When it comes to finance and business, many people think that terms like passive income, residual income, recurring income, semi-passive income and all the rest… are the same thing. Well, I have to make something very clear. if you plan to build a successful business AND plan to implement additional multiple streams of income, you must fully understand that these things are not the same.
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Now, I don’t claim to be an Accountant or an Accountant or to be fair, anyone who knows much about money and money management. I’m all about creating wealth, not managing it. Hey, I outsource everything unless it’s in my genius zone! But despite that, what I can tell you: when it comes to adding multiple streams of income to your business, it’s extremely important to know and understand the different amounts of money available to you, what they’re called, and how they work.
The reason these things are so important is simple. by having a fuller and greater understanding of the terminology of different income streams, you can ensure that the wealth you create for yourself and your business is the best, most consistent and sustainable. And it also means you won’t be confused by promises of big things you don’t quite understand.
Income ceilings
The income cap is the maximum amount of money you can earn or earn and is usually imposed as a result of trading time for money. There are only so many hours in the day, so without additional income streams, it’s impossible to earn more than you’re already earning.
Let’s take an example:
You are employed in a position where you are paid a minimum hourly wage. You can work that many hours and get paid, plus overtime where you can get paid more. But there is only so much capacity you have to work with, to exchange energy plus, the old reference to only so many hours available in the week.
Even if this job was commission based and you earned more for every sale you made, you would still have a cap on how much you could earn because you would only be able to make so many sales in the limited amount of time you have. Makes sense? I hope so…
Passive income streams
Passive income is making money through sales or receiving money on a regular basis from something you’ve created or invested time and effort in, just one time. There is a myth that passive income does not require work, but this is not true. it’s just that the work is condensed into a short period of time or massively reduced compared to the financial returns. Passive income would be the creation or purchase of an asset that can be sold multiple times or produce a return on an initial investment.
So, for example, a digital product such as a course or eBook that can be created once and sold many times without any further effort on your part would be the creation of an asset. Buying real estate would be buying an asset that, when rented out or sold for a profit, produces a return on your investment.
Passive income is the future of business and finance and the reason for this is that investing once and being rewarded many times over with little effort is where you can stop trading time for money and remove the income ceiling that is pushing you against.
There are many ways to implement passive income streams into your life or business. But I’m not going to talk about them today. However, what should be clear is that passive income is something that is possible, but it is something that requires work at first, after which you can reap the benefits again and again.
Residual Income Streams
In a nutshell, residual income is the money you have left in your bank account after paying off your bills and all the essentials you need to pay each month. It’s the leftovers. Officially, according to Investopedia? “Residual income is not actually a type of income, but rather a calculation that determines how much discretionary money an individual or entity has available to spend after paying financial obligations or bills.”
So, in super-basic-business terms, it’s your profit, and obviously the more profit you have the better and the more successful your business will be. There’s something to be said here about profit and loss, turnover, and a lot of other financial-type buzzwords, but that’s not my area of expertise, so I’m just keeping schtum on them. That means it’s a nice pot of money that you can dip into as a result of your work and the work you do.
Many business owners confuse residual income with passive income and recurring income (see below). But it is important to remember that residual income is what is left at the end of the month and may also be known as surplus or discretionary income.
Recurring streams of income
Recurring income is something you get on a weekly, monthly or semi-annual basis that goes into your bank account, every time, guaranteed. You can generate recurring income from real estate investments, which also fall into the category of passive income, but also through developing membership or subscription products. There are many ways to build recurring income into your existing business, and the thing about recurring income is that it’s beneficial because you have a guaranteed amount of money coming in each month that boosts your residual income without any extra effort.
It’s also a scalable model, so it doesn’t matter if the information you provide through your model serves ten or ten thousand customers, it’s the same.
At the end of the day, it means you’re earning significantly more for the same work, especially if that recurring income is based on a passive income generation model like a subscription or subscription service.
So what?
It is important to make the definition clear that all these terms are different and each can benefit your business in their own way. Ideally, you should be looking to implement passive and recurring income models in your business to allow you to build the residual income you have and exceed that income cap.
By fully understanding these terms, you can ensure that you have money in every part of your business model. Whether it’s recurring income coming into your business every month, guaranteed, or passive income where you’ve built an asset that pays for you, over and over again. It all adds up to knock down that income cap and give you more residual income in your bank account every month.
And if you want the ideas, strategy, support and accountability to do this in your business right now, then join us at Passive Business Academy today.
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