What is the difference between passive income and residual income?

Passive income is generated with minimal ongoing effort, while residual income requires some continuous effort to maintain.

Passive income can come from investments like rental properties, dividend-paying stocks, or royalties from intellectual property.

Residual income often stems from sales of products or services.

Passive income is self-sustaining, while residual income requires active management to continue generating revenue.

Residual income is a form of passive income, but not all passive income is considered residual.

In accounting, residual income refers to the amount of operating income remaining after cost of capital has been deducted, while passive income does not have this connection.

Passive income is generally taxed at a lower rate than ordinary income, while residual income is taxed at the same rate as regular income.

Generating passive income typically requires upfront investment of time, money, or resources, while residual income can be built more gradually.

Diversification is key for passive income, as relying on a single source can be risky.

Residual income streams are often more specialized.

Passive income can provide a steady cash flow even when the owner is not actively working, whereas residual income requires some ongoing effort.

Passive income is often considered more scalable than residual income, as the same investments can generate increasing returns over time.

Residual income in the corporate world refers to the profit remaining after a company's cost of capital has been deducted, not personal income.

The term "residual income" can have different meanings in the context of personal finance, business finance, and equity valuation.

Passive income is sometimes referred to as "set-it-and-forget-it" income, while residual income requires some level of continued involvement.

Rental income from real estate is considered a form of passive income, while income from a self-published book would be classified as residual.

Passive income can provide financial freedom and flexibility, while residual income offers a more steady, reliable stream of income.

Calculating residual income involves subtracting a charge for the cost of capital from net operating income, whereas passive income does not have this formula.

Residual income in personal finance is often associated with ongoing royalties or commissions, while passive income is more commonly linked to investment returns.

Passive income can be a buffer against economic downturns, as the income continues even when active work is halted.

Residual income may be more vulnerable to market fluctuations.

Passive income can be achieved through a one-time investment of time or resources, while residual income typically requires a more sustained effort over time.

The tax implications of passive and residual income can vary significantly, with passive income often benefiting from more favorable treatment.