The term "residual income" is used to describe sums of money that investors receive incrementally over long periods of time. As residual income increases, investors become less reliant upon their current income. Investors seeking to increase residual income levels should consider buying real estate and other income generating assets such as bonds. Additionally, some opt to receive a portion of their salary as residual rather than upfront income payments.
Real estate investors generate residual income by purchasing and renting out commercial and residential buildings. Initially, real estate investments may yield very little since the rent proceeds are offset by the cost of financing the property. People who finance real estate with fixed rate loans generate increased levels of revenue over time because mortgage payments remain steady while inflation causes rent to rise. Rather than relying on income from one property, many investors buy rental homes in various different locations so that they can receive income even if one of the properties sits vacant between rental periods.
Debt securities such as bonds and mortgage-backed-securities are income-generating investments that people can use to generate additional residual income. Many types of bonds have 30 year term times and fixed monthly interest payments. Interest rates on other types of bonds are adjusted based upon inflation so investors receive additional income whenever inflation impacts the economy. Since bonds have limited terms, other investors opt to invest in open-ended bond funds since income payments from these funds do not come to an end when the underlying bonds mature.
People who work as insurance agents or investment representatives often have the option of receiving some or all of their salary in the form of residual income. Agents who sell life insurance policies can either take a lump sum up front payment, or they can choose to receive small commission based payments. Likewise, brokers can either take upfront commissions, called loads, for selling mutual funds or they can choose to receive their pay on an annual basis in which case they receive a share of the annual fees that investors pay to the fund company. Some other types of sales agents also have the option of receiving income over the long-term. In many instances payments are structured so that people end up receiving more money if they opt for residual rather than upfront income.
Writers, musicians and artists have the opportunity to choose residual income over one-off payments. Some online publishers pay writers with residual payments that are tied to advertising sales. Artists and musicians often receive small royalty payments whenever firms or individuals use their art of music. Therefore, creative people can generate additional residual income by choosing long-term royalty payments over upfront fees.
