Money is what makes the world go round…or so they say. The majority of people earn through a linear income, but a fair few have taken the perhaps more bolder route with residual income. So which is better? Correction: so which is better for you? How you earn, how much you earn and when you earn it are all factors that vary in importance depending on your circumstances. That’s why in this article we’re going to review both sides of the coin and let you decide. So without further ado, let’s review linear vs residual income.
Linear Income: An Overview
A linear income is when you trade your time for money. It’s also known as a work income. The paychecks that you receive are based on the amount of work you do. In this kind of income, you are required to put in hours of work every week. If you stop working, you also stop earning. Hence, linear income requires you to continue working in order to keep earning an income.
Linear Income: The Pros and Cons
You get paid by paycheck – you rely on your company, employer or contractors for income. If anything goes wrong or if you fail to do the job, you may not get paid. That being said, so long as you do your job, you can feel safe knowing you get a paycheck each month.
You are an employee – you submit to a higher authority in your workplace, since you work for someone else or a company. You don’t have much freedom unless you’re on a break and work comes with its own set of rules and deadlines.
You will be paid for a specific time or project – there isn’t usually much leeway with how much you can earn in a typical job. You get paid for your hours, and unless you have the opportunity to take on more work or work longer hours then the price is set and the income opportunity is over once you finish it.
Requires physical presence to do the job – you’re required to work in an office or a certain location. You have to keep a good record of attendance to be able to finish your work hours.
Can be paid directly proportional to the number of hours you’ve invested for the job – your paycheck depends on how much time you’ve invested. If you invest less, you will be paid less. But even if you invest more, it doesn’t really mean that you’re earning better.
If you increase your time, your additional pay will only be based on the hours consumed – your additional pay is still based on the number of hours you add on top. Longer hours and greater effort also means less freedom.
You can’t leverage your time and efforts – you have to adhere to the rules. Otherwise you might lose your job or lose the possibilities of promotion, which by the way, doesn’t happen too often.
Residual Income: An Overview
A Residual income, also commonly referred to as a passive or recurring income, is an income that continues to be generated after the initial effort has been put in. You can now see why it’s considered to be the most lucrative income source, since it doesn’t require you to trade your time for your money the same way a linear income does. So how’s it possible? Well, it’s another point to team internet. Before the internet, passive or residual income was only possible through a few means whereas nowadays, the possibilities of an earning a residual income is far broader. Let’s review the pro’s and con’s of residual income below:
Residual Income: The Pros and Cons
You get paid repeatedly – residual income is similar to passive income. It’s all about putting in the initial effort to see the rewards (i.e. your cash flow will continue to roll even if you’re not working). This is every residual income earner’s dream and for many, a reality.
You are the boss – you can work and stop anytime you want. No one can tell you what to do because you have the freedom and control over your work.
Greater opportunity – your source of residual income, frees up your time that most people spend working. How you choose to use that time is up to you, but many residual income earners find greater opportunities and collaborate with other residual income earners.
There’s no guarantee of success – Whilst residual income is all about the initial efforts and long-term gains, there’s no guarantee your efforts will work out. You may dedicate hours of your spare time after work, and find your efforts are fruitless. On the other hand, some find short-term success, but their efforts lead to no long-term gain.
Can be location-independent – there is no need for you to work in one place all the time. You can work wherever and whenever you want. The only thing that you need to make sure is an access to a good computer or laptop and a reliable internet connection.
Lack of financial security – Well, not exactly. Having residual income simply isn’t as smooth, or predictable, as earning a linear income in a 9 to 5 job and some months you may make more or less than the last. Planning, strategy and making sure your income is sustainable is key.
More time freedom – this one’s pretty simple. Since residual income doesn’t rely on you trading your time for money, you have more time to pursue hobbies and interests you actually enjoy!
Income does not stop when you stop working – a residual income or business is not solely dependent on the amount of effort you put in. It also depends on how well you do from the very start. The “payback” to your effort can be much greater if you do it very well.
So What’s the Verdict?
Well it all depends on what matters to you most. If you want reliability, security and hassle-free then a linear income is the way to go. If you want an income source that will pay off in the long run, then residual income is the better option. It’s pretty obvious which one most people choose – your traditional 9 to 5 job, being a linear income. Trading your time for your money isn’t a flawed system, in fact, it works very well for some people. But things are changing. With the age of the internet means greater opportunity and many are now looking for ways to spend less time working and more time living – and residual income let’s you do exactly that. Thankfully, earning a residual income is not only limited to investors and business owners – even you can do it!
Christine has been working in the field of freelance for just over 7 years, specializing in copy-writing, social media and voice-overs.
Describing herself as a "social media bee 24/7", Christine has an undying passion for photography and music.