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Active income is income for which services have been performed. This includes wages, tips, salaries, commissions, and income from businesses in which there is material participation. Passive or Residual income is an income received on a regular basis, with very little effort needed to maintain it.

Portfolio income is income from investments, dividends, interest, royalties and capital gains. Portfolio income does not come from passive investments and is not earned through normal business activity. Typically, income from interest on money that's been loaned does not count as portfolio income.

Now, looking at the sources of residual income, we're going to move from the ones that we think will be the most difficult to create to the ones which are the easiest to produce. Here we go.

7. Royalties: the creation of audio, books, inventions, machines, patents. A royalty is something you've created or sold and put it on a platform that you do not run and then receive compensation based on when the merchandise is bought or utilized. The majority of us do not possess the potential to quickly create freshwater flows.

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This is the purest type of passive residual income, if you can attain it. .

6. Network Marketing: Network marketing is a unique business model and has made more millionaires than any other business. The industry as a whole is growing and more companies are trying to leverage referrals or direct sales to increase revenue and market solutions. On the other hand, the industry as a whole is confusing to most and demands a tremendous amount of mental and emotional fortitude to make residual income potential.

The effort you must put in is important to consider. .

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5. Subscription Models: Subscription models/Customer Hubs/Member Places These are businesses like Netflix, Costco, Sams Club. The subscription model has come to be almost its own category. But it has considerable price and you have to continuously create and cultivate content and value. The income is remaining and combines loyalty and education with community.

A good book that explains this version of residual income is Your Automatic Client by John Warrillow. He walks you through, in plain English, the various styles of subscription versions and how to potentially apply them to your business.

4. Affiliate marketing: Getting paid to tell folks what you enjoy and showing them where to receive it. As a Dad, I tried 3 large chairs before Check This Out finding the Bumbo. Now when I blog about the Bumbo and link for it to my Amazon account, and someone buys it, then I can earn a commission.

A fantastic example of this is Pat Flynn at PassiveIncome.com as he walks through how to establish your own method to optimize and profit from your passion.

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3. Business: As I mentioned, not all businesses are created equal when it comes to residual income. Lets take a peek at a local taco stand. Sure, that taco stand may have loyal patrons and make the best damn steak taco youve ever needed, but they also have to wake up every day and turn the lights on and fire up the grill to get compensated for their special tacos.

So, literally I am going to earn a fee whether I move in or not. Sure, I must maintain relationships to keep earning that commission, but truly that the income is residual because once I sign up one client I am going to make money from their money perpetually.

Why do we call them the Power 2 Because these demand less specialization and expertise, and with all the leveraged use of debt that is smart, can work together.

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2. Real Estate: Property is 2 for one simple reason, leverage using smart debt and other peoples money. When looking at real estate rents and the potential for income real estate provides, it's the trifecta of residual income. To begin with, a house or rental house can enjoy, therefore capital appreciation is your first long-term benefit of owning a house.

Other people are paying off the mortgage, insurance, property taxes and maintenance while you own that piece of property. Third, tax protection. Rental income is taxed at a lower rate than ordinary income and you can depreciate real estate by taking a newspaper deduction on your annual tax return not to mention expensing the price of mileage, mortgage interest, and upgrades to the home.

The fourth and maybe most hidden, but important benefit is that over time rents rise, protecting your cash-flow against inflation, while your mortgage interest can be at a fixed rate potentially. .

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1. The final and most powerful form of residual income, in my opinion, is investing and insurance. The majority of us have 401Ks and IRAs, so that I am going to leave that for your investment aspect. Within that, I think our Foundation Freedom Phases is by far the easiest, safest and most powerful tool for several reasons: a.