From getting a second job to running a part time business, if you want to achieve a sustainable income you can…but just because you can do something doesn’t mean it’s your best option.
In this post I’ll talk about why the residual income model is the best thing you can do to achieve financial freedom, based on looking at it from an opportunity cost perspective.
What Is Opportunity Cost?
The first thing we need to understand is what I mean when I start talking about opportunity cost.
Opportunity cost is the hidden price of any action you take, based on the implicit actions you aren’t taking because of the path you’ve chosen.
Let me use an example: Let’s say you have $1,000 to invest, and I show you how you could invest money in the stock market and make, on average, 10% gains annually. Is that a good investment?
Many of you would probably say yes. And getting a consistent 10% is certainly not a bad return, you’ll double your money in about 7 years. But does that mean that it’s the best investment you could do?
Well, we don’t have enough information. In order to really determine if it’s a “good” investment, we need to be able to understand what other options we might have. If there’s a similar situation that will make 15% annually, then the 10% investment looks terrible in comparison!
This example shows how you should be thinking about opportunity cost, but you should be thinking about it in terms of your own personal time spent, not just in terms of a financial value.
The Residual Income Model vs. A Traditional Job: Opportunity Cost at Work
One factor that turns many people off of building a residual income model for their business is that they don’t understand the true power of compounding.
They might look at the first year of the business and determine that they could make more money with a traditional job, but in my view that mindset isn’t really evaluating the whole picture. Read more about why part time evening jobs won’t solve your problem!
Consider this Scenario
Let’s say you have a part time job that pays $15/hour and you’re going to work 10 hours a week. In one year, you’ll have worked about 500 hours and earned $7,500.
Now let’s look at a residual income model:
Instead of working that part time job, you decide to build an internet marketing business. You work the same 10 hours a week and end up producing 1 page of quality content per day, on average (in reality you could probably produce more). In general, I find you can earn $1/month a page, if not more. That means that every page will “pay you back” (from an opportunity cost perspective) after 15 months.
Which is the better investment?
The residual income model.
As long as you don’t have an immediate need for the extra cash, then the residual income model will begin to outpace your part time earnings after the first few months.
That’s because of the miracle of compounding, which means that every month you work, all of the previous work you’ve put in will also work for you to increase your earnings power. Read more about how compounding works with affiliate sites.
So the only question now is: why haven’t you started yet?
If you’re not convinced, you can read more on comparing home based internet jobs to new home based business opportunities, or click here for real life examples of success.
Otherwise, it’s time to learn how to get started!