- Most people earn work income - pay for work that they perform. This can be in the form of an hourly wage, annual salary or contract. Once they stop working, they stop receiving payment.
- Some people earn money without needing to put in recurring work. They use their existing resources, such as their savings, to earn money for them, even when they are not working. By creating multiple streams of residual income, some people are able to eliminate the need for work income.
- Fundrise offers everyone in the US the opportunity to create a stream of residual income through private market real estate investments as low as $500.
Have you ever wondered how wealthy people seem to earn money even when they’re not working? The secret to their continued success lies in residual income. A five-year study by Tom Corley, the author of “Rich Habits”, found that on average, 65% of self-made millionaires had at least three income streams. Those who have achieved financial freedom understand the importance of a wise investment strategy in creating passive income streams.
Let’s look at the example of businessman John Gray, who in 1903 invested $10,500 of his savings into a fledgling car company named Ford Motors. By 1905, the company’s profits had tripled and Gray received two dividend payments that year - each worth 100% of his initial investment. Although he passed away in 1906, Gray’s family continued to earn dividends on his investment until they sold the shares back to Ford company owner, Henry Ford, in 1919. Over that 13 year period, Gray and his family received $10,355,075 in dividend payments, or residual income.
These payments were on top of the $26,250,000 of profit they earned from actually selling the shares. If, rather than selling, the family had continued to own the shares to this day, they would have received over $1 billion in payments (when adjusted for inflation).
This wise deployment of $10,500 in savings created a reliable source of residual income that meant both Gray and his family could have lived comfortably without the need to work another day in their lives.
What is Residual Income?
There are two primary ways to earn money: work income and residual income. Work income, or linear income, is the income you earn for working. This is what most people use to support themselves on a regular basis. If you earn an hourly wage, an annual salary, or receive payment for contracted work, you are earning work income. Residual income, also known as passive income or recurring income, is income that you earn without having to put in any recurring work. John Gray’s investment in Ford Motors is an example of this.
Residual income, also known as passive income, is income that you earn without putting in recurring work. In essence, residual income is putting what you already have to work to earn you more money - even when you’re not working. There are many ways to earn residual income. For example, if you earn dividends from an investment, you are earning residual income.
Why Would You Want Residual Income?
Besides not having to work on a continual basis, there are other benefits to earning residual income. Residual income has the ability to:
- Combat Inflation: Inflation is the rate at which prices for goods and services rise, leading to the devaluation of money. The value of currency is constantly changing. While the day-to-day changes may not be significant, they can add up over time. For example, what you could buy for $100 in 1997 would cost you $151.78 today. That’s why parking cash in your bank account instead of investing it will most likely decrease its value over time. So, while holding your money as cash may seem the safest bet, it may actually hinder your total earnings in the long term.
- Create Financial Independence: The adage of not putting all of your eggs into one basket applies to all of your finances, including your income streams. Earning multiple streams of income makes you less reliant upon any one stream, increasing your financial independence. While your residual income streams may not initially match wages earned from your work income, over time they can build up to the point that they can lessen or eliminate the need to work.
How Do You Earn Residual Income?
The number of ways to earn residual income are unlimited—but some ways are more practical than others. Here are a couple of income ideas to take advantage of using resources that you may already have:
- Rent out your home. You can earn money by leasing a rental property to tenants. If you aren’t ready to become a landlord, you can start with a short-term rental and rent out a spare room in your home on home-sharing websites such as AirBnB.
- Invest in high dividend assets. Certain investments, such as hard assets, tend to produce significant cash flow. Some examples include commercial real estate, timber, land, or energy stocks. These investments offer cash flow to investors in the form of dividends, creating a steady residual income stream.
Fundrise has combined technology advancements and financial reforms to make it easier than ever to create residual income streams investing in a diversified portfolio private market real estate. Fundrise leverages investors’ collective buying power to invest in institutional quality real estate investments that would otherwise be out of reach of most individual investors. With this advancement, anyone can begin building an income stream through real estate with as little as $500.