Residual Income Builder: Eliminate Debt First!

Investopedia describes residual income as what remains after all personal debts have been paid off. This is a quantitative definition which implies that if you owe any amount of personal debts, you cannot claim you have residual income. So, how do you assess this at a personal level? We will approach this in a series of personal questions, and hopefully try to understand the objective of building residual income.

Can I Build Residual Income While Having a Mortgage?

A mortgage is a long-term debt. If you have a mortgage, you cannot talk about building residual income. Even if you have a large sum of money in your bank account, your residual income will be counted only after your mortgage is paid off, or your accumulated savings are enough to pay it off.

Can I Build Residual Income if I owe Credit Card Debts?

Per the 2016 American Household Credit Card Debt Study, the average American household $132,529 in debts. This includes $16,061 in credit card debts which costs over $1,300 in interests paid. Practically, this means you cannot begin to talk about building residual income until all your credit card debts and associated interest have been paid off. One of your objectives in building residual income should be to pay off all your credit card debts and live debt free.

How Do Student Debts Affect My Ability to Build Residual Income?

As a rule of thumb, any debt, unless paid off, makes it impossible for you to talk of building residual income. Therefore, your first objective in building residual income should be debt elimination. That includes student loans. The average American Household carries just under $50,000 in student loan debts. With an increasing number of Americans retiring with student loans, it is important that the younger generation learn how to build residual income sooner, rather than later.

Does My Car Note Affect Residual Income?

When two young people graduated from college almost a decade ago, auto sales persons showed them how easy it would be to ride a brand-new car with “small” monthly payments. These brand-new graduates jumped at the opportunity. That automatically put them in the category of Americans owing an average of $28,000 in auto loans. Through loan renegotiation and even repossessions, one decade went by. When the last note was paid, the company put out an incentive to get another new car. This was a bait to renew the bondage to auto loan debts. Obviously it is impossible to talk about saving money when you are perpetually in debt.

Debt elimination is the first step towards building residual income.

Find out how to start building residual income here.