Passive Income Vs Linear Income

As a kind of income that requires little or no effort at all required to maintain it, many people nowadays resort to residual income rather than the common kind of earning called linear income. Compared to RI, linear income is “one-shot” compensation or payment type, usually in the form of wages, salary, fee, or commission. Categorically speaking, income is subdivided into three broad types namely, active income, passive or residual income and portfolio income. To understand the term RI more, take the root word ‘residual’ which refers to the remainder or the excess of something else. Combining both words, residual income, therefore, are extra monies or earnings derived through another means.

Linear income, also known as active income, on the other hand are the amounts that come from the ordinary course of business. They are received on a regular basis and follows a certain pattern or are variable or fixed depending on the nature of person’s job or business operations. For example, a person practicing his profession in terms of academe is receiving a fixed monthly income. On the other hand, a resort owner’s income may vary depending on the seasons. If its a peak season, of course, guests may crowd the resort providing the business with more income. In this way, even active income has features that varies from one kind of operation to another kind.

Investment portfolio income are earned as an automatic result of owning bonds, stocks, and other kinds of securities. Through this kind of income, residual income can also be generated although it takes a risk that it also wont be achieved. Most people invest on securities for the hope that it will have bigger returns. The extra income that investors may get from their investments can become a part of residual income. The popularity of residual income is streaming due to its potential to give extra returns to the investor even without additional effort or time spent on following up.

One of the popular types of income that can be considered residual is the income that are derived from rental of property. Take for instance a house rental. Primarily, one has to spend time and effort and a certain amount of money to establish and own the house that is purposefully made for renting reasons unless, of course, if a property management company was hired. As time goes by and all things were set, the repay is potentially good since the property owner receives a reward that is, in the form of residual income, even if he has to cease working and involving himself either directly or indirectly to the property being rented out. In a variety of cases, rental income derived from the example may even be sufficient to pay most of or even all of the mortgage payables in relation to the land property.

Other examples of passive income are the commission that an insurance agent acquires every year when customers renew their insurance policies,and a sales representative whose income increases when his/her customers reorders his/her product monthly.