Residual income has several meanings but in personal finance, it is what’s left after you’ve paid all of your bills and other expenses. That leftover cash can go toward anything, including saving for an emergency, investing for retirement, making a large purchase, or spending it on something important to you.
After paying bills and other debt obligations, many folks may find they don’t have extra cash. If you’re looking to build up residual income, there are a few ways to do it so you have some money stashed away when you need it.
What is residual income?
Residual income is the money left over after you pay your bills (house payments, utilities, loans, credit cards, etc.).
There are a few different ways to build residual income. You can put away money from your regular paycheck or use other types of income streams to make more money.
Why it’s important to maximize your residual income
You want to have enough money to save some for emergencies and other unexpected expenses as well as retirement.
But the cost of living and inflation has skyrocketed in recent years while the federal minimum wage has stayed at $7.25 per hour since 2009. As a result, a lot of Americans are still living paycheck to paycheck.
More than half of Americans are one crisis away from homelessness and up to 60 percent of people who are homeless have jobs, according to the U.S. Interagency Council on Homelessness (USICH).
Many Americans are looking for ways to boost earnings, stop living paycheck to paycheck and create a financial cushion. The more you can build your wealth for the future, the more financially secure you and your family are in the long run.
The best ways to build residual income
There are a few ways you can build residual income. Try a few different methods to see which ones work best for you.
1. Reduce expenses
One of the fastest ways to build residual income is to reduce expenses. This could be a few different things, such as:
- Negotiate for lower payments. For things like your phone, internet, and cable bills, see if there’s a way you can talk to your providers about lowering payments. Compare competitor pricing to promotional offers and deals with your current provider. Tell your current providers about those offers and see if they will match them. If not, you can move to a new provider at a lower rate.
- Pay off credit card debt. This might seem counterintuitive, especially for folks with minimal extra cash. But the more you can chip away at credit card debt, especially those balances with the highest interest rates, the sooner you’ll be able to free up monthly cash. You can try the debt avalanche or debt snowball methods or pay what you can until the cards are paid in full.
- End unnecessary subscriptions. This could be anything from your expensive gym membership to a meal delivery service. Check your streaming services to see which ones you use the least and still pay for, then consider dropping those.
2. Increase your income
If you already work, consider ways you can increase your current income. That looks different for everyone, but it could be:
- Working more hours for additional pay.
- Asking for a raise or promotion to boost your salary.
- Earning a bonus.
If these aren’t feasible, look for a new primary job that pays more or get a second job to increase your income.
3. Find a side hustle
Consider trying out a side hustle (or a few side hustles), in addition to your full-time job, to earn residual income. You can use your day job to pay for your regular expenses, such as bills, transportation, and food, while your side hustle funds your savings, investments and retirement.
Everyone’s side hustle game looks different. Some folks might drive for Uber or Lyft, while others sell goods or services online such as:
- Writing, transcription or editing
- Design, photography or videography
- Coding or programming for websites or apps
- Web designing and developing
- Project managing
- Virtual assistant services
- Accounting (taxes, bookkeeping, etc.)
Nearly one-third of Americans think they’ll always need a side hustle to earn money beyond their primary source of income.
4. Invest in real estate
If you have any cash set aside, you can use some of it to start investing in real estate. There are a few ways to do this, such as:
- Buying a property to live in and rent out one or more of the rooms.
- Buying a home and renting it out for long-term use (to a family, for example) or as a short-term rental (directly, through a real estate agent, or through a site like VRBO or Airbnb).
- Buying a fixer-upper property and then flipping (selling) it.
- Buying a multi-unit property (like an apartment building or triplex, for example) and renting it to tenants.
Real estate investing isn’t for everyone. It is risky and a profit isn’t guaranteed. In fact, you could lose money on the investment. For some folks, the risk of losing more than their initial investment is too much to bear. For others, the steep learning curve might be a turnoff. Make sure you understand all of the risks involved before investing in real estate.
5. Earn money through dividends
If you’re already investing in the stock market, look for stocks that pay dividends. Dividends occur when a publicly traded company shares a portion of its profits with shareholders. You become a shareholder when you buy into a stock, whether it’s one share or 100.
Dividends are usually paid quarterly, though some are paid monthly or annually, depending on the company’s setup. The size of the dividend is also at the company’s discretion.
You can also earn money through dividend funds, which are mutual funds and ETFs that include dividend-paying stocks.
6. Resell your stuff
Look around your home and see what you don’t use anymore. Some of those things might be worth more than you realize. Decluttering not only frees up space in your home, it can add some residual income to your bank account.
Try selling your things locally through Facebook Marketplace or OfferUp. You can also host a yard sale or garage sale. If you don’t mind shipping, you may want to sell high-ticket items — like electronics or rare collectibles — online. Look at other sites like eBay, Poshmark or Craigslist to sell your stuff.
7. Save credit card rewards
Many credit cards offer cash-back rewards every time you use your card. Some have decent sign-on bonuses while others let you choose your highest spending category to earn rewards on what you spend the most money on.
Check your current credit card rewards or shop around for a new credit card to see what rewards they offer. Remember that applying for a new credit card triggers a hard credit check with a slight dip in your credit score, though it usually rebounds after a few months of on-time credit card use. Avoid signing up for new cards if you plan on making a large purchase — like buying a home or car — in the next few months. Those lenders are likely to check your credit score and you don’t want it going down when they’re running that check.
Bottom line
Residual income is a great way to earn extra cash and build financial security. Earning residual income, or more than what you need to pay your bills and expenses, gives you the financial freedom you may not otherwise have if you were living paycheck to paycheck. There are many ways to build residual income and some ways might work better than others. Try some out to see which ones are right for you.
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