Residual Income VS Passive Income

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These days there is a lot of talk about residual income and passive income. But what is the difference. Most people get involved with a home based business to earn residual income.

When you search Wikipedia for residual income it brings up passive income. But passive income and residual income are two different things.

The word residual means: The quantity left over at the end of a process; a remainder.

The word passive means: Accepting or allowing what happens or what others do, without active response or resistance.

Residual Income:

Here’s my take on it. Residual income in its simplest from is doing work once and getting paid off of that one time effort again and again. There will or should be very little maintenance needed to keep that stream of income flowing. I alway like to use an author as an example. See they write a book once and every time a copy of that book is sold they make a little money. They will most likely have to go out and promote the book every once in a while to keep sales happening.

All the hard work is done. The initial time and energy went into the work weeks, months, maybe even years before. But a little upkeep along the way keeps the cash flowing. That’s how a home based business should work. You invest time in the beginning and you get rewarded for the rest of your life.

Passive Income

According to Wikipedia: Passive income is an income received on a regular basis, with little effort required to maintain it. The American Internal Revenue Service categorizes income into three broad types, active (earned(job)) income, passive income, and portfolio income. It defines passive income as only coming from two sources: rental activity or “trade or business activities in which you do not materially participate.”

I however take a different position on Wikipedia’s definition in the first part. I see passive income as income you don’t have to work for. There is no on-going maintenance, or no previous effort of time or energy required. Such as investment or portfolio income. That could come from a few different sources. Things like stocks, bonds, paper investments, or interest bearing accounts. This type of income is earned by giving your money to a financial advisor who does all the work for you.

Now I guess you could handle your own investments. Which some people do. And that is okay. I choose to let someone else handle the money. Then I can focus on things that are more important to me.

So to me that is passive income. I don’t do anything for it. However residual income does require some effort both before and after to keep the cash flowing.

The unfortunate part with most home based businesses is that they hype up the residual income, but cannot actually prove that it does exist. And that it’s actually going to continue to pay you in the future. In most home based businesses once you stop recruiting, people will start to fall by the wayside not long after. If the average reorder rate in a typical MLM business is 25%. How long do you think it would be until there isn’t really anyone left? Or anymore residual income coming in?

I personally have been getting paid month after month, for over 10 years now for work I did 10 years ago.  If you’d like to know more just contact me on the contact page.