What’s the difference between passive income and residual income?
Many people don’t know… and it’s easy to understand why. In some instances they can be interchangeable. In other cases, not so much. And, according to the IRS, not really at all — but that’s a topic for a whole other post.
Let’s see if we can make sense of this.
Passive income is monies derived from sources or investments that require no active participation on the part of the benefactor. Most commonly, this is associated with things like rent. It could also be pensions or other retirement payments, inheritances, and so forth. The term passive income is also fairly synonymous with “unearned income”.
Residual income is monies derived from recurring sources that require the benefactor to only do the work once but receive payment again and again. This could be everything from royalties on a song or book to sales of consumable products that create auto re-ordering to online membership sites to affiliate sales to network marketing.
In all fairness, there are times and in some circumstances where residual income really can and does become passive income in the sense that a sale is made and the residual, recurring payment from that one sale is now passive. Does that make sense?
If asked, probably everybody would say they want passive income. The picture below of Robert Kiyosaki’s Cashflow Quadrant illustrates the various sides and where (and how) you need to be positioned to capitalize on passive income.
Learn more about passive income and the Cashflow Quadrant with Robert Kiyosaki’s book.
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