Passive Income vs. Residual Income – There’s a Difference!

June 6, 2017

Of the countless types of financial assets that people aspire to, one of the most sought after is passive income. You’ve probably heard of both passive and residual income before. You might have even confused the two.

We’re here to set you straight on what each income type means—and how they’re different.

Passive Income or Residual Income?

Often considered the gem of financial freedom, passive income is income generated by assets you invested money or effort into in the past that require little to no effort to maintain today.

In other words, once you invest, you keep getting paid for it long after the initial investment.

There are tons of articles out there confusing passive income with residual income. But in the financial world, residual income has an entirely different meaning. Also called “disposable income,” residual income isn’t actually a type of income, it’s a calculation that accountants perform to determine what your income is after paying all expenses and debts. Many banks and lenders assess borrowers’ residual income when reviewing them for a new loan.

How to Earn Passive Income

If you’re reading this article, then you’re likely curious about passive income—and how to earn it. There are numerous ways to earn passive income, including from:

Stock returns: Dividends you get paid from any stocks you own, which earn you money long after their purchase.

Investment properties: Rent you receive from a real estate property—residential or commercial. Yes, the property needs to be maintained, but the earnings still stream in every month.

Book sales: Royalties an author receives for writing a book. Generally, they get paid a percentage of the retail or net price of each book sold—in perpetuity.

In all of these cases, your one-time investment consistently provides you with an income while you sit back and collect on it. What could be better than that?!

Capitalizing on Digital Content

In the entrepreneurial world, another popular form of passive income is click-to-purchase content, which includes products like e-books, how-to guides, or online courses. Essentially, the entrepreneur sells his/her expertise through these pre-prepared online products—individuals purchase the e-book or online training to gain access to the expert’s knowledge.

Since the entrepreneur has already prepared the content, all they need to do is watch the money roll in (of course, only after they’ve gained a following and marketed the hell out of themselves)!

In the digital age, knowledge is power—and money. Selling your knowledge through online products is big business. Why not tap into it?

Product Sales

Of course, the selling of manufactured goods or products is an age-old source of income, but is it passive income? It could be, depending on the business model. Two of the most common sources of passive income via product sales are:

Product Distribution: Companies that enable individuals to become product distributors and earn a return on their customers’ purchases are another source of passive income. Like any other type of passive income, if you invest up-front (by recruiting loyal customers), the long-term rewards can be huge!

Affiliate Programs: As an affiliate, you promote a company’s products or services on your website, and you get a percentage of the sale when someone clicks from your site to buy it. If your site gets lots of traffic, you could earn a pretty penny from affiliate links!

The Benefits of Passive Income

1. Make Money While You Sleep—Literally!

This is what dreams are made of. You’re making money even when you aren’t doing anything. This means that even if you’re sick, traveling, or don’t feel like working, the money you’re your passive income source(s) continues to roll in.

2. No Limit on Your Income

The thing about earning money from a corporate job is, no matter how hard you work, no matter how fantastic you are at your job, no matter how much extra time you log, there will always be a limit to your income—that’s why the term “salary cap” exists.

Start Investing in Yourself with Passive Income!

Unlike your company salary, passive income has no limits. Want to earn 7 figures? Then start investing!

Curious how to make passive income work for you? Contact us at (858) 837-1505 or for more information about how Six Figure Profession can help you gain financial freedom.


  1. Scot Seyfert

    This information is magnificent. I understand and respect your clear-cut points. I am impressed with your writing style and how well you express your thoughts.

  2. I agree totally with your article… passive income is the holy grail of income and something we should all be striving for.

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