Comparing Passive and Residual Income
 | The thought of earning passive income is just magical to me. The suggestion that I can just sit around and do essentially nothing and make money at the same time just seems so neat that it ought to be illegal. And yet, people are doing it daily, and with no ill effects. In fact, people have been doing it for years - decades, actually.
residual income For starters, we most likely need an explanation of what passive income is. The fact of the matter, however, is that almost everyone has their own definition of the term. Personally, I like to think of passive income as income that does not require the earner to have an active role in revenue production. That's not to say you have no role (although you may not); it's just that active participation is not necessary. For example, consider a pilot who has to fly from New York to London. Before departure, he is totally occupied with handling the plane, going down the runway, and so on. However, once the plane is in the air, he can set it on automatic; the plane only really requires his attention at takeoff and landing. (In other words, setting it on automatic let's things go into "passive" mode.) Likewise, there is limited involvement (and frequently none) by the individual earning the money in passive income activities. Also, while I often use the phrases interchangeably, this is slightly different than residual income. Residual income typically refers to income being generated by some upfront work effort, but which does not require continued participation by the income earner. A good example of this would be writing a book or a song. The initial writing effort will yield on-going royalties without the writer having to do anything else. Thus residual income actually can be seen as a type of passive income. (Dividends - which I was referring to in the first paragraph above in terms of earning passive income for decades - can also be recognized as residual income.) In brief, passive income may actually require a little work. Quite possibly, the income earner will have to "check in" on occasion to make sure that everything is okay - the exception being if you are earning some manner of royalty such as in the example noted. Regardless, it still comes out way ahead of the the other option - "working" - by a country mile. And then some. passive income |
