The Myth of Residual Income

January 31st, 2007 • Related • Filed Under • by admin

If you’ve ever spent more than a few minutes around somebody who participates in a multi-level-marketing sales program such as Quixtar or Amway, you know they will throw around a lot of seemingly complex business terms in order to make their business model look like something that is worthwhile for you to be a part of. One of these many terms that they throw around is “residual income.” They will tell you that you need to build residual income so that you can be financially independent and as Robert Kiyosaki calls it, “escape the rat race.” Let’s take a look at their argument and see if it has any weight.

First let us understand the difference between regular income and residual income, which is also referred to as passive income. Regular income is income that you trade your time for. You do some sort of labor, such as going to work, and you get paid for it, that is regular income. Residual income is income which comes in by itself without any labor. This can be income from an investment, a business that you own, a pension, and the like.

People who are pitching MLM schemes and scams will often tell you that if you want to be financially independent, that you need to build some sort of residual income. They will ask you what your dreams are. Most people give responses that they would like to take some time off, go on a vacation, or spend more time with their family. The MLM pitchers will quickly tell them that they cannot achieve those goals just by working. Instead, they need to build residual income so that they can have money coming in to provide for their living expenses so that they do not need to work for that money.

In theory, this makes perfect sense. If you have enough money to take care of yourself coming in without you working for it, you really don’t need to work. Are these MLM programs the way to do it? In most cases, not. The amount of people that you will have to refer and be part of your down line and how many people those people have to have in their down-line is astronomical. When all is said and done you will be working for less than minimum wage, end up working very long hours and bugging your friends in the process, just to make a little bit of residual income.

If you want to build worthwhile residual income, there is a much more proven way to do it. It’s called investing! You put money in stocks, mutual funds, and real-estate. Over a long period of time if you do investing, you’ll have more than enough to retire. There’s nothing fancy about it and there are no wild-eyed promises, but it works, and that’s what matters.