This hub describes and explains what a residual income is, how it works, how it pays you and what are its pros and cons.

Imagine yourself being continuously rewarded over and over again for a one-time initial action? For example, you do or accomplish something once, but you keep getting paid each month over and over again for the work you've done only once. Brilliant, huh?

While it is true that residual income brings some of the amazing long-term financial benefits, can significantly improve your current financial situation and is a wonderful stepping stone to your financial freedom. However...

Just as it is important to know what are the pros and benefits of residual income, it is also equally important to be aware of some of the hidden traps that residual income brings.

The way I see it (I might be wrong, feel free to add your comments), there are basically only two types of income:

• Residual Income, and
• Linear Income

Residual Income (also known and called "passive income", "recurring income" or "leveraged income") is a type of income that continues to be generated after the initial effort has been expended.

One of the factors that make Residual Income so tempting and long-term beneficial is that a true residual income is NOT directly proportional to the number of hours invested or number of products/services sold. For example, you do the work once or twice, but you keep getting results over and over again.

Not only that, but a true residual income keeps paying you over and over again for the work you have previously done only once or twice -- even if you stop working after you achieve some level of success.

One of the greatest advantages of residual Income is its continuous cash-flow effect. Once things are set in motion, not only:

1. you continue making money and keep getting paid over and over again for your initial efforts, but also
2. your (monthly) residual income can also steadily grow each month while you investing the same amount of time and work.

A true residual income is one that if you stop working or if you were to leave it alone for a period of time for some reason (e.g. taking 4 months of luxury vacations, travels, starting new businesses, adding new streams of residual income...) after you have already achieved some positive results, you could return and find it at least generating the same level of income as before you left. Or in some cases, even more profitable!

So, from the earnings point of views, residual income is NOT directly proportional to the number of hours invested or number of products/services sold. That's its true benefit and residual income is so tempting.

If you don't know how and why exactly this is some important, don't worry. I'll show you what I mean with that in just a few minutes.

Linear income is everything what residual income is not. Today, you will see more than 80% of people relying to linear income when it comes to making their living

"Linear income" (also called "Transaction Income", Fixed Income" or "Earned Income") is basically a one-time compensation or payment in the form of a fee, wage, commission, salary or margin. You do something once and you also get paid only once.

To help you better understand what this actually means, here are a few real-life examples.

Example #1: Suppose you're selling some XYZ product and your gross profit for selling 1 piece of XYZ product is $40. This means:

• if you sell 1 piece of XYZ product, you earn $40
• if you sell 10 pieces of XYZ, you earn $400 (10 x $40 = $400) and
• if you don't sell any pieces (0 pieces) of XYZ for some reason, you earn $0 (0 x $40 = $0).

Example #2: Here's another example. Suppose you're selling some ABC service (e.g. carpet cleaning, PC repair service, consulting...) where your gross profit for one hour of your service is $100. This means:

• if you sell 1 hour of your ABC service, you earn $100 (1 x $100 = $100), •
• if you sell 10 hours of ABC service, you earn $1,000 (10 x $100 = $1,000) and again,
• if you don't sell any hours (0 hours) of your ABC service for some reason, you earn $0 (0 x $100 = $0)

The problem is however, Linear Income is directly proportional to the number of hours being invested or number of products/services sold. As you can see from both examples above, you make money only when you sell one or more products, or one or more hours of your service.

As soon as you stop selling products/services or as soon as you stop working the job for some reason, the flow of your income stops as well. This is why this type of income is called "Linear Income" because it is directly proportional to the number of hours being invested or number of products/services sold.

On the other side, if you stop working completely for some reason once things are set in motion and after the initial effort has been expended, true residual income not only keeps paying you month after month (no matter if you work or not), but the true residual income might also steadily grow at the same time (even when you don't work!), depending on the business type or model.

Those who got familiar with the benefits of the Residual Income through different channels (friends, seminars, events, media, Internet...) have mostly been mislead with unrealistic information how quick and easy it is to get rich and wealthy with business models and opportunities based on residual income.

What usually happens then is because most people don't reach their unrealistic expectations in time, a large percentage simply quit, give up or fail before they even really begin. This usually happens somewhere between 1 and 12 months.

The truth is, getting rich, wealthy and financially secure is not "quick" and in some cases, it's not easy either. It requires time, work and energy, just as like building anything worthwhile does. Just think about the following -- if it was quick and easy, everyone would already be rich and happy by now, don't you think so? But are they? :)

Again, I could easily say that making lots of money on the Internet is quick and easy, but I won't do that. That's just not me and this is not the purpose of this hub either.

The purpose of this hub is to share my thoughts about residual income with you so it will be easier for you to decide when, where and how to act on opportunities when they come along.

One of the first things you need to understand is that success and a better financial situation don't happen just overnight. As you'll see below, it usually takes anywhere from 1 to 6 months to start seeing results of your work with residual income -- depending on the type of the business model, the opportunity, compensation plans and other factors.

But the thing is, once you start seeing results and you get that start-up momentum, everything from here on goes only up! Your income, your excitement, your satisfaction, your determination, your motivation...it works almost like "snow-ball" effect.

You don't know this yet, but if you're willing to accept this as a vital part of your success, wealth and financial prosperity, then you too will absolutely love the long-term benefits of residual income! Let me show you what I mean by saying this...

First, pay your attention to the image below for a few moments. You should spot two things in the chart below. (I've tried to create the charts as easy to understand as possible, so please bare with me:) ) What do you see in the chart below? No really, what do you see?

For 80% of people there is usually no batter way but to choose "short-term gain" by settling with a safe and secure job with fixed monthly salary and living from paycheck to paycheck.

The problem is however, today it is not only hard to get a decent job but it is probably even harder to keep it. If they stop working and quit a job for some reason, your income quickly goes down as well. (see the black dotted vertical line)

Or in other word -- linear income sure means instant paycheck, but it also means slow-growing and risky type of income.

On the other side, we have Residual Income (green line). As you can see on the chart above (green line), it usually takes some time, work and efforts before the level of residual income reaches the level of Linear Income (red dotted circle).

But once this happens, the level of Residual Income usually skyrockets to the top almost with exponential growth, leaving the level Linear Income far behind in the dust! Plus, even if you stop working for some reason (starting a new business, vacation, travels...) after you have achieved some results, your Residual Income doesn't and won't go down. Contrary, it keeps paying you over and over again. (black dotted vertical line)

To illustrate the difference between residual income and linear income, consider the following scenario.

Imagine you were offered two jobs, A and B. You must choose one, but you need to decide for only one. No matter which one you choose, you'll be working that job 8 hours a day and 5 days a week for the period is 2 years (24 months).

And to make this little experiment more interesting, try to decide for A or B within 5 seconds after reading the details of both jobs below. Sure, in real-life you probably would not make such an important decision in 5 seconds, but please bare with me in this tiny experiment :)

Ok, here we go. What job would you rather choose:

• Job A: During these 2 years, you have fixed monthly paycheck of $10,000 per month. (you make $10,000 each of 24 months)
• Job B: During these 2 years, you start with $1 of monthly paycheck and your monthly paycheck doubles each month (you make $1 in your first month, $2 in your second one, $4 in your third one and so forth)

What is your answer, A or B? No really? :) To find out if your decision was the profitable one, click the thumbnail image on the right to see the difference between these two jobs.

Again, if you're the type of person who would rather choose the benefits of residual income and you're also willing to give up the instant results in exchange for fast-growing, long-term and low-risk monthly residual income, then you're absolutely the person with much brighter financial future than 80% of people around you.

Please note that this hub was only my personal view on the pros and cons of residual income. I realize I might have skipped something.

How do you see residual income? What are your experiences with residual income? Did I miss something?

If you have any thoughts or opinion to share about residual income and other things discussed in this hub, feel free to add them into the comments box below.