March 19, 2024

Passive income and residual income are two types of personal revenue that separately or together can have a sizable effect on an individual’s financial comfort and ability to reach financial goals. Passive income is money earned without significant ongoing active effort while residual income refers to the funds an individual has left after living expenses have been covered. Generating passive income can increase the amount of an individual’s residual income. Reducing living expenses or finding ways to create additional earned income can also boost residual income.
You can speak to a financial advisor about how residual and passive income can play a role in your finances.
Passive Income Basics
Passive income is money earned without active involvement by the investor or owner of that money. Common sources of passive income include interest from savings accounts or bonds, dividends from stocks and rental income from real estate. Passive income can also come from royalties paid to an author, tuition fees charged to people who take an online course and interest in an I.O.U.
Passive income is highly valued by investors and retirement savers because it allows someone to increase their wealth without having to devote time, energy or funds to the effort. If passive investments produce enough money, an investor may be able to retire early. Passive income can also reduce the risk of hardship due to interruptions to sources of earned income, such as wages and salary from a job.
Residual Income Basics
Residual income can have different definitions in different areas of business but in personal finance, it refers to the amount of money an individual has remaining after paying for living expenses. For instance, if someone receives $5,000 in monthly income from all sources and pays a total of $4,000 for all expenses including rent or mortgage, auto or other loans, food, utilities, etc., their residual income is $5,000 minus $4,000 or $1,0.00.
Having a healthy level of residual income is important when seeking credit since lenders want reassurance that a borrower has enough disposable income to make the loan payment. Residual income can also let someone pay down high-interest debts, build emergency savings or start investing. If nothing else, having money left over at the end of the month supplies peace of mind.
Unlike passive income, the source of residual income doesn’t matter. It can come from wages and salary from working at a job, passive income from dividends or savings or any other source.
Boosting Residual and Passive Income
Increasing residual income involves either increasing overall income, reducing expenses or both. To increase income, a wage-earner may request a raise from the employer, take a second job or sell unused assets such as excess furnishings. Residual income can also be increased by generating passive income, such as by investing in dividend-paying stocks.
Reducing expenses can effectively increase residual income even if overall income doesn’t change or even declines modestly. People can cut costs to boost residual income by reducing entertainment subscriptions such as cable television, paying off a high-interest credit card, shopping for better rates or insurance or moving to a less costly home, perhaps in a different area.
Passive income can come from many sources. Some of the most popular include investing in dividend-paying stocks, depositing money in interest-bearing accounts and investing in residential real estate. Some passive income activities require some attention and effort, such as managing real estate. You can collect more passive income by using residual income to invest in new income-generating investments or exchanging current investments for new ones that earn better yields.
The Bottom Line
Residual income and passive income can be important considerations for anyone trying to increase financial stability and pursue long-term financial goals. Residual income, which is money left over after paying living expenses, is often carefully evaluated by lenders before granting credit. Increasing residual income often involves generating more money from a job or other sources and may mean reducing expenses as well. Passive income is money generated without much effort or ongoing investment of time and attention. It can include interest from savings accounts or bonds, dividends from stocks and rental real estate.
Tips for Budgeting
Financial advisors help people with budgeting, saving, investing, planning for retirement and more. If you don’t already have a financial advisor it doesn’t have to be difficult to find the right one. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Budgeting is a critical skill for calculating and managing residual income. Use SmartAsset’s free online budget calculator to get an estimate of what similar households in your neighborhood spend on common items such as housing, child care and food. Then input your own expenses by category to see how you stack up and perhaps highlight opportunities for savings.
Photo Credit: ©iStock.com/Viorel Kurnosov, ©iStock.com/NosUA, ©iStock.com/PavelKriuchkov
The post Passive Income vs. Residual Income appeared first on SmartAsset Blog.
Here are the markets that will be open on Columbus Day, also recognized as Indigenous Peoples' Day, on Monday, Oct. 10.
PayPal is in trouble. "You are independently responsible for complying with all applicable laws in all of your actions related to your use of PayPal's services, regardless of the purpose of the use," the document, called "Acceptable Use of Policy," said.
The veteran telecom company is having a stellar year in many respects, but reason for concern has emerged.
Everyone knows that you should buy low and sell high if you want to turn a profit in the markets. The trick is finding the bottom, to know when to buy. Jim Cramer, the well-known host of CNBC’s ‘Mad Money’ program, sees the market bottom hitting in the next couple of weeks, making the end of October the right time for investors to buy in. Referring to some recent predictions by market technician Larry Williams, Cramer says, “The bear market is more or less… toast and, even if the current rally s
In Musk v. Twitter, a part of the business life of the richest man in the world is revealed. Private messages exchanged with his inner circle immerse us into his process when he conceives an idea. The messages were released by the Delaware Chancery Court as part of the proceedings between the two parties.
(Bloomberg) — Most Read from BloombergRussia Races to Reopen Crimea Bridge Damaged in Fiery BlastPutin Orders Sakhalin-1 Project Transferred to Russian EntityFacebook Is Warning 1 Million Users About Stolen Usernames, PasswordsNATO Once Feared a Putin Victory. Now It Worries Over His DefeatUkraine Latest: Russia Names New General; Blast Hits Crimea SpanA possible ban on Russian supplies by the London Metal Exchange would be a seismic event for the metals industry, cutting some of the world’s bi
The year 2022 has been a painful journey for semiconductor manufacturers. Following the example of AMD , Nvidia and Intel , which are the three main players in the sector, 2022 is a year to forget .Their valuations are in recession. Advanced Micro Devices (AMD) currently has a market value of $94.4 billion, which is a decrease of at least $83 billion compared to December 31, 2021.
Investing in Warren Buffett's biggest holdings can be a winning tactic, but don't overlook the companies that occupy smaller positions in Berkshire Hathaway's portfolio.
CVS Health is down sharply Friday — about 10% — in response to reports that it's in talks to acquire primary care chain Cano Health and a Medicare Advantage plan downgrade. Let's jump to the charts to see what they can tell us.
Tesla stock is forming a bearish head-and-shoulders pattern. And with CEO Elon Musk likely selling more stock to fund his Twitter purchase, shares of the electric-vehicle giant might have further to fall.
NFL linebacker Brandon Copeland made $990,000 in the NFL last year, according to CBS Sports — but that’s not even close to the most fascinating thing about him. While attending the University of Pennsylvania, he interned at UBS and has since returned to his alma mater to teach a financial literacy course. One piece of his advice that feels particularly relevant now — as a recession may loom and some savings accounts are paying more than they have since 2009 (see the best savings account rates you may get now here) — is this: You need an emergency fund.
AMD stock is hitting 52-week lows as it reports disappointing preliminary revenue results. Here's when to buy the chipmaker's shares.
If you buy one between now and the end of October, you’ll earn a composite interest rate of 9.62%.
Wall Street tends to give stock splits more weight than they should have. Annaly's reverse split, however, might be a genuine warning sign.
NIO Inc. stock is trending on the Yahoo Finance Platform. Here is a visualization of $NIO performance over time, how that performance compares to the wider industry, and analyst projections for the current quarter.Check out the ticker page here.
Polen Capital, an investment management firm, published its “Polen Global Growth Fund” second quarter 2022 investor letter – a copy of which can be downloaded here. During the second quarter of 2022, the Global Growth Composite Portfolio (the “Portfolio”) was down -18.08% and -18.34% gross and net of fees, respectively, versus a decline of -15.65% […]
What do Amazon, Microsoft, and Google parent Alphabet have in common? The company develops ready-made and customizable AI solutions for hundreds of companies across different industries, which can materially accelerate their adoption of advanced technology. Cloud-computing technology is key to businesses that operate online in any capacity, and the three leading providers of cloud services happen to be Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.
Lifetime annuities, a kind of do-it-yourself pension that can provide you a guaranteed income until the day you die, have suddenly become a much, much better deal. The pooled longevity risk is what makes them so useful.
The warehouse club has always been a little different when it comes to its policies on credit cards.
You would think this would be TIPS’ time to shine. Instead, the prices of Treasury inflation-protected securities—government bonds that are adjusted to keep up with inflation—have declined this year, even as inflation has soared. The comparable loss for ICE’s index of regular Treasury bonds was 13.5%.

source

About Author

Leave a Reply