Residual Income: Various Types & Passive vs. Residual Income

Undoubtedly, one of the most cultivated topics in today’s scenario is passive income. Many people would like to income apart from their job and find it better to earn high payouts within few days. However, it is also undeniable that the introduction of residual income is also capturing the market.

Being a new concept, this new type of income strategy adds a few pounds extra into the bag of common people. Actually, it is such income tactics that engage spontaneously earning even during the pandemic. On the other hand, while passive income seeks some investment, residual income will not ask for a single investment amount.

What is Residual income?

It is such an income that keeps a person on liquidity even after the completion of the work. Generally, this type of income helps boost the economic condition of a person to a great extent without producing much labour. Corporate sectors seek the actual benefits of using this means of income.

After selecting residual income as a part of the finance, a business entity can easily make out its performance in the corporate world. Besides, experts of corporate sectors who use this strategy can calculate how much profit it earned after paying all the expenses. To calculate corporate finance marketing, people follow this equation, Operational income – (rate of return * operational assets)

Apart from enhancing revenue for corporate finance, residual income is as good as strengthening personal finance. It is undeniable that such type of income is not like a job or anything which may count payment based on hours spent. Rather, at the initial stage, a person needs to make a very small amount of capital, which can be time or money.

Some residual income instances include:-

• Earning generated by providing royalty
• The amount earned from rent
• Income originated from interest payment or dividends
• Nurturing hobbies and selling those as a product, etc.

Although residual income is quite similar to passive income, there are some differences between them.

Various types of residual income

Basically, such type of income suits best for corporate sectors to evaluate the entire equity of a company. It offers financial assistance and helps in the process of calculating idiosyncratic stocks or shares. This residual income model assists in getting the exact amount of Present Value (PV) and Future Value (FV).

Therefore, it works best to secure a profit margin and earn revenue for that entity. However, calculating as per the model, an entity can easily calculate the net income excluding all the applicable charges. When it comes to the matter of divisions, the concept of residual income differs from user to user.

It is divided into two parts, corporate finance and personal finance.

• Corporate finance

As discussed, corporate sectors enjoy the best benefits if they work on this theory. Accounting plays the most important role here as a part of the company. After analyzing the amount to be spent for paying each and every cost, an accountant can represent the amount of revenue secured out of residual income.

When a company finds out that net income is more than the expected rate of return, then it can easily denote that the residual income strategy worked best due to the calculation of the return on principal investment, teammates’ performance, different segments, etc. To perform the calculation process, the multiplied result of the minimum rate of return and operational assets should be deducted from the entire operating income.

• Personal Finance

When applied to personal income, the periphery completely changes and becomes a form of regulatory income. Though, in the case of an individual’s residual income evaluates at the end of every month to know how much profit has been made. For this reason, many people find it as a simplified means of repayment.

Residual income adds good profit to the bag of people with which a person can easily become liability less. In case of any difficulty, looking for very bad credit loans with no guarantor from direct lender is always an option. Undoubtedly, residual income strategies are not at all similar to corporate finance when it is the matter of an individual person.

Differences between residual income and passive income

Both of these residual and passive incomes refer to two different faces of a single coin. Being part-time income, both of them possess some differences and are not at all the same. Here is mentioned some notable difference between passive income and residual income so that people can easily choose according to their convenience.

• When a person goes for passive income, he requires to invest a good amount of money and time. Without these two valuable investments, it is completely impossible to make it a good source of income. On the other hand, residual income is something that may or may not need investment. Sometimes, it has been observed that after investing a small amount of money, residual income starts producing a good profit.

• Well, passive income failed to provide actual net income earned out of the part-time job. Rather it gives the amount as a whole.

On the other hand, residual income helps provide a clear cut picture of net income, which is necessary to mark the efficiency of the side profession.

• Although it is termed passive income, when a person starts to engage himself in such an income strategy, he can discover many flaws. One of the most important among them, time. For instance, if you start your own printing shop, you must devote a good amount of time after office.

On the other, residual income is something that does not require a huge amount of time. This is why a person easily can carry on this mode of income without leaving his permanent job. For instance, if you rent the ground floor of your house during weekends or any special occasion, there is no need to spend extra time on tenants. Moreover, you can enjoy extra earning without taking any additional work pressure.