Residual income is the money left after monthly payment obligations such as housing costs and taxes. In business, residual incomes are extra amounts of operating income over the regular minimum of controllable operating assets. Residual income is also called passive income and can refer to any income generated through indirect involvement in something. Rental income, royalties, website revenues and portfolio dividends are all types of residual or passive income.

It's easy to understand the idea of residual income if you consider the word residue. A residue refers to something left behind as a result of something else. Residual incomes is extra monies earned as a result of another action such as writing a book and later receiving a royalty on the sale of each book.

Investment portfolio income is residual since interest and dividends are earned as an extra, automatic result of owning stocks and bonds or other securities. Of course, there is no guarantee that investments will generate a residual income, but that is the hope of investors. The idea of residual or passive income is popular since the potential of earning extra money without additional time or effort is possible.

Rental income is a popular type of residual income. Owning a home and renting it out may require some work and participation unless a property management company is used. The pay off is potentially great though since both the value of the real estate and a steady rental income belongs to the property owner. In some cases, rental income can pay off most of or even all of a mortgage.

Internet revenue such as monies earned on websites through advertising or number of page views is another type of popular residual income. While the initial direct work in creating the business website is needed, the monthly profits from advertising keep generating, so this creates a residual or passive income. The amounts of Internet generated residual incomes varies widely, however, and some people may only earn a few dollars each month. Another type of residual income earned in a business occurs when a company grows and the owner is able to retire while a manager runs the business.