What’s remaining earnings and the way is it completely different from passive earnings?
How do you know if you are looking for residual income or residual income? And what’s the difference between the two?
When looking for different ways to have passive income for a period of time, you will likely find that people often refer to it as “residual income” as well.
Although the two are very closely related by definition, there is a difference. We’ll show you what the difference between passive income and residual income is.
We’ll also show you how to find the secret that you are best suited to.
What is residual income compared to residual income?
Many sources define passive income and residual income as the same. The two terms are closely related, but there is a difference. Before we look at residual income, let’s first review the definition of passive income.
Passive definition of income
The actual definition of passive income comes straight from the IRS:
Passive activity income includes all passive activity income and generally includes profits from the disposal of any portion of a passive activity or from property used in a passive activity
Translation: Basically, it is any income that is earned passively or without much involvement from the recipient of the income. Wikipedia offers several examples:
- Rental property managed by someone other than you
- Dividends from stocks, mutual funds, etc.
- Interest on savings and other accounts
- Income from owning a business partnership in which you are a passive partner
The trend is to note that passive income in all cases involves some kind of initial money investment to start the process of making money.
- They had to buy the property in order to rent it out
- They had to buy the shares in order to receive the dividend payments
- You had to put money into a CD to get interest
- You had to invest in a stake in the company to partner and get a cut in revenue
What is the remaining income?
While passive income requires an initial cash investment, residual income is different in that you receive income after doing an initial job.
- Royalties that you receive from an e-book you have created
- Money you get from recruiting successful team members in a tiered marketing company like Mary Kay or Pampered Chef
- Creating blog posts or articles to sell something on the internet that you do not own, such as a home page. B. with an affiliate program
- Royalties from a song you recorded
One could argue that “time” has certainly been invested in each of these activities, so the difference between the two can become something of a gray area.
Needless to say, most of the time you can use the two terms interchangeably because their definitions are so closely related.
Other definitions for remaining income
It is important to note that there are other definitions of residual income. For example, if you look up remaining income on Google, you can find one of Investopedia’s first definitions:
The amount of income a person has after paying off all personal debts, including the mortgage. This calculation is usually done monthly after the monthly bills and debts have been paid.
When a mortgage is fully repaid, the income the person put on the mortgage becomes the residual income.
In other words, this definition describes remaining income as the extra money you have left after paying your bills or paying off a debt.
As you can see, this definition, while correct, is not thematic or contextual of what we are talking about today.
Residual income as additional income
Some people define remaining income in a third way: as income that is different from your 9-to-5 main job. In this way we primarily define the remaining income on this website.
Some examples of residual income beyond this definition could be:
- Freelance skills such as writing or web design
- work a second job
- have a sideline like mowing the lawn or babysitting
- Use your talents to sell things like products, crafts, etc.
This type of residual income often pays off more on your job than your 9 out of 5 work. You cut out the middleman (the company you work for) so you can make direct profits.
You have more control over your working hours and the income you earn.
Should you choose passive income or residual income?
So the question is, “Which should you choose?” In all honesty, I think that every time you can get more money for less work, this is a fantastic opportunity for you.
Simply put, you should aim for both residual and residual income when you can. Of course, the ultimate goal is to use your remaining income to create more passive income opportunities.
The more income you make, the faster you will achieve your financial goals – IF you manage that income properly.
And the more passive income you have, the more freedom you have with your time. However, the type of passive or residual income you choose should depend on a few factors.
Your skills – or the skills you want to learn – should make a difference in the sources of income you choose.
For example, if you have the skills to write a phenomenal e-book or a life changing video course then go for it!
How about learning a new skill? When I started blogging, I didn’t know anything about the process. I would hardly read a blog post!
Fortunately, companies like Bluehost make it very easy for newbies to learn how to create and manage a blog. In fact, you can start a blog in less than 10 minutes using our guide to starting a blog and making money.
Use your skills and talents – or be ready to learn new ones – to create passive or residual sources of income.
The amount of money available
The amount of money available makes a difference in the types of passive and residual income you can choose.
For example, if you have several thousand dollars, you can invest in blue chip stocks.
You may have set aside money to buy a rental property. If not, invest in a crowdfunding real estate company like Fundrise.
With Fundrise, you can invest in real estate from as little as $ 500. There are other real estate investment options that don’t include direct ownership as well.
Your level of risk tolerance
When investing, it is important to know your risk tolerance.
Your “risk tolerance level” is defined as the risk you are happy to take. There are several online risk tolerance tests that you can use to determine your level of risk tolerance.
This simple quiz from the University of Missouri is a good place to start. Some avenues to passive or residual income require greater risk than others.
Because of this, it is important to know your risk tolerance before choosing a passive or residual source of income. That way, you can be sure that you are choosing a residual source of income that is commensurate with the risk with which you are familiar.
For example, if you have a low tolerance for risk, you probably don’t want to invest tens of thousands of dollars in a high-risk mutual fund.
Multiple streams of income
I mentioned earlier on this website that I’m a huge fan of people who have multiple sources of income. Here’s why.
Whether you work or invest, having all your eggs in one basket always increases your risk.
For example, let’s say your only source of income is your 9-to-5 job. If you are laid off tomorrow, you will now have no sources of income.
Let’s say you have multiple sources of income, such as B .:
- Your 9 to 5 job
- A sideline mowing lawn for neighbors
- Your pet sitting business
- A blog that makes a few hundred dollars a month
- An investment account that pays you dividends of a few hundred dollars a month
If you get laid off from that 9 to 5 job tomorrow, it won’t be such a big deal. Why? Because you have four other sources of income that can help you pay the bills until you find another job.
Hopefully you also have an emergency fund to help you get ahead in times of lack of money. If not, you can quickly build up your emergency fund as an added security measure.
So work on making multiple sources of income a part of your pursuit of financial security. When rough financial waters come up, you’ll be glad you did.
There is a small difference between passive and residual income. Ultimately, however, it is important to know that both make money.
The money that is made through passive and residual income sources is usually different from the money you would make in a normal day job where you get an hourly wage. Indeed, the potential for earnings growth can be astronomical.
Your goal is to find the types of residual and passive sources of income that suit your skills, interests, and risk tolerance.
As you build your various sources of income, you will put yourself in a better place financially, provided you choose the right sources of income for you.
Choose today to find the right passive income sources for you. Which passive or residual sources of income do you most attract?