Passive Income
Passive income is a term used by Robert Kiyosaki in his Rich Dad Poor Dad series of books.
However, on this web site I mainly use the term ‘residual income’. That’s simply because it’s probably a better known term. As far as I’m concerned you could use either.
On the other hand I think it’s worth having a quick look at the difference between passive and residual income – at least as far as I understand it. This is really a question of splitting hairs because I don’t think there is a practical difference.
For me, residual income is money you keep on receiving as a residue. You put in an initial effort and the residue is what’s left. Hopefully the money doesn’t stop just because your effort came to an end. With residual income your initial work built up a residual income stream which keeps on flowing long term.
This residual income stream is also passive income. It is passive in the sense that you no longer have to actively work to receive the money. Residual income is always passive. Both relate to the right hand side of Robert Kiyosaki’s Cash Flow Quadrant.
Some people, though, may receive income without making any initial or ongoing effort. For example, a rich relation might give you a house which is already rented out. You continue to receive the rent.
Clearly this is passive, but in some sense it is not residual. It does not result from an effort you made. Building residual income is a real learning experience which often goes hand in hand with personal development. Passive income can come as a gift. |
