If you search the web for “residual income”, you may find a definition or two, but mostly, what you find are websites trying to sell you on the passive-income-flavor-of-the-day. It’s frustrating, I know. I don’t know about you, but before I jump into any opportunity or even before I take a trip, I like to do my research. That being said, there are plenty of excellent opportunities out there. But before you start out spending money, let’s discuss what passive income is and, most importantly, what it isn’t.
Webster’s dictionary defines residual income as “of, associated with, or being business activity where the investor does not have immediate control of income”. I don’t feel that tells the whole story. Residual income is money that you receive repeatedly without having to do much work (notice I didn’t say “any work”). It is actually distinct from earned income in that you will be not receiving money for your time (like you would probably work). But depending on the passive income stream that you simply choose, you may actually have immediate control over your earnings. But I’ll reach that later.
Why can you want passive income? Well, like Robert Kiyosaki explains in the book Rich Dad Poor Dad, this is the main distinction between the rich as well as the middle-class. The rich invest their money in various passive income streams. When their residual income exceeds their expenses, chances are they are financially free. “Financially free” means that there is no need to get a day job to pay for your expenses. And you also are “free” to then do anything you want!
What Residual Income Isn’t. Before I get into suggesting what passive income is, let me first let you know want it isn’t. Passive income is not really the same as “residual income”. Recurring income is money that you get on a regular basis after you have done work once. The most effective example could be TV sitcoms. Some actors get “residuals”. Actors earn money from filming the show. Afterwards, some actors get compensated every time the show repeats. Sales representatives that sell services, subscriptions, or renewable products (like insurance) sell that item once and, providing the customer renews, will receive a commission away from each renewal. Royalties through the sale of books and music are also residual.
Many claim that multi-level-marketing or multilevel marketing sales offer you passive income. Guess what? That’s residual too.
For those who have your small business or are self-employed, even in case you are making a lot of cash, this may not be residual income. If you obtain a salary from the business, that is make money online. There exists a method to turn this into residual income, however – so stay tuned.
You know, We have to say that starting your personal website should not be residual income. Whether you are selling a product or service (such as an eBook, seminar or other information) or a service, you still have to market your site. You should accomplish this whether or not you happen to be selling your personal products or have the rights to promote other’s products. Marketing your site is work, simple as that. But it’s not a job. And when your marketing efforts begin to take off, you can make a lot of money with little additional effort. But which is residual within my book, not passive.
What Passive Income IS – Residual income quite a bit of things. The very first thing comes to mind, and also, I believe, the most famous example is real estate. If you own investment property and therefore are getting a positive cashflow from the house, commercial property, or apartment, that is residual income. If you rent rooms in your house, that’s passive income too. You simply have to set this up once, and therefore the income is available in month after month. Interest income from savings accounts, CDs, and funds-market accounts are passive – the bank pays you to keep your money in those accounts. If you have an internet site with banner ads or Google AdSense ads, that can be called passive as well.
If you spend money on any company, but don’t manage it, your profits are considered residual income, precisely what Webster was thinking of as he wrote the definition.
Have you thought about business? Well, that will depend about how you set it. Rich people create businesses and set up a system that this business follows. That way, when the owner continues on vacation for a month to Fiji, the employees stick to the system as well as the owner still gets the profits. Any organization will of course start off with plenty of work, but if you take the time to set up a company so it gets reproducible results (exactly like a franchise), those profits become passive. And, based on the IRS, any salary you obtain from your business is considered “earned” but profits are thought “passive”. It is important when starting an organization to check with the accountant plus an attorney to set your business that financially benefits you the greatest.
What else can be regarded as passive income? What about self-storage facilities, parking garages/lots and dry cleaners! Each of them require serious amounts of start-up, but once they may be set up, you collect money again and again.
Residual vs Passive Income – Residual and residual income are like siblings. They are both very similar and many people really consider them synonyms. Exactly what does it matter, anyway? They may be both excellent ways to get money with you every month after month without trading your time and effort or your freedom. How can it improve than that?
Reality Check – Beware of anybody that tells you that there is absolutely no work associated with paribus. Residual income will not mean no work! If you are planning to shell out in a business, a stock, or a real estate property, you will need to seek information (this is called “research”). Research is work! Additionally, you will be required to manage your investments, to check up on their xwmpuf to make changes as necessary. That’s work too!
The good news is that research and management is only a part-time endeavor. And more often than not, that work can be completed from almost anywhere, including on the beach in Fiji.
Let us not forget the FUN factor. I’m sure there are some of yourself reading this who like, even love their jobs (if you still have one). A few of you have your personal business – and congrats to you! But most of us have been in jobs just because we must feed our families and pay for the bills. Looking into passive income streams and investing your time and money can give you many, many returns. Researching for and implementing your passive income plans so that you will can live your dreams is FUN. Getting money on a monthly basis, week, or even every day is FUN. And seeking out new strategies and managing your cash – when you have some to handle – is FUN.