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The difference between passive and residual income

The cost of living crisis is affecting everyone who earns less than the average salary. That is why many people are experimenting with different methods to ensure they are earning enough money to pay their food and utility bills. Understanding the difference between both passive and residual income is not difficult either; however, some people will mix them up. 

A quick summary is that a passive income is another wage with minimal effort required. However, residual income is not an additional income. Residual income is where you calculate the expenditure you have left once you have paid off all of your necessities. 

Passive Income 

Passive income is something many people are considering as money can be a little tight with the cost of living crisis. If you wish to earn a passive income, you need to consider whether it is worth your time and effort. Ideally, you will want it to cover one of your main bills such as your electricity or food bills. It could even cover the cost of your phone contract. Just something that will ease the stress of paying your bills. 

Before starting your passive income, you will need to make a small investment. It is to get you started with earning more money. Similar to a deposit that gets your passive income started.

Different Types Of Passive Incomes

Thanks to the digital world, there are many ways where you can get a secondary income. Additionally, there are many different methods you can do on the internet. Furthermore, the more time you spend on your secondary income, the more money it could potentially return, depending on what you do. If you have a lot of spare time, we recommend you start spending more time on your passive income. You will soon see the benefits of this. Here are two ways to earn more money than your standard salary. 

Savings Account

Savings accounts are great, especially if you have plenty of money to kick-start your savings. Moreover, it carries the lowest risk compared to other passive income. Additionally, if you have extra money left over after a month, you can also put that in your savings.  

There are different types of savings accounts that you can own as well, depending on the bank that you are with. Some banks offer a savings account where you can withdraw money however, this will reduce the interest rate for that month. 

Before you start a savings account, we suggest putting in at least £100 as this is a good amount for a startup. The interest rates are very high which benefits a savings account. The more money you have in your bank account, the more you will receive for your interest. It will gradually increase over the next few weeks. Moreover, you don’t need to add money every few months as you can get away with letting it grow on its own. 

Investing In The Stock Market

The stock market is one of the more common passive incomes people have started getting involved with. One of the reasons is that it can return a large amount of money, however, you can lose a large amount as well. 

Investing in stocks is risky although the greater the risk, the greater the reward, which is why many people will consider investing in the stock market. One we suggest is that you invest in a business that you know will gradually grow over time. Try and stay away from penny stocks as these are risky although they can return you a lot of money. 

The younger generation is more naive to the stock market world, meaning they a more vulnerable to being scammed. They trade with penny stocks which are highly risky and are not with credible companies which is why people can lose a lot of money. 

If you do not understand the stock market, you can be at risk of losing money. When you start investing in the stock market, we advise you to research the stocks you wish to invest your money into. For example, some stocks flourish in certain seasons such as Amazon during the festive period. 

Some people trade with stocks as a full-time job. These people will begin trading at 8:30 AM in the United Kingdom until the market closes at 4:30 PM. However, these times can vary if they are trading in the United States market. It all depends on what they prefer trading in. 

The stock market is very versatile which is why it is a risk for a passive income. As mentioned earlier, the higher the risk, the higher the reward which is why many people consider this form of passive income. Nonetheless, there are a few trading strategies to ensure your investment is safe. We advise that you stick to common stocks such as The Walt Disney Company, Starbucks, Amazon, Tesla, and many more. These are a much safer alternative to penny stocks however, you are still not guaranteed to keep your money. 

If you wish to earn more money and are willing to take a risk, penny stocks will be the better choice for investment. Furthermore, these stock prices can fluctuate quickly, meaning you must keep an eye on the stock value throughout the day. One of the most significant issues with the stock market is that people are likely to get scammed. That is when an investment fraud lawyer helps recover the losses due to an investment fraud scam.

Renting Out A Room

Finally, we suggest renting out a spare room in your home. If you are one of those who are lucky enough to have a spare room all year round. We suggest you start renting this out for a bit of spare cash. It can be great as it would be able to help cover the costs of your bills and other expenses. If you don’t wish for someone to live in your house 24/7, we recommend renting out your room on Airbnb and Booking.com. 

Residual Income

Residual income can mean different things however, usually it refers to your personal finance. It would include your salary then you would take away your bills and other expenses.

Banks will do this to see if you are eligible for a mortgage on a property. To calculate this, they will look at your salary and your regular outgoings and then calculate whether or not you can afford the mortgage. They will also calculate the property insurance, tax, and mortgage costs, and other regular payments. The money left over would be the residual income and it is money you can spend on food and utility bills. 

To Conclude

As you can see, there is a big difference between residual and passive income. Passive income is the money you earn on top of your salary. Residual income is the money you have from your weekly or monthly salary. There are many ways to manage your money correctly and earn extra income however, some are far riskier than others. If you wish to earn extra money with a steady increase over time, a savings account will be more beneficial for you. 

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Disclaimer: The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal, tax or any other advice specific to you the user or anyone else. TurtleVerse does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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