A lot of rich figures are not born into riches. Plenty are, no doubt, but there are some that had to crawl their way up the proverbial ladder. Throughout the course of their lifetimes, they would successfully accumulate huge personal fortunes. This is because they utilize the power of leverage by way of residual income.
This article will dive into what residual income is and what sets it apart from passive income. Moreover, it will explore how you can earn residual income as an affiliate on the HedgeTrade platform.
What is it?
‘Residual income’ is basically excess income that surpasses the minimum rate of return. This income variant is a method of measurement regarding internal corporate performance. A company’s management team uses it as a way to evaluate the income generated relative to the company’s minimum necessary return. When it comes to personal finance, residual income comes across as something different. It’s the level of income that an individual possesses following the deduction of all personal debts and expenses you pay.
Residual income functions as a way to measure net income. It is useful when you take into account all of the mandatory costs of capital correlating to that income generation. There are other ways one can refer to residual income. Some alternate terms include economic value-added, economic profit, and abnormal earnings. Moreover, side hustles are often handy for boosting personal residual income.
Another term that is more controversial regarding its relation to residual income is ‘passive income.’ I say “controversial” because, despite the supposed interchangeability, there are notable differences.
There are three distinct types of residual income: equal valuation, corporate finance, and personal finance.
1 – Equity Valuation
When it comes to equity valuation, residual income is indicative of an economic earnings stream. It also represents a valuation method specifically for forecasting the innate value of a company’s common stock. The purpose of a residual income valuation model is to value a company as the sum of book value. Additionally, the present value of anticipated future residual income. Residual income makes attempts to effectively gauge economic profit. This is, in essence, the profit that remains after the subtraction of opportunity costs for all sources of capital.
The way one would calculate residual income is as net income less a charge for the cost of capital. For the most part, we refer to the charge as the ‘equity charge’. It is calculated as the value of equity capital multiplied by the cost of equity. Alternatively, the mandatory rate of return on equity. Taking the opportunity cost of equity into consideration, a company could have positive net income and also negative residual income.
2 – Corporate Finance
‘Managerial Accounting’ is a term that defines residual income within a corporate setting. It’s indicative of the amount of leftover operating profit following the payment of all costs of capital. In particular, capital goes towards generating revenues. It is also not uncommon to view it as the company’s net operating income. Or, for that matter, the amount of profit that exceeds its necessary rate of return. The typical use for residual income is for performance assessment. Primarily, the performance of capital investment, team, department, or business unit.
The formula for calculating residual income is the following:
Residual Income = Operating Income – (Minimum Required Return x Operating Assets)
3 – Personal Finance
On the topic of personal finance, residual income is recognizable as a form of disposable income. The residual income calculation occurs on a monthly basis after paying your monthly debts. The outcome involves residual income becoming a vital component in the securing of a loan.
A lending institution will evaluate the remaining residual income following the payment of other debts. This, too, is done on a monthly basis. Think of it this way: the greater the residual income amount, the more likely the lender will permit the loan. Adequate residual income levels establish that the borrower is capable of sufficiently covering the monthly loan payment.
Passive: what’s the difference?
As you may recall, we briefly touched upon ‘passive income’ and how many see it as interchangeable with residual income. Well, before we move forward, we should shed light on this divide between the two and further explain passive income.
The term ‘income’ refers to money a person or business entity receives in exchange for providing a service. Alternatively, when they make an investment. Two notable types of income are passive and residual income. Many are under the assumption that these terms essentially mean the same thing. Although interchangeably using them is typical, at their core, they are fundamentally different.
It’s true that residual income may be passive, but the same cannot be said for passive income. The truth of the matter is passive income is not always residual. Passive income is money one earns from an enterprise that has next to no involvement of ongoing effort. Residual income is technically more of a type of calculation than it is a type of income. It determines just how much discretionary money an individual or entity has available to spend. Specifically, after the payment of bills or financial obligations.
Understanding passive income
One can earn passive income with very little effort, or none at all. More often than not, those who earn it are individuals and companies who receive it on a regular basis. Some earn it through investment, others earn it through peer-to-peer (P2P) lending. The Internal Revenue Service (IRS) differentiates it from earned income, identifying it as money one can earn from an entity. Furthermore, it is with which you have next to no direct involvement.
It is important to remember that earned income is anything you work for. Examples of this include wages, salaries, tips, bonuses, and commissions. However, in the case of passive income, you may be an investor or a silent partner. What you definitely aren’t is the person that is heading up the company.
Should the passive income end up being big enough, it will effectively free up a person’s time. With this extra time, they are able to engage in other things beyond their work. When you are first establishing the mechanism for passive income, it may seem incredibly risky. However, at the same time, it provides increasing levels of financial security. If it supplies a steady cash flow, then it will offer ideal security because it doesn’t connect to your time.
Is this not enough incentive to persuade you to quit your day job? Well, even if that’s the case, it is still nice to have an additional source of income. Especially if it adds to what you make from working.
When you think about it, you may wind up having a better quality of life. Specifically, when you make the choice to move more of your annual income to a passive source. This is particularly relevant if you have an abundance of debt or if a dependent gets sick.
What about ‘active income’?
We will conclude this portion of the article by quickly going over the true opposite of passive income. That being, of course, ‘active income’ This term refers to income that one receives from performing a service. It will usually include wages, tips, salaries, and commissions. It also includes income from businesses in which there is material participation. An accountant who works for a monthly paycheck, for example, is someone who will receive active income.
This type of income typically carries a lower risk. For instance, a participant in an activity to earn an income is not risking capital to try to obtain passive income. In addition, active income is comparatively more predictable. Those who receive the same monthly wage and know when it is going to arrive can plan accordingly.
Earning passive with crypto
For a lot of people, crypto mining is not the most feasible option. Lucky for them, there are an array of less capital heavy and time-intensive ways to increase your crypto wealth.
- Run a Lightning Node (this a method that is primarily for the tech-savvy)
- Coin Lending (margin trading and coin lending)
- Airdrops, Forks, and Buybacks
- EOS Systems (EOS DApp, Ethereum DApps)
- Staking cryptocurrencies and Proof of Stake (PoS)
- Masternodes cryptocurrencies
To learn more about these methods, read “The Best Ways to Earn Passive Income with Crypto.”
Building residual income
To reiterate, the key idea when it comes to generating residual income is leverage. Above all else, you need to be able to leverage other people’s time as well as their money. This way, you can effectively create a residual income. A businessman like Richard Branson is capable of running hundreds of companies. How is that possible? Well, the fact is, he’s not actually the one who is running any of them. That responsibility lies with his CEOs.
In order to properly create residual income, you need to create a specific product. One that people will continue to purchase on a regular basis long after its initial creation. A prime example of this is a house. People will proceed to pay rent to acquire the right to live in the house. A business, meanwhile, requires a collection of products that continue to sell over and over again. This is a better strategy than merely trading the business owner’s time in exchange for money.
The products could very well be an item that has been created and can undergo duplication. Or perhaps it might be other people’s time. Let’s use a dentist as an example. They can only make so much income from trading their time for monetary gain. However, bringing on other dentists is a different story. In that case, they will start to leverage their results as a way to gradually build residual income.
You need to consider how you work for active or residual income. Then you need to choose a path that progressively transitions from active to residual income. It’s difficult to start a new business and create residual income within a day, so be patient. The more residual income you make, the more you can start scaling back the hours you put into active income.
HedgeTrade Affiliate Program
Now we get to the point where we explore how one can earn a residual income as a HedgeTrade affiliate. First and foremost, we need to clarify what the Affiliate Program is on this platform.
Each time a Blueprint closes, there is an allocation of a small proportion of funds for reinvestment into the HedgeTrade platform. The Rublix Development team came to an important decision. They believe that investing the money back into the users of the platform would result in a wide variety of benefits. With this epiphany in mind, they went on to establish the Affiliate Program to automate a system of commission payouts to affiliates. The payment of commissions is with HEDG tokens following the completion of each and every Blueprint.
The Affiliate Program on HedgeTrade provides users with the following benefits to the platform’s ecosystem:
- All users have another method in which they can earn HEDG tokens. Now, they can utilize affiliate commissions.
- The program provides an incentive for inviting and attracting new participants to HedgeTrade. This, in turn, will strengthen the platform’s presence and system.
- Newcomers have a way to earn through the program without ever needing to publish and sell their own Blueprints. This will give them an opportunity to earn an alternate strategy. That is until they are confident enough that they can go forward with publishing their own predictions.
- The more users there are on the platform, the more the marketplace can grow for trade predictions.
The best way to illustrate how much you can earn is by using this infographic:
Affiliates and residual income
There are plenty of reasons to use the Affiliate Program. For starters, it helps with the platform’s promotion and the growth of the user base. With more users on the platform, it ensures the earning of more commissions. The more commissions there are to earn, the more users will join the platform. The payment of commissions is with HEDG tokens, which you can use on the platform. Moreover, you can withdraw and trade it on several exchanges.
Most importantly, the Affiliate Program enables all HedgeTrade users to earn both passive and residual income.