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Residual Income vs. Passive Income

I’ve been thinking about this post for quite some time but I haven’t known exactly what I wanted to write until today when I read this article on mymoneyblog.com .

You might recall a post I did a while back that mentioned my past involvement with ‘network marketing’ – whatever that means these days. (By the way I still have that business and still have a few customers. I just don’t participate in the networking model any more). When I was really active in the ‘networking’ (others call it pyramid) business model the higher level people would always talk about ‘residual’ income and relate it to Elvis still making millions from his music career and he’s been dead for a long time (that’s like twice in one week I’ve mentioned Elvis on here). They would talk about how you do the work one time and the money keeps coming in.

I never believed 99.99999% of the people in network marketing are truly creating a ‘residual’ income because from what I could tell only the people at the very top of the organization could truly sit back and do nothing (or die – which some of them need to do to actually help their organization) and still make money. Most everyone, even people who were perceived as extremely successful, still had to travel a lot to continue building their network and speak at conferences. If they stopped doing that their income would not be ‘residual’. Their income would tank and they would have to really work at it again – which defeats the definition of ‘residual’.

The article on mymoneyblog was about ‘passive’ income which is often used hand in hand with ‘residual’ but there is a difference. I like the definition mymoneyblog put on passive income because I think passive means ‘not so involved’ or ‘not directly involved’, so income from stocks or from business you own but don’t spend a lot of time working could loosely be defined as passive. Some of the middle level network marketers would be better off using the term ‘passive’ for their income because their involvement might be less but that income is no less dependent on the person.

Residual income in my opinion is income that is left over or still coming in after you’re gone – dead. If I leave a business that makes money for my kids without them working even after I’m dead then I think that is residual income. If a network marketers organization continues to earn money for their family after they’re gone then I think that is residual income. Of course if either one of those scenarios tanks after you’re gone then the residue didn’t stick around very long and that would show just how ‘residual’ that income really was.

All I know is none of my current income can be considered passive or residual by any of the definitions or opinions we’re discussing – except for a life insurance policy my family can collect after I die. I wonder if that can be considered ‘residual income’?? 

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