How Do You Include Residual Income in Your Net Worth?

Suppose you make a deal that earns you $15/month.  Most people would not be very impressed, would they?  However, today, we will discuss how important this little $15/month is.

While many people try to hit home runs and make big deals, I encourage you to learn how to repeatedly hit singles and the home runs will come.  If you can add a little $15/month brick as an asset onto your personal balance sheet, you can do it over and over and over again.

The formula is as follows:

Asset Worth = Monthly Payout * 12 / Interest Rate

Let's use an example.  The $15/month brick has a monthly payout of $15 and the standard interest rate people use is .05 (or 5%).  This means that as an asset, the $15/month brick is worth $3,600.  The monthly payout of a residual income stream is 240 times as valuable.  Why is this?

Well, if I have $3,600 in an investment with a 5% rate of return, I will get $180 per year.  This equates to $15/month.  Was this an eye opener for you as far as understanding the worth of residual income?  Are you steadily working to plant seeds, build a pipeline or dig a well which payout for years to come?  How?

"The plans of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty." Proverbs 21:5

This post was reposted from http://finlit.biz/retirement-2/how-do-you-include-residual-income-in-your-net-worth/, originally written on March 12th, 2013.