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Initially you may only be making a small amount of money passively, and you might even want to re-invest that money so it compounds and grows quicker. But with some time, its potential to create enough passive income you could quit your job or retire early.

Passive income can be a bit of a divisive topic. In general, passive income is any money you make without putting in much effort. The money will flow in without too much being required of you. In some scenarios it might be long-term recurring income, and in other instances it might be short lived or inconsistent.

In some circumstances youll need to put in some effort up front, but then it wont require just as much effort in the future when youre making the money.

What qualifies as passive income is up for debate. Most lists which youll find online will include things such as blogging, writing e-books, or creating your own course. Im not including those thoughts in this post because, in my own opinion, all of them require an excessive amount of effort to be considered as passive.

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Blogging will always require on-going work, either by yourself or from others that youre paying.  Selling ebooks or classes will require on-going customer service, plus youll need a consistent traffic source in order to continue to make sales. It's possible and there are people who have been in a position to do it passively, but they make up a small percentage of people who actually set out to get it done.

Ive been blogging fulltime for ten decades and Ive sold ebooks and classes in the past. Theyre great ways to earn money, I just dont consider them to be passive, in the majority of cases. .

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Nearly any business can be a source of passive income if youre paying other people to run the business. This is true with both online and traditional businesses. That opens up even more chances than what will be recorded here.

Now lets have a look at some of the best ways to produce passive income. A number of them are investments that will require some money to start with. Others wont need any money to begin. If you dont have the money to invest now, consider starting with the methods that dont need any money, and then use that money that you make to invest. .

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Your first financial priority must be to develop an emergency fund that can cover all your living expenses for a few months. But dont put this money is a checking or savings account at a local bank that pays you a terrible interest rate. You can open a high yield see this page savings account or money market account with an online bank which will earn a much better return for you.

My wife and I keep our emergency fund in a money market account with CIT Bank. At the moment (October 2018) CIT money market accounts are earning 1.85% APY and CIT savings accounts are earning 1.55% APY. Thats 22x the national average! Opening an account with CIT is quick and easy, and can be done online. .

Some companies consistently pay dividends to their shareholders. As a shareholder, you can re-invest the dividends to buy more shares of the stock, or take the dividends in cash. Reinvesting will allow you to own more shares, which leads to more dividends in the future (ideally).

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The companies that consistently pay dividends tend to be large companies with a long track record of success. Because of this, these investments tend to be considered less risky than the stock market in general.

Dividend stocks can be a great investment regardless of whether you want to reinvest all of the dividends on hold on to the stock for quite a long time, or use the income produced through the dividends.

For far more detail on the topic read Investing in Dividend Stocks in Investopedia. For a list of these shares, visit this collection from Dividend.com and this collection from DividendValueBuilder.com.

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Peer-to-peer lending (or P2P) is becoming extremely popular in recent decades. Borrowers and lenders can be matched up via a website or marketplace. Instead of going to a bank, the debtor gets a loan from an investor.

In some situations the borrower might not be able to be eligible for a loan through a traditional bank. And in many cases the debtor gets a better interest rate than they might get from a bank. As an investor, you can earn a good return too.