Residual Income What Is It and Why Do I Want It

Residual Income

Internal Revenue Service categorizes income into three broad types, active (earned) income, passive income ( residual income ) , portfolio income. It defines passive income as only coming from two sources: rental activity or “trade or business activities in which you do not materially participate.”


LOL – Having income from a business i don’t have to materially participate in sounds great : ) The kicker though is that at one point you would have had to spend quite a bit of time getting it setup. But once it’s in place…..Hello residual income : )

Most common sources of residual income

There are many different sources of the passive type of residual income, but some of the most popular and profitable ones are investment portfolio incomes, rental income, and royalties from intellectual property, like book sales or patent licensing fees. Many people also get passive income in the form of a pension, but this varies from company to company as well as regionally. A form of passive income that has become particularly popular in the early 21st century is Internet revenue. This includes things like earning money on websites through advertising or number of page views. Other popular types of passive income include franchising and limited partnerships in businesses

Are there risk with building residual income?

For online income I would say that risk will only incur if you don’t manage and plan properly.  Don’t think it will happen overnight.  Don’t quit your day job (the one that feeds the family) until you’ve demonstrated to yourself that your residual income is sustainable.  To me that means if you were to look at your residual income streams like a bank…would you give yourself a loan if that was your only income?  If the answer is no – keep building!  Then you can go to the beach.

For other forms of residual income like property rental, the income potential is high, but with the iffy housing market the long term investment could be risky.  Also poor management or a natural disaster could cause serious setbacks. Additionally, there are many scams promising huge amounts of residual income in return for upfront fees, so it’s important to thoroughly research any ventures before putting money into them.

Take Away – Yes, residual income is pretty awesome.  Explore your options and don’t be naive or overly enthusiastic to “Go to the beach” without having your foundation income streams in place.