It’s not tied to your time – You’re able to earn money when not actively working, allowing more freedom to do what you like.Financial stability – Having money come in automatically allows you to reduce the anxiety of paying expenses and offers time to learn more about other ways to grow your money.Supplemental income – Income earned on top of your regular income from employment that offers the breathing room we all seem to need.Having a passive income stream offers a variety of benefits including:

Passive income gives those who earn it the ability to make money while doing other things, even sleeping. After all, wouldn’t it be great to have more control over your time without worrying about money? However, ask anyone who has achieved it, and they will tell you it was all worth it. In the beginning, there will be a lot of work involved and probably a learning curve to add even more difficulty to the task. Of course, passive income isn’t easy to attain. Most of us spend our days working at a job, and despite working hard to get ahead, inflation rises much too quickly for us to achieve that goal. We each get 24 hours in a day and no more. Since the one thing we all have in common is time, this is appealing. It can be hard to believe, but it is possible. The IRS calls passive income money earned from an entity with no direct involvement.Ī phrase used frequently when discussing passive income is making money while you sleep. Both individuals and companies engage in earning passive income from activities such as peer lending, silent partnerships, and investing. One of the reasons we are so interested in making passive income is because it’s done with little to no effort. One thing to keep in mind is that although residual income can be earned passively, passive income isn’t always residual. While passive income is earned from an activity or business with no ongoing effort necessary, the residual income definition states that residual income is income one continues to receive after completing income-producing work. They are both a type of income generated but work differently. Residual income can come from a variety of income-earning activities.Īlthough sometimes used interchangeably, passive income and residual income are not the same.A formula is used to make that determination. Residual income is the cash you have available from your income sources once all debts have been paid.Passive income is earned with little ongoing effort once the work of creating the project is completed.Whatever cash is left over is residual income. Personal finance refers to the income received after the initial work has been completed.įor example, when you purchase a house as a rental property, the rent paid should be enough to make the mortgage payment and any maintenance on the property every month. If you’ve ever looked for a way to make a little extra money, you may have come across the term residual income, which is the money left over after all bills are paid. Residual Income Formula and How It Works.

Meaning of residual income