Residual Income vs. Interest Income

Network Marketing and Residual Income: A Solid Path to Monetary Growth

Amid an economy that has shown only short and brief glimmers of hope, many people around the world are looking to bolster their personal financial situation by finding new sources of income that accrue in new and different ways. Of the many ways to earn a secondary income, two chief competitors have emerged: The more traditional route, using interest to enjoy additional income, is now in direct competition with residual sources of supplementary cash flow. Because earning residual income is a relatively new concept for many, this choice might be elusive and hard to understand. It is, however, one of the easiest things to understand and pursue -- and it can be far more lucrative than using earned interest as a source of supplementary income.

Earned Investment Interest vs Earned Residual Income: How Do They Stack Up?

Earned interest on investments has been a great way for many people to earn income for the past several decades, but it is quickly slipping away as a realistic source of secondary income. That's because the recent economic downturn around the world has forced central banks to reduce interest rates to virtually nothing, and those reductions have been matched by major financial institutions around the world. Those banks look central interest rates as a way to deliver a competitive rate to their customers and, as central bank rates go down, big banks lower theirs accordingly.

To that end, many investments have seen their interest rates decline by more than half. Today, many savings accounts and even mutual funds provide interests rates of between 2 and 6 percent, a far cry from double-digit interest rates that weren't too uncommon just a decade ago. That has resulted in a drastic reduction in income for many people around the world.

In the United States, for example, an earner would need to have $120,000 locked in an investment that earns 2 percent interest just to generate $200 monthly. A few decades ago, they may have been able to earn $200 per month by having just $24,000 invested at the same place. This example presents two harsh realities: First and foremost, an extra $200 per month is not really a robust amount that can significantly offset expenses. Secondly, most Americans don't have $120,000 to invest, meaning they'll earn even less. A third problem exists in that most interest rates are variable, and they fluctuate with increases in GDP and improvements in the national and global economic outlook. That kind of uncertainty means gambling with income, and that's something that most people are looking to avoid.

Residual income, on the other hand, is a far more stable and predictable source of revenue that doesn't depend on central banks and global economic performance in order for average Americans to earn money and increase their savings, investment, or checking accounts in value. That's because residual income isn't pegged to economic performance, but rather to the performance of an individual and their friends, family members, and others who they refer to the network marketing program itself.

Residual income also has the potential to go on in perpetuity, rewarding an individual every time a sale is made by themselves or one of their referrals. And because there are multiple tiers to this -- think "a friend of a friend of a friend made a sale" -- there could come a point where an individual could make additional income while putting forth very little effort of their own.

Residual Income: A Way to Earn Without Necessarily Having to Work

Residual income is certainly different form investment income, in that it doesn't depend on the rise or fall of interest rates in order to fully benefit an individual. But it's also important to understand how residual income differentiates from traditional income, also referred to as "linear income."

Linear income is, essentially, directly related to the amount of work that an individual does. That means someone who worked forty hours last week will be paid for exactly forty hours worth of productivity. If they worked overtime, they'll be compensated for that based on an hourly rate as well. All work done is directly accounted for and paid for, and it's tracked extensively by corporate systems.

Residual income simply does not function in this way. Rather than be paid simply for showing up, those who aspire to earn residual income are rewarded directly for their work and successes. Insofar as network marketing programs are concerned, participants will earn income directly from a sale they make. If they refer a friend or family member to the network marketing program, and that individual makes a sale, the original referrer will earn a percentage of that sale without having done anything to earn it beyond the original referral of their family member.

The "residual" aspect of network marketing begins only when friends or family members have been referred to the program and have begun making their own sales. At that point, the original individual gets to sit back and get regular paychecks that include a percentage of the sales made by their referrals. When those referrals bring new people to the program, a percentage of these third-tier sales will also be reflected in paychecks from the company. Rather than requiring a constant, 40-hour presence, like linear income does, residual income relies on the legacy of referrals and other sales to provide a continuous cash flow even when work is not being directly applied to the network marketing program.

John D. Rockefeller once stated that he'd rather earn 1 percent off of 100 people's efforts than 100 percent of one person's effort. The residual income and commission structure employed by network marketing programs has turned this quotable statement into a financial reality.

Residual Income: Vastly More Potential than Earned Interest from an Investment

There is simply no way to exponentially increase the earnings from interest-based income when earned from a banking institution or an advanced investment. The interest rate determines all income, and individuals have little to no control over that interest rate. It's a limited way to improve financial standing.

Residual income is not tied to any particular number, except for the percentage of referral sales that will be credited toward someone's paycheck. Just like the limbs and branches of a tree, residual income continues to grow, expand, and branch out to other friends and relatives, and their friends and relatives, and so on. Where interest rates might go down over time, residual income actually goes up as more people participate in the network marketing program that earns them both direct income and residual funds. And, because of the vast network of people participating in the program, the effect of economic slowdowns can be blunted by ongoing deposits of residual income over long periods of time.

And, of course, residual income can be deposited into an account that is earning interest itself. As that account increases in value, it will earn more money on a monthly basis. In terms of personal finance, this is known by most consumers to be a win-win situation.

Plenty of Programs and Avenues Providing Access to Residual Income

Network marketing programs are the principal source of residual income, but they're not the only ones. The current economy is one that begs individuals to get creative. And, indeed, creative pursuits like musical recordings and electronic books are two of the leading ways to earn residual funds outside of network marketing programs. Rental properties present yet another avenue toward this healthy source of secondary income. No matter which pursuit is eventually taken, keep in mind that residual income offers the kind of limitless earning potential that both linear and interest-driven income sources simply cannot offer.