What Is Residual Income?

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Residual income is money you keep earning after the initial work is done. A common example is a TV actor who gets paid every time an old show or movie they were in airs again.

Unlike a regular paycheck — where you trade your time for money and stop earning when you stop working–residual income keeps coming in without ongoing effort. The work is already finished, but the payments continue.

Both individuals and businesses can earn residual income. Whether it’s a person or a company, the idea is the same: do the work once, and keep getting paid long after.

See: How To Build Your Savings From Scratch

Residual Income vs. Passive Income

Residual income and passive income are very similar. Both refer to ways in which you can continue to receive money without actively putting in any additional work. However, not all residual income is 100% passive.

The difference between residual and passive income is subtle but worth noting. Passive income usually comes from investments, like rental properties or dividend-paying stocks. Residual income, on the other hand, often stems from creative work or digital assets–such as book royalties or recurring revenue from an e-book or subscription site.

While both can generate ongoing income, passive income often involves more hands-on effort. Rental properties require maintenance and tenant management, and even dividend investing takes ongoing research to make sure your money is well-placed. Residual income tends to be more “set it and forget it” once the initial work is done.

Examples of Residual Income

There are numerous forms of residual income, and some may be more accessible than you imagine. Here’s a list of common types:

• Royalties from books, music, or online courses
• Affiliate marketing income
• Print-on-demand or e-commerce
• Subscription-based businesses
• YouTube ad revenue or podcast sponsorships

Some of these types of residual income require special talents, such as being able to write or produce music. Others, however, simply require hard work or upfront cash.

How To Earn Residual Income

If you’re looking to earn residual income, there are a few different paths you can take to get there:

• Use what you already know: Save time and money by turning your existing skills or hobbies into income. For example, sell handmade items or offer services based on your past experience.
• Create something that earns over time: Invest upfront in things like digital products or content that can keep making money with little effort later.
• Leverage existing platforms: Build your product or service, then use popular sites like Amazon, YouTube, or Airbnb to reach more people.
• Set realistic expectations: Passive income often takes work and money to set up. Make sure the potential rewards are worth the initial effort.

All passive income ideas need some upfront time, money, or both. Focus on what works best for you. If you have more money than time, look for hands-off options. If you have more time than money, choose something you can build yourself.

Benefits of Residual Income

The main benefit of residual income is obvious — you’ll be earning money without exerting much (if any) effort at all. But this extra income can provide a host of ancillary benefits that can improve your personal and financial life, and perhaps even your health.

Here are some additional benefits of earning residual income:

• Extra cushion during job loss or retirement: If you have a drop in income — whether unexpected, as in a job loss, or expected, as in retirement — having a steady stream of income that you don’t have to work for is a huge benefit.
• Less stress about bills or emergencies: The stress of not having cash on hand in the event of an emergency can be exceedingly high, to the point that it could create health problems. With residual income, you can rest assured that you will have money coming in no matter what the emergency.
• More financial freedom or time flexibility: If you’re receiving income without using any of your time, you’re free to use that extra time to generate even more income — or simply relax and enjoy the passive cash flow that’s rolling in.
• Can eventually replace active income: If you can build up enough residual income, you may not even have to work a “real” job ever again. Rather than trading time for money, you can enjoy your life while the residual income steadily flows.

What to Know Before You Start

Residual income isn’t always as effortless as it sounds. It usually requires some ongoing work to maintain–whether that’s updating your info to keep getting paid or creating new content when earnings dip.

It also takes time to build. Even actors earning residuals had to put in serious effort up front. The same goes for creators on platforms like YouTube–you’ll need to grow an audience before you see meaningful income, and you’ll likely have to stay active to keep it going.

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