Sunil is the author of The Extra Money Blog, a blog dedicated to helping hard working and successful individuals get more out of life, whether it is financial freedom, flexibility in lifestyle design or more freedom to live life on your own terms.

Passive income and residual income are two phrases that are often used interchangeably, but do they really mean the same thing?

What is the difference?

If you ask Meriam Webster, the answer is no. In short, the dictionary says that passive income is income from activities you don’t actively participate in.  Residual income on the other hand means recurring income.  So how are they the same?  Why are they used interchangeably?

Let’s look at one simple example:

• Crystal blogs daily on BFS.  One of the many ways Crystal earns money through blogging is through advertising revenue.  Does she have to work any more or less for her to make the money? No.  She makes the money even while she is eating, showering and sleeping.  Sounds like passive income doesn’t it?  It is.
• Crystal gets paid by the advertising vendor at the end of the month, and next month and the month after that, so long as the vendor keeps advertising on Crystal’s blog.  Sounds like a recurring pattern doesn’t it?

This example is precisely why the phrases passive income and residual income are used interchangeably by many.  Though technically defined in different terms, the two are often interdependent on each other.  If an income stream is passive, it likely is also residual.

How is this different from a traditional job or a career?

Let’s have a look:

• Crystal’s neighbor goes to work every morning and works 8 hours.  She comes back home with $64 everyday because she makes $8 an hour (8 X $8 = 64).  One day she falls sick and cannot go to work.  She makes zero dollars for that day.
• Crystal on the other hand usually blogs from her home office.  Today she decided to spend the day with the hubby and together watched a romantic movie late night.  They had a late night and because of that Crystal slept in till noon!  By the time she was done getting ready for the day, the day was over and no work was done.  At the end of the month, her check from advertising revenue came in along with checks from her affiliate commissions and other online gigs.

Aha – now I know.  Both these phrases mean getting more “bang” for my sweat. It is one way to get a higher return on time invested working.  When you work a job, you make $X per hour worked.  When you work to build a passive and residual stream of income, you work Y hours to make $XXX on an ongoing basis.

Establishing a Passive Income Stream

While all that sounds hunky dory, don’t be mistaken and think establishing passive and residual streams of income is an easy task.  In fact, because the gratification doesn’t come until months and for some even years down the road, it can be a brutal business to get into.  But when it rains cash, it pours and it doesn’t stop coming in long after you stop working for it.

I have successfully established several passive and residual streams of income in all but the last type of ventures above. Each one took careful planning, preparation, a lot of time and energy to execute and develop overtime. The rewards have been tremendous to say the least.

I have been building passive and residual income streams for years, moving from one venture to another after having put it on auto pilot.  This has rewarded me with the life I always wanted to live.  Blogging about my success, how I did it and sharing what I know is one way I give back to a world that has given me much more than I could ever have asked for.

Crystal’s Comments:  I work a regular job and run my three blogs.  The income from the blogs means way more to me even though it’s a tenth of what I make at work (so far), lol.  Passive income streams are amazingly more fun, lol!

What passive income streams do you enjoy?  Are you thinking about starting anything specific?