Residual Income

May 7, 20222 min read
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Residual income is the amount of money a person has left after covering all expenses, debt, and taxes. Residual income is earned by completing upfront work, and receiving a salary or set wage.

Residual income is excess money that a person has available after they have covered all basic needs and requirements such as rent, food, utilities, insurance, mortgage, and taxes. The residual income is oftentimes referred to as discretionary income, as its cash that one is able to spend at one’s discretion.

What’s the difference between residual and passive income?

For starters, residual income is oftentimes a set salary or wage a person receives after completing upfront work. This could entail a job or any service that a person renders and receives payment thereof.

Passive income, on the other hand, is more considered as a previous investment or purchase of an asset that generates income without having to put in additional or upfront work. An example of passive income can be a rental property, real estate, a private equity fund, stocks that pay dividends, or renting out a room or part of a house as an Airbnb.

A person is able to have both a residual and passive income, but each is taxed differently by the IRS.

To ensure financial well-being or financial freedom, it’s advised that a person considers that a residual income should cover all basic needs, requirements, and expenses before creating passive income.

What are examples of residual income?

Residual income has different forms, and can be any of the following:

  • Corporate and Personal Finance
  • Online Business

A person can also attain residual income through different projects and side hustles such as starting a small online business or offering a service that can help render additional income.