I had to get out. I actually had this random Facebook ad come up in my news feed (go figure) and it eventually led me to a webinar that taught on how to start an email marketing business (which is, by the way, the most profitable form of affiliate marketing – or ANY marketing for that matter). I listened through the whole 2 hours, completely mesmerized. By the end of it, I knew what I was going to be focusing on to help my family out of the pit of debt we were in and into a world free of financial stress. I didn’t know if it would actually work, but eventually it lead to EXCESS income!
Regardless, it took me around 18 months to start turning a profit online. It started with around $100 per month, then grew to $200 per month. Then it kept growing and growing until, eventually, the money I earned online surpassed what I earned in my regular, 9-5 job. That was last year, and my online income is still growing. Believe it or not, it all came from starting this simple, yet effective, blog.
There are a plethora of tax write-offs available to real estate investors. They aren’t quite so generous for those with a high income, but they still exist. As a general rule, rental income tends to be a lot more stable than many kinds of income. And sometimes, properties even appreciate allowing for significant capital gains. Just remember that compared to a stock/bond portfolio, rental real estate tends to be more of a second job than an investment, even if a property manager is involved.
Purchasing a rental property is another common way that individual generate an income stream. It is very similar to investing, in that you take a sum of money to purchase the property, and the property returns a cash flow – rent. You do have expenses related to this that are different from investing, such as a mortgage, utilities, property taxes, etc, which all must be taken into consideration when calculating a return on rental property.
Residual income valuation (RIV) which is also known as residual income method or residual income model (RIM) is an approach to or method of equity valuation which properly accounts for the cost of equity capital. The word ‘residual’ refers to any opportunity costs in excess which is measured as compared to the book value of the shareholders’ equity and the income that a firm generates after accounting for the true cost of capital is then the residual income. This approach is largely similar to the MVA/EVA based approach having similar advantages and logic.
If you’re looking for a way to begin gradually replacing your income, these are just some of the best ways you can do it as a physician. Remember the idea of gradual retirement? Passive income streams like the ones mentioned here are perfect ways to allow you to spend more time with family, enjoy your day job more, and, of course, make a little money while you’re at it.
Of course, the total economy is much more complicated than the illustration above. An economy involves interactions between not only individuals and businesses, but also Federal, state, and local governments and residents of the rest of the world. Also not shown in this simple illustration of the economy are other aspects of economic activity such as investment in capital (produced—or fixed—assets such as structures, equipment, research and development, and software), flows of financial capital (such as stocks, bonds, and bank deposits), and the contributions of these flows to the accumulation of fixed assets.
Residual income is the best model for money generation. Once you master and build up one avenue, you can devote your time and money into another avenue. Eventually you start reaping the benefits of multiple residual income avenues. Enabling you to have complete financial and time freedom. I recommend to all people to build these types of asset models as they can greatly improve their life.
If you need cash flow, and the dividend doesn’t meet your needs, sell a little appreciated stock. (or keep a CD ladder rolling and leave your stock alone). At the risk of repeating myself, whether you take cash out of your portfolio in the form of “rent”, dividend, interest, cap gain, laddered CD…., etc. The arithmetic doesn’t change. You are still taking cash out of your portfolio. I’m just pointing out that we shouldn’t let the tail wag the dog. IOW, the primary goal is to grow the long term value of your portfolio, after tax. Period. All other goals are secondary.
Thanks for writing this Mr. Samurai. I just got over the student loan hump but I feel pretty good about it at 27 having a graduate degree and being 100% debt free. Now that I’m on the other side it is good for my brain to absorb some of your knowledge regarding passive income investments. I love gleaning wisdom from older folks who have been there and done that. Mentors rock!
Great post Jim. While it is convenient to lump the entire dividend income as one passive stream, in reality, it is several. If you have 30 companies across 10 major industry sectors, each paying you dividends, then you can consider having 30 streams or at least 10 passive streams, from each of the diverse industry sectors. I find this more diverse than relying on rental income from one investment property tied to one location and one good tenant. Your point about website is absolutely valid – will be great to have Ten Factorial Rocks worth 7 figures in less than 5 years as you have done!
The trial court ruled in Karen’s favor and signed a proposed divorce decree that had been drafted up by Brad’s attorney. Neither party appealed the decree. After the divorce, however, Karen’s monthly income began to progressively decline. As a result, she filed a petition in July of 2007 alleging that Brad had violated the terms of the divorce decree. She also proposed an alternative argument that perhaps the divorce decree was too vague and needed to be clarified. The trial court found that the decree was, in fact, too vague, and ordered it to be clarified.
Making legitimate passive income isn’t as difficult as you might think. Some of the best passive income ideas might take a little time to set up but can start cash flowing within a couple of months and will provide a consistent monthly income for years or more. The most important point is just to get started. You make exactly $0 on the passive income sources you never start.
Once I started blogging and connecting with other bloggers in the personal finance space, I saw how much potential was out there. And honestly, how much money some bloggers were making really shocked me. I distinctly remember one blogger telling me his website was making $30,000 per month….and this was 2009! To say this blew my mind is an understatement of epic proportions.
To engage in email marketing, you need a list. You’ve likely heard the saying before that the money is in the list, but it’s not just through any list. You need to ensure that your list includes people that are actively interested in what you have to say and actually opted into your list. In order to do that, you need a way to generate those email signups.
It's a little awkward, so we'll get straight to the point: This Tuesday we humbly ask you to defend Wikipedia's independence. We depend on donations averaging about $16.36. But 98% of our readers in the U.S. are not responding to our messages, and time is running out to help in 2018. If everyone reading this gave $2.75, we could keep Wikipedia thriving for years to come. The price of your Tuesday coffee is all we need. When we made Wikipedia a non-profit, people warned us we'd regret it. But if Wikipedia were commercial, it would be a great loss. Wikipedia unites all of us who love knowledge: contributors, readers and the donors who keep us thriving. The heart and soul of Wikipedia is a community of people working to bring you unlimited access to reliable information. Please take a minute to help us keep Wikipedia growing. Thank you.
Loss of your job as a physician often means an expensive relocation to another city due to non-compete agreements. It may also mean 6 months without income as you get a medical license, a DEA license, and/or go through the credentialing/privileging process. You may have to sell your house at a loss or even liquidate investments in a down market to tide you over through a period of lost income. Because of this, employers have an advantage over you in negotiations. But if you have multiple streams of income, you don’t have to play by their rules and you retain negotiating advantage. This is your F-You money because it allows you to say “F-You” to the employer and walk away from the job. You know there will still be money coming in every month even without your main job.
The challenge I’m facing and, I know it’s a good problem, is that the SF real estate has shot up about 35% in the last couple years. I’m sure you’re experiencing the same thing! So as the net worth is rising, the yield on the total portfolio is going down. Right now, it seems the only way to increase the passive income will be to raise the rent in December and to invest some of that cash in stocks, which I’m nervous to do in this market. Current allocation:
We can forecast per-share residual income as forecasted earnings per share minus the required rate of return on equity multiplied by beginning book value per share. Alternatively, per-share residual income can be forecasted as beginning book value per share multiplied by the difference between forecasted ROE and the required rate of return on equity.
I’ve compared their Compensation Plan with every other MLM out there and nothing beats this one. Refer 3 people and you cover your $99/month membership, so now you’re not paying. Easy, right? It was. Next level, help those 3 people do what you just did, you get a monthly bonus of $600 (minus your membership cost) so you Commission $500 every month. EVERY month. No one drops out once they’re actually profiting, and it’s consistent income, not some flashy startup bonuses, like many others offer. Do a comparison yourself to see how many people needed at other MLM companies vs. the 12 needed here, to be at a $500 monthly residual income.
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.
Maybe you’re obsessed with homemade jewelry and want to sell your wares on Etsy. Or, perhaps you’re well-versed on the Amazon reselling game and want to earn extra cash finding unicorns (rare and valuable products) and reselling them for profit. Maybe you’re obsessed with a specific topic and want to start a blog that can one day bring in advertorial and affiliate income.
Amazing article Jim. Jammed packed with great information and inspiration for a finance blogger looking to find ways to diversify income streams. Building up your capital, achieved through saving more than you earn as you described, will open doors to a lot of activities in the future. The name of the game is putting your savings to work to turn expenses and idle cash into income producing assets. It isn’t easy when you are starting from $0, but through discipline and time you will eventually be able to achieve your goals and begin using the methods you described to diversify your income streams.
Passive income is the Holy Grail for online marketers. It's automatic. Effortless. But, not at first. In the beginning, it's grueling. I liken this to doing the most amount of work for the least initial return. However, over time, as your passive income begins to increase, your reliance on an active income plummets. That's when the real magic starts to happen.
Thanks for asking. https://passiveincomemd.com/what-is-passive-income/ gives a good summary of the definition I use. But in brief, it’s income that isn’t proportional to the time you physically put into acquiring it. It doesn’t mean it’s not without work or effort. It’s just that most of the work is done up front and it continues to pay off long after that initial effort. Real estate fits into that box. There’s definitely a spectrum but compared to what we do as doctors, where our compensation is directly linked to our time, most of these things are quite passive.
Individual customers and businesses can purchase your stock images for their websites and marketing materials. Simple stock photos, like businessmen shaking hands or a woman riding in a car, are sought after by many companies. To be most successful, you’ll want to upload photos monthly to consistently grow your portfolio. You’ll generate a commission each time one of your photos is downloaded.
As you may have noticed, the residual income valuation formula is very similar to a multistage dividend discount model, substituting future dividend payments for future residual earnings. Using the same basic principles as a dividend discount model to calculate future residual earnings, we can derive an intrinsic value for a firm's stock. In contrast to the DCF approach which uses the weighted average cost of capital for the discount rate, the appropriate rate for the residual income strategy is the cost of equity. (Learn the strengths and weaknesses of passive and active management when trying to uncover the overall market's worth. Check out Strategies For Determining The Market's True Worth.)
The thing is, I’m not talking about buying brick-and-mortar buildings. I tried that many years ago with my father-in-law, and with devastating results. We tried to buy a duplex once, and the deal fell apart after we realized we weren’t really prepared for the purchase. I secretly wanted to become a landlord, but at the same time, I knew it wasn’t for me.
Residual income valuation (RIV; also, residual income model and residual income method, RIM) is an approach to equity valuation that formally accounts for the cost of equity capital. Here, "residual" means in excess of any opportunity costs measured relative to the book value of shareholders' equity; residual income (RI) is then the income generated by a firm after accounting for the true cost of capital. The approach is largely analogous to the EVA/MVA based approach, with similar logic and advantages. Residual Income valuation has its origins in Edwards & Bell (1961), Peasnell (1982), and Ohlson (1995).
Great diversification of passive income. I’m holding off on adding to passive income streams right now because I’ve still got a full time job and am already paying more than enough in taxes. It seems like a good strategy to focus on mortgage pay down and capital improvements to my existing rental property, and buying more growth stocks, then wait until after retirement or semiretirement to move things around with the goal of generating more passive income.
If you’re curious about my own streams of income, I encourage you to check out my income report for an in-depth look. For now, though, I will tell you that I’m currently at twelve streams, beginning with my day job as an anesthesiologist, and ranging from crowdfunding to owning an apartment building, and to this very blog. Ultimately, having these multiple streams of income has proven to be invaluable to me–not only because of monetary value but because they allow me to live the life I want, and I feel I have a hedge against whatever the future might throw at me.
There is a specific tax definition of passive income, known as “passive activity” to the Internal Revenue Service. Passive income is any income you make without actively working or are materially involved. The IRS defines it as any rental activity or any business in which the taxpayer does not “materially participate.” Nonpassive activities, or active activities, are businesses in which the taxpayer works on a regular, continuous, and substantial basis.
The sky is the limit but some alternative income ideas are better than others. Stanley and Danko in The Millionaire Next Door, are quick to point out that millionaires allocate their time, energy, and money efficiently, in ways conducive to building wealth. That means that a millionaire is much more likely to spend Saturday mornings checking on his rental property rather than cruising garage sales looking to add to his garden gnome collection. Robert Kiyosaki of Rich Dad Poor Dad fame likes to emphasize the benefits of a passive income. The books aren’t exactly a prescription for wealth, but he makes two excellent points. The first is that a stream of income that provides money when you’re sleeping is preferable to one that requires you to work. The second is that passive income often enjoys much better tax treatment than the income from your professional work. Here are some income streams that are fairly common among physicians:
Start an affiliate marketing website: This passive income model works for individuals who already own a bog or website. Here, your business goal is to contact companies and offer to tout their products and services, usually for a fee or a commission, based on the number of page views you get. Studies show that more people spend time online and less watching TV or reading the newspaper. Take advantage of that leverage and earn income from the tens of thousands of companies who want to reach an audience - maybe your audience. Either reach out to companies directly or go through a site like ClickBank, which offers affiliate marketing opportunities.
Building an app today is likened to creating a website back in the day. Nearly everyone is building an app. Everyone. For that reason, there are droves of developers that could help you create the right app. But be prepared to invest time and energy into this project, not only on the conceptualization and development of it, but also on the marketing side.
During the trial, Karen offered proof that she and Brad had built the business together, and that the downline was the result of their joint efforts – not just Brad’s. Karen argued that the residual income from the downline should therefore be split at a 60/40 rate on a monthly basis. Brad, on the other hand, asked the trial court to value the business. Upon valuation, the court could either allow him to buy out Karen’s share or direct that the business be sold, with the proceeds being split 60/40 between the two parties.
Crowdfunding is a newer way to invest, having emerged onto the scene just within the last few years. Most people have heard of sites like Kickstarter and GoFundMe, and a very similar concept exists for real estate. Developers are always looking to raise capital to fund their projects. Through the various online platforms, investors have access to these projects and can choose to invest in both residential and commercial properties. See the List of My Favorite Crowdfunding Sites.
I have only dabbled in drop-shipping before when I had an eCommerce platform 6 years ago or so. I think it is something that you could do on the side, but you would want to do in depth research on the industry you want to get into before setting up shop. It may be a little less passive up front, but over time you could take your hands off the wheel.
You aren’t going to get rich overnight by creating YouTube video tutorials, but there’s a lot that you can do with YouTube videos to generate passive income online. The first thing that people think about when it comes to YouTube videos are the Adsense revenue streams. However, don’t get your hopes up unless you expect to have millions of views for that video.
However, residual income typically has an expiration date, especially if it is being earned through a business. Effort must be continuously put into the business in order for someone to continue to receive residual income. Businesses must continue to market themselves in order to remain relevant. The best way to look at residual income in this sense is that it is a part-time job that earns full-time income.
Camps, ski resorts, cruise ships, airlines, expeditions etc all may have need for part-time or full-time medical expertise. Part of the compensation may be taxable income, or it may simply be opportunities. For example, I work at a ski resort several days a month. I take runs and a P.A. sees the patients. If the P.A. needs me, I’m there in 5 or 10 minutes. If they don’t, I get a free day of skiing in for my family and friends. At the end of the day, I sign 4 or 5 charts. Sure, it’s not much money (perhaps the equivalent of $100-200 a day in lift tickets and meal discounts), but it’s still an income. When engaging in this type of work, look carefully at the liability issues.
Hi Sam – Started reading your posts last year when I stumbled upon your website. Great stuff! I’ve also started investing in RealtyShares based on your recommendations. Just curious why all equity, when there are several debt offerings in the 8-9%+ range that only tie up capital for 12 months or so? I haven’t yet gone the equity route for this reason. Appreciate your thoughts.
Managerial accounting defines residual income in a corporate setting as the amount of leftover operating profit after all costs of capital used to generate the revenues have been paid. It is also considered the company's net operating income or the amount of profit that exceed its required rate of return. Residual income is normally used to assess the performance of a capital investment, team, department or business unit.