What is residual income anyways? We sometimes get the the definitions of passive and residual income confused. Know that both are great ways to earn income.
Most professionals, on the other hand, make linear income. That is, they are paid according to how much they work, how many hours they put in, how many clients they see or how many surgeries they do. The more they work, the more they earn. The less they work, the less they earn.
When you De-Jones your finances, you not only want to stop using consumer credit and think about how you spend your cash, you also will want to consider what is residual income or passive income.
Residual income is income that recurs over and over again after sales. The amount of payment is usually an agreed upon and pre-determined amount like royalties for books or music, or online subscriptions, for example.
Passive income is an income received on a regular basis with little or no effort required.
Often we know that what is residual income can be passive in nature in that once the original product is set up for distribution, little effort is required in maintaining it. For the most part, however, the residual income comes to an end. As an example, there may be funds due to a writer for each sale of their novel. Once the book stops selling copies (as is ultimately the case with most books), the money stops being generated for the writer.
On the other hand, passive income continues on an ongoing basis with little or no effort. Often passive income occurs once you have made an initial investment such as in certain financial investments or real estate.
The thing that is great about passive and residual income is that although they require an investment of time or money they often continue to generate returns and income that surpasses the original investment of time or money.
Making income on a passive or residual basis can each be great ways to ensure your financial security and success.
This is where a lot of professionals (including me) have gotten it wrong. The thing is that as professionals, our time spent in our professions is often handsomely compensated. We are, however, only compensated at all when we practice our profession and when actually go to work. If we stop working even for a short time, our income stops. Even worse, for a lot of professionals (there’s me again), our business expenses continue regardless of whether or not we work. This is why so many professionals (particularly those who own their own businesses), find it so difficult to take any significant amount of time off. Although the goal of most professionals is often to gain financial success by saving enough funds to put in investments, the bulk of the lawyer’s, dentist’s or doctor’s income continues to be generated when they go to work making linear income. If they stop working their mortgages do not get paid, their Iphones do not get paid for, and their car payments do not get made.
Because linear income, unlike residual or passive income shows almost immediate results, professionals often get distracted with continuing to earn this type of income to the exclusion of other, more ultimately rewarding methods. As they continue generating linear income, they also generate their own exhaustion, depression, and sickness.
What to do about it? It is important to learn ways of making passive income and learn what is residual income in order to De-Jones your financial success.
Written by Val Hemminger, the nonconforming professional