It’s become apparent that the COVID-19 pandemic has affected vulnerable populations more than others. One of those groups is women. Women are more likely to lose their job because they are more predominantly employed in the service-oriented industry—the first to be hit by pandemic restrictions. Women workers are also more likely than their male counterparts to resign from their jobs to assume family carer roles, such as looking after children or elderly relatives.
Right or wrong, our society places more pressure on women to exit or take breaks from the workforce. That’s true even for women who are educated, high-income earners in senior positions. For these women particularly, the opportunity cost associated with breaks from income-earning work is far greater than the salaries they forego. Even in cases where women return to work, they will have lost out on skills acquisition and promotions during their absence. The gap between what they earn and what they could have earned had they not broken service could be substantial. It can also affect their quality of life in retirement because of the effects of non-contributing periods on retirement funding and medical insurance.
Creating passive income streams can help maintain women’s financial independence while they fulfill other roles and protect them from unemployment.
What Is Passive Income?
Passive income is anything that generates recurring money without active participation, although there is generally some investment of time or money up front. It’s helpful to think of it in four different categories: buying cash-flowing assets, building assets, sharing assets, and maintaining “reverse” income.
There are multiple different opportunities within each of these categories, and you will first need to identify whether they are suitable for your situation. Here are some areas that may be particularly relevant for female investors.
- Buying Cash-Flowing Assets
Cash-flowing assets are investments that produce an income stream. For example, stocks with a proven history of consistently paying dividends can provide a regular income, albeit often at the cost of low capital growth. Investing in rental property is another traditional passive income stream, and it’s possible to outsource all or part of the management. Modern technology is also making alternative investments like peer-to-peer lending more accessible.
Before deciding on your passive income investments, consult with a suitably qualified expert to understand the tax implications of your choices. Investment income can be treated differently from a tax perspective depending on your circumstances, the nature of the investment, and how long you’ve owned it.
If you are the non-working spouse, make sure you understand the pre-tax retirement funding opportunities available to you. It could be that making do with less income now could reap better benefits in your retirement years.
- Building Assets
Not everyone has the money to buy cash-flowing assets, however, so using your skills to build something of value that will generate passive income in the future can be helpful. It could be writing an e-book or a course that can be sold digitally in perpetuity or creating a website blog with affiliate links or other advertising that generates income for you.
For women who have exited the workforce to assume carer roles, it’s essential to be realistic about the amount of time required to create such assets—and your chances of success. A blog, for example, is more than just writing about the things that interest you. You will need to write prolifically and learn how to attract the attention of search engines to keep viewers coming. That kind of time commitment may be unfeasible if you have young children to look after, or it could be that selling that same time on one of the many online freelancer sites would be more profitable in the end.
- Sharing Assets
“Sweating assets” is a common business term that means maximizing the profit on a company’s assets by “putting them to work.” As individuals, we can sweat our assets by charging others to use our belongings when we don’t need them. Technology makes this easier than ever these days with apps that facilitate the sharing of space in our homes, rides in our cars, and even the use of musical instruments and tools.
Sharing assets is a good option for those without surplus cash to invest or the time and skills to build assets from scratch. In fact, mature women are the fastest-growing host demographic of Airbnb. But unfortunately, women can be at a disadvantage when sharing assets that may expose them to “customers” with ulterior motives. Therefore, before proceeding, investigate what protection is offered to women. For example, this Airbnb policy allows hosts to specify the gender of their guests if they will be sharing living areas.
As an extra precaution, consider including a man in your profile picture and refer to “we” in any initial correspondence. Knowing a man may meet them could help deter anyone hoping to take advantage of the situation.
- “Reverse” Income
“Reverse” income is about making money by saving money. It’s an approach that can be doubly effective when the savings are applied to investment activities that generate revenue. According to a 2019 Forbes report, women control or influence 85 percent of consumer spending in the US. So, working to reduce monthly household expenditure is within the realm of most women and makes it an excellent place to start earning passive income.
To help trim the budget, women should be on the lookout for “pink tax” items. “Pink tax” refers to the tendency for goods and services marketed at women to be priced higher than identical goods for male consumers. Products like razors and shampoos are classic examples of “shrinking and pinking” marketing practices. But personal services like haircuts and even health insurance have also been guilty of the practice. As a 2015 study in New York confirmed, “pink tax” targets women of all ages, reducing their spending power. So, become a mindful and active consumer by purchasing brands based on their quality and output rather than gender-based marketing.
Lack of financial independence has more than material consequences. It can impact one’s sense of accomplishment and confidence. At its worst, it can leave women exposed to abuse from the individuals they’re dependent on. It is, therefore, imperative for women to create passive income streams for those periods where they may be fully occupied in non-earning roles.