RI (RESIDUAL INCOME)

Posted on | By Kalyan Bora

Understanding Residual Income (RI)

What is Residual Income (RI)?

  • RI, also known as passive income, refers to the income earned after covering all expenses and costs associated with generating that income.
  • It’s the money that continues to flow in even when you’re not actively working, often generated from investments or recurring revenue streams.

How is RI Different from Regular Income?

  • Regular income typically requires ongoing work or active participation to earn money. For example, a salary from a job or payment for services rendered.
  • RI, on the other hand, is generated from past efforts or investments and continues to be earned without constant, active involvement.

What are Some Examples of RI?

  • Real Estate Rentals: Income earned from rental properties after deducting expenses like mortgage payments, property taxes, and maintenance costs.
  • Royalties: Earnings from intellectual property such as books, music, or patents.
  • Dividend Income: Profits received from owning stocks or shares in companies.
  • Affiliate Marketing: Commission earned from promoting other companies’ products or services.

How Can I Calculate RI?

  • Step 1: Determine your net income from the revenue stream in question. This involves subtracting all expenses associated with generating that income.
  • Step 2: Calculate the cost of capital. This is the minimum rate of return required to justify the investment or effort put into generating the income.
  • Step 3: Subtract the cost of capital from the net income. The result is your residual income.

Why is RI Important?

  • Financial Freedom: RI allows you to build wealth and achieve financial independence. Once you have enough passive income to cover your expenses, you’re no longer reliant on a traditional job for survival.
  • Time Freedom: With RI, you have the flexibility to pursue other interests, spend time with loved ones, or travel, as your income continues to flow in regardless.
  • Wealth Accumulation: RI provides a pathway to accumulate wealth over time. By reinvesting your passive income or leveraging it to acquire more assets, you can further increase your wealth.
See also  COST-VOLUME-PROFIT ANALYSIS

What Strategies Can I Use to Increase RI?

  • Invest Wisely: Allocate your resources into assets that have the potential to generate passive income, such as dividend-paying stocks, rental properties, or bonds.

 

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  1. DIFFERENT BUDGET APPROACHES
  2. ZERO-BASED BUDGETING (ZBB)
  3. PERFORMANCE BUDGETING
  4. RESPONSIBILITY CENTERS
  5. RELATIONSHIP WITH BUDGETARY CONTROL
  6. REASONS FOR VARIATION IN COSTS
  7. MEASURING THE PERFORMANCE OF INVESTMENT CENTERS
  8. ROI (RETURN ON INVESTMENT)
  9. KAIZEN
  10. APPLICATION, IDENTIFICATION OF COST UNIT, DETERMINATION, AND CONTROL
  11. MARGINAL COSTING AND BREAK-EVEN ANALYSIS
  12. BREAK-EVEN ANALYSIS AND ITS LIMITATIONS
  13. BUDGETING
  14. BREAK-EVEN ANALYSIS AND ITS LIMITATIONS
  15. BUDGETING CYCLE
  16. NATURE, ADMINISTRATION, EFFECTIVENESS
  17. ACTIVITY-BASED COSTING
  18. PROCESS COSTING
  19. JOINT PRODUCTS AND BY-PRODUCTS
  20. ADMINISTRATION, SELLING, AND DISTRIBUTION OVERHEADS: ANALYSIS, ACCOUNTING, CONTROL
  21. DIRECT EXPENSES: NATURE, COLLECTION, CLASSIFICATION
  22. MATERIAL COST: PRICING ISSUES AND ACCOUNTING
  23. COST ACCOUNTING
  24. SPECIFIC ORDER COSTING
  25. FINANCIAL ACCOUNTING
  26. PRODUCTION OVERHEADS: COLLECTION, APPORTIONMENT, ABSORPTION
  27. COST CENTRE AND COST UNIT
  28. ELEMENTS OF COST
  29. COST DETERMINATION: COST SHEET
  30. MANAGEMENT ACCOUNTING
  31. ROLE IN PLANNING AND CONTROL
Category: MANAGEMENT ACCOUNTING AND CONTROL
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