looking for as many streams of income as possible so when we retire that residual income takes care of the residual bills.. Most people have paid in to social insecurity but not sure if that will always be there and especially for our younger generation. Many of us have pensions but even those can be taken away as a friend working as a United Airline pilot had his taken away.. Teachers in California are making $100,000 a year after 40 years of teaching and that is one reason the state is broke. Money you invest in your IRA or TSP can be turned in to residual income also. I would suggest everyone look seriously into a home based business which can not only give you a residual income but also provides many tax benefits.. Turn your travel into business from now on and actually keep more of your hard earned money.. Take a look at the recent video we did on our website the Debt Free Squad.. http://www.debtfreesquad.com/ways-to-make-money-pt2/ Nice job with the article John..
    Jeff

    • Jeff, thank you for all your thoughtful comments! I watched your video and also believe multi-level marketing can be a great place to gain some residual income. However, people need to be careful with MLM’s and make sure that they are determined to make an income! They are legitimate business models but they aren’t always worth the time. I suggest people do their research first on this. Thanks Jeff!

  3. I loved this article and am passing it along to my team! Residual income really does seem to be the wave of the future…at least my future. As I am entering my late 40’s I have to really start thinking more seriously about retirement and the times in the future where I will not want to “work” for my money. As a self employed couple my husband and I don’t have a pension plan and no one is counting on Social seurity to be around. We have found a company involved in the deregulation of energy that is paying us residual income forever on what we begin now. The company is called Ambit Energy and it is a company that is full of integrity and one that I am proud to be part of. We’ve built a team of people who help others save money on their electric and natural gas bills and we get paid every month as these customers pay their bills. It’s a lot of fun and as a Christian it was so important to me to be able to help people save money not get involved with a network mareting company where I would have to ask my friends to buy something they didn’t want or need for more money than they could get it at WallMart. To me this was a perfect fit because it’s a win win situation. I get to help people save money every month and the moreI grow my team the more money I make every month…forever (even after I retire)!

    • That’s awesome Kelly! Thanks for sharing this article with your team, and I appreciate your thoughtful comments. Way to go on finding a viable residual income source!

  4. By this article I believe that while writing on blogs be a linear income, creating a few Niche sites and monetizing it with PPC ads may result in residual income. Somewhere I believe residual income is not as predictable as linear ones.

  5. Very interesting reading. I’m getting close to retirement and will definitely look into residual income. Thanks for the information.

  6. John, thanks for the great article. This year I became a part-time Avon Independent Representative. The investment is low, hours are flexible and its fun. The downside is the competitive nature of this business and the challenges involved in establishing a solid customer base. I believe with prayer and perserverence this could develop into a very good residual income. Like you said, John, sometimes it takes months and years to see the results of your labor. I encourage all new Avon Reps out there to stay focused until you reach your goal!

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