Most people’s income actually prevents them from becoming wealthy. It’s not the amount, it’s the type of income. Most people are brought up with the thought that there is only one type of income – the one from your job. This is linear income and it can actually prevent you from becoming wealthy especially while you are young enough to enjoy it.

Trying to accumulate wealth through linear income can be described as running up a down escalator. You have to put forth the effort even just to stay in the same place. If anything happens such as an illness or layoff, you go backwards. If your family expenses increase due to a new baby, higher taxes or paying for college, that’s like the escalator speeding up. You have to put forth more effort to stay at the same standard of living, i.e. stay in the same place. It’s not always possible to get a raise or find a better paying job, especially in economic down times, so many people have to go backwards.

There’s another factor that comes into play with linear income, it has a ceiling. If you are trading time for dollars or units of work for dollars, such as a tax preparation, a root canal or a plumbing service call, there is a limit to how many you can do in a day. If you can draft a will in 30 minutes, then you can only collect for 16 in an 8 hour day. The most you can do is 48 in 24 hours and then you can’t do that for more than a day or so at a time.

Because of the time limitation, the only way to increase your income is to increase the amount of money you are paid for your unit of work. This has its limits as well. If you price your services out of the market, people will go elsewhere to get the same service.

So, how do you acquire wealth if not through your job? The answer comes from a different type of income called residual income. Residual income is where you do the work once and you collect income over and over again while doing little or no work.

One of the most familiar types of residual income is interest income that you earn on a savings account. You deposit money and as long as the money is there, you receive income. The more money deposited, the more money you receive. If you have the interest deposited into the savings account, you receive compound interest which helps the account snowball exponentially.

Unfortunately, the current interest rates on savings are so low that is not a practical way to build wealth in a timely manner. So, what would be? That would be investments and businesses – in other words, income producing assets. A rental house can give you a positive cash flow of say $200 per month. You can use this income to purchase more rental houses and increase the cash flow. As long as you own the property and keep it rented, you will receive the income.

Other examples include a book author’s royalties. I know one author that wrote a best seller in 1980 and has received continuous royalties from that book since then.

An oil well is another example as are the residuals from producing a blockbuster movie or writing a hit song.

There are many home based businesses that offer you the opportunity to create residual income. For most people, this is probably the best and easiest way to create residual income. Most people aren’t going to write best sellers or hit songs.

The residual income comes from the situation where customers reorder consumable products from your business. You get them to try the products and if they like they reorder, often from a company web site or 1-800 number. The product may be shipped right to their door without your involvement. You just have to collect the commission.

If you have a business where you can collect an override on the products or services sold by others, then the income grows at an even faster rate.

As your residual income grows, you can turn your attention to creating more residual income streams like planting money trees. You plant one, nurture it until it thrives on its own and then you plant another and repeat the process.

Since you don’t have to be closely involved with the generation of the income, if you have a prolonged absence such as a long vacation or illness, the income continues to come in. If the income is more than your expenses, you can “retire” at any age. If you need more income, you either increase a revenue stream or create another.

To recap – trying to create wealth using linear income is like trying to run up the down escalator while residual income is like stepping on to the up escalator. Which would you rather do?