#37 Money Mindset: Understanding Passive vs. Residual Income: Key Differences and Why They Matter

In this episode, we delve into the differences between passive and residual income, exploring why understanding these concepts is crucial for financial growth and stability. We'll cover:

• Active Income: What it is and why it's essential for financial stability.

• Passive Income: How to earn with minimal ongoing effort and examples like rental income and dividends.

• Residual Income: The benefits of continued earnings after the initial effort, especially in network marketing.

• Practical Steps: How to diversify your income streams effectively.

Whether you're looking to increase your earnings or build a more robust financial future, this episode provides valuable insights and actionable advice.

Listen on Apple Podcasts, Spotify, Podbean, Amazon Music, Audible, Google Podcasts, or whatever your favourite place to listen is! Or Watch on YouTube below!

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Passive or residual income? What's the difference, and why should we care? Let's dive in.

First, let's cover active income, also known as earned income. This is the money you earn through active employment, such as a salary or wages. It's straightforward: you work, and you get paid for your time and effort.

Active income provides stability. You know exactly how much you'll make for the hours you work. It's predictable and essential, especially when you're starting or if you need a steady income.

Now, let's move to the heart of the discussion: passive income versus residual income.

Passive Income

Passive income is earned with little to no effort or active involvement once the initial setup is complete. Examples include:

• Rental income from properties

• Dividends from stocks

• Interest from savings accounts

• Royalties from intellectual property

The key here is that passive income typically requires upfront investment. You need money to make money in this scenario. Once you've invested, these assets generate income with minimal ongoing effort.

Residual Income

On the other hand, residual income continues to come in after the initial work is done. It's often associated with ongoing royalties, commissions, or dividends. This is where network marketing fits in perfectly.

In network marketing, the initial phase demands significant effort. You'll work hard, perhaps more than the immediate compensation suggests. But if you remain consistent, the work you put in can yield returns long after the initial effort, continually bringing in income.

Practical Steps to Diversify Income

If you're currently working a nine-to-five job and don't have the capital to invest in passive income opportunities, consider ways to generate residual income. Start with:

1. Network Marketing: Invest your time initially, and as your network grows, so does your income, without needing to multiply your working hours.

2. Side Hustles: Find opportunities that can grow into residual income streams.

3. Skills and Courses: Develop skills that can help you create content or products that generate ongoing royalties or commissions.

The goal is to diversify. Use your active income to support yourself while building streams of residual income. As your residual income grows, you can eventually invest in passive income opportunities, further multiplying your earnings without increasing your workload.

Key Takeaways

• Active Income: Steady and reliable, earned through direct work.

• Passive Income: Requires initial investment, minimal ongoing effort, like rental properties or dividends.

• Residual Income: Continues after initial work, common in network marketing and content creation.

Understanding and leveraging these different types of income can help you achieve financial stability and growth. Remember, it's not about choosing one over the other but finding the right balance and opportunities that fit your current situation and future goals.

Transcription:

00:00

passive or residual income? What's the difference? Why do we care? Let's talk. So first of all, I want to say I want to talk just briefly So before I dig into passive and residual, let's talk about active income So or earned income you could say but that active or earned income is income you earned through active employment

00:27

where an individual is compensated for their time and effort. So salary, wages, etc. So that's your active earned income. Now let's talk about passive versus residual income. And if you look for opportunities to increase your income and you look outside of that box of the traditional like get a job, go to my job, you know, hope for a raise, hope for bonuses, that's how I earn my income, work harder.

00:57

do better and hopefully I will make more money as years progress and get 50 cent raises or two dollar raises or whatever they work out to be. And I'm not making fun of that, I've been there. And it's not a bad thing to have active or earned income. Because it is that guaranteed income for exactly what you put in, you know how much you're gonna be getting out of it and what you're gonna be making. But let's talk about passive income versus residual income.

01:27

And I'm going to put a note in here that if you're in network marketing, or if you've looked at network marketing, oftentimes, um, or if you look at stuff online or opportunities to look outside of your nine to five to increase your income, you'll hear people interchangeably use these terms, but also claim that it's the network marketing is passive income when it's not. Um, and I want to be clear about that. So passive income definition of passive income,

01:57

is money earned with little to no effort or active involvement on the part of the recipient. It is income generated from assets in which an individual is not directly involved in the day to day operations. So for examples, rental income, dividends from stocks, interest from savings accounts, royalties from other intellectual property. So in other words, like you have to have the money to make the money, right? Like you can, this is where investments

02:25

where you're investing money and it's passive. You're not doing anything with it to maintain it, whatever, right? Like you kind of, you invest the money, whether it's in real estate or whatever, and then you have, you don't, it doesn't require any time or effort or even thought for it to give you a return. And that's cool and great, but you have to have the money in order to do that, right? Residual income,

02:55

on the other hand, refers to income that continues to be generated after an initial effort or work has been completed. It's often associated with ongoing royalties, commissions, or dividends. So this is where network marketing comes in. And if you're in network marketing, depending on what season you're in, you might be in a season of at the beginning.

03:23

You're going to do a lot of work, more work than you're going to get paid for, but you'll see that return if you continue the work consistently. You will see a return on that work, and you'll see that return on that work continually.

03:41

I've seen return on work that I've done with my network marketing business years ago continue after the fact for years. And I'm so beyond thankful for that. That's a huge, huge benefit. And it continues to grow. So it's not that you want to have, it's not about having one or the other, which one's best. It's about how can you diversify? And also

04:10

given the time that you have. So if you have an active income job, let's say the earned income, right? You're working the nine to five right now. But you don't necessarily have money to go invest in something, to do investments or to invest in real estate or whatever those things are. So what can you do to increase your income and get to a point where you can have that passive income?

04:40

where you look for something that has the residual income, where yes, you're gonna put in more work now, but then it continues paying you. And then how can you, hopefully eventually, unless you really love what you do, eventually you should be able to, you don't have to worry about so much the active, your nine to five, the active income, because your residual income,

05:07

You're able, the hours you invest in that is able to give you big enough returns that then you can not only have the residual income, but you can have passive income, right? You have the money to then invest in passive income options as well. So then you're continuing to grow and multiply your income, but you also have that passive income portion, right? Because most people in their day-to-day jobs live a life where they don't have enough margin.

05:36

or they don't give themselves enough margin to be able to save up to invest in passive income. But we hear all the time about people who are like, oh, you just need to just invest, just invest, just invest, invest in real estate, invest in stocks, do all these things. That's great, but you have to have the money. Like the saying, it takes money to make money. It doesn't in all cases, right? That's where something that has a residual income is huge. Right?

06:05

Or if you aren't there yet, then that's where we rely on active earned income. And that's a huge thing as well. You know, like that's that's how you pay your bills. Right. So knowing and understanding the difference between those two is really crucial when you're looking at your life. Right. And when you're looking, I guess, like the other note, just from a network marketing standpoint is you do have to still put like it's not passive income.

06:33

even though you do the work and you will continue to get paid back on it, you do have to continue, if you want that income to continue, especially if you want it to continue to grow and not decrease, you're going to need to still put some time in. But that, because it's a multiplication, instead of just like adding, right? You know, when we think about active or earned income, it's, you know, you work eight hours, you get paid X amount of dollars for eight hours, right?

07:04

Simple addition. Whereas multiplication in residual income and specifically in network marketing, if you choose the right company, comes from that place where you can multiply your income and continue to, but that doesn't mean you have to keep multiplying the amount of hours you put in. And that's a big deal.

07:29

And then passive income allows you to take the money that you've made in other places and continue to grow it or get your earning interest or whatever back on it, right? So hopefully that's helpful. This is gonna be a short and sweet episode. But just I wanted to clear that up because I hear a lot of people sometimes use that interchangeably and it's not at all interchangeable. All right.