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