Monday, January 7, 2008

How Would I Live on a Minimum Wage Income?

I recently read a post entitled How to Get Wealthy on Minimum Wage by Jacob over on the Early Retirement Extreme blog.

I am all inspired to try to tackle life with a minimum wage income. I have no intention of actually earning that little, but I wonder if I could handle it if I did.

Income
The minimum wage in my state is $7.15/hr. Using the hourly paycheck calculator at paycycle it looks like I could bring home about $219/week after taxes if I work 38hrs/wk. If I figure I won't work for about 3 weeks of the year for sick/personal days my average monthly take-home would be about $900. Ohkaay... can my living expenses fit within that? Let's find out.

Assumptions

Family
I am single so I only have to cover my own expenses. If I had someone else to take care of I would definitely be working a lot more hours.

Health Insurance
I will assume that health insurance is not provided. My employers have intentionally kept my hours below 40hrs/week so that I wouldn't be considered full time.

Location Exactly where I am living right now. I know the cost of living here.

Debt I will assume that I am carrying some consumer debt. I don't know much about how minimum payments are calculated at different interest rate levels so I will leave this part fuzzy until I do some further research.


Expenses

Rent This is easy. I actually own my house and rent out one bedroom for $325/month which includes all utilities, wireless internet, and laundry. My roommate has free use of the rest of the house as well. If she could find this deal, then I will assume that I would be able to as well!

Utilities Included in the rent.

Health Insurance I have pretty low risk tolerance so the thought of going without health insurance would be a huge source of stress for me. I would sign up for a high deductible health plan. I can find a state sponsored plan administered by Blue Cross & Blue Shield for $115/month without Rx drugs. I very rarely get sick so I would be willing to accept that risk. I would also budget another $35/month to put into the attached Health Savings Account (HSA) to use towards the deductible if necessary. The great thing about an HSA is that even though it is tax deductible like an FSA, you don't lose it at the end of the year if it is unused. You can withdraw any unused money at retirement age for any purpose without penalties (but it will be taxed at that point). So $35 out of my monthly budget would actually mean that more is deposited into the HSA.

Transportation I imagine that if I made minimum wage I wouldn't own a car like I actually do. My current gas budget is just over $75/month so I will use that for bus fare. I live within safe and easy walking distance to two grocery stores which will even help with comparison shopping. Bonus! I would also look around for a used or freecycled bike that I could use during the summer months.

Groceries I have lived on a $1/meal budget before and I could definitely do it again. However, I do believe strongly in the importance of good nutrition so I would make sure to include sufficient fresh fruits and vegetables which can raise the cost per meal significantly. I would budget $200/month for groceries. This would have to include toiletries and supplies etc.

Debt I could budget $100/month to pay my debts.

Retirement I would sign up for an automatic investment plan for a Roth IRA and deposit $50/month. Earnings on a Roth IRA grow tax free but I can withdraw my actual contribution any time I want without paying penalties. I like this option if I am earning such little money in case I need to tap this money for an emergency.


So where does this leave me?

Rent $325
Utilities $0
Health Insurance $150
Transportation $75
Groceries $200
Debt $100
Retirement $50

Total Expenses $900
Total Income $900

The fact that this budget leaves me no wiggle room is unacceptable.



Must...have...wiggle room!

One thing I won't compromise on is taking three weeks off from work. No human being should have to 'work' all 52 weeks of the year. I like my personal time. Time to stare at the wall, time to walk in the grass, time to visit friends and family. Not giving that up!

I am, however, happy to work a lot more hours per week. In fact, as a salaried person I currently work an average of 50-60 hours every week... and love it.

If I want wiggle room in my budget, I would add an extra 10 hours of work each week. This would pump up my take-home pay by about $260 each month.

Where would I spend my second-job wiggle-room money?

Debt I would add another $100 to snowball debt repayments.

Emergency Fund Another $100/month would go to an emergency fund

Wiggle Room $60/month... just in case! If I don't use it up one month, it goes into the emergency fund.

Once the emergency fund is fully loaded, I would focus in on eliminating debt. (f I wanted to get serious about blasting that debt I would be working an additional 10 hours a week.) Once the debt is eliminated I would put all of those payments now totaling $300/month towards the retirement fund or towards improving my education if I wanted to move up the earnings ladder.

What about entertainment and special toys and luxuries? If I want anything that doesn't fit into the budget, I'm going to have to go hunting for more hours or get some entrepreneurial juices flowing.

38 comments:

Moneymonk said...

Wow! I see that you actually made that work

moneychallenge said...

I made it work in theory! Granted I'm pulling a lot of these numbers from actual experience but you never know if you can pull it off until you actually do it.

Kudos to all the folks out there who actually do live on minimum wage. Here's hoping that we can move towards a real "living wage" so that those with families can make it work too.

FIRE Finance said...

This is a great idea. We cited it as one of our favorites in this Sunday's Review.
Cheers,
FIRE Finance

moneychallenge said...

Thank you FIRE!

Finance Monk said...

haha $325 a month rent? Are you in rural oklahoma? :) If I could find a room to rent for under $1000 in DC I'd be pretty happy...

moneychallenge said...

Finance Monk,

Yeah, living in a high cost-of-living area on minimum wage is pretty illogical. This budget won't work in a place where rents are sky-high.

I don't understand the rationale of trying to maintain a lifestyle one can't afford. If folks can't afford where they live, move. I've done it. My family's done it. Moving isn't so horrible. ..and it could just make life oh so much better.

moneychallenge said...

By the way Finance Monk, I just did a quick search on the Washington DC Craigslist and found a room for rent in Arlington close to Ballston metro for $350/month including utilities (no internet or laundry.) I guess it's not impossible after all!

kentuckyliz said...

Interesting brainfart, but who on earth plans on living on minimum wage? I made min. wage for like 5 minutes as a teenager and quickly sought better rewards for my efforts.

So, if you were a zitfaced teenager, what would your minimum wage budget look like? Because that's the great majority of the minimum wage earners. It's not SUPPOSED to support a family!

20 hours a week
$450 monthly budget
$112.50 per week for gas for Mom's car, cell phone minutes, a pizza, a movie, and beer.

Woohoo!!!! That's living easy.

moneychallenge said...

Kentuckyliz, if only teenagers were the only minimum wage earners out there! I can think of a numberr of reasons why an adult, with a family, might be earning minimum wage:

1- people with special cognitive needs who weren't able to get services because they fell through the cracks in the educational system and ended up with an awful education and don't know how to make things better. (Don't get me started on the educational system!)

2- women who have left an abusive spouse and never had a chance to develop job skills.

3- new immigrants to the country who don't have the language or cultural savvy yet to qualify for higher paying jobs.

That's just a start.

Anonymous said...

People in rural counties in Western NY where you're lucky to find a job that pays more than minimum wage

mother of pregnant teen said...

you forgot clothing. also birth control because you sure don't want to have kids on this budget. and what about education so you can work your way out of that hell.

Anonymous said...

You make that look so easy. I wish it was actually that easy, but there is some really good points. Moving is a good point. One wish I could take, but moving means leaving my kids with my ex since neither of us can leave the area with them. The other comment I want to make is in the list of why you would be working at minimum wage. Number 4 should be those people who have job experience, the education, ect but you can't get over minimum wage because you have to much experience. Although we bring in more then minimum wage, compared to high cost of living it might as well be, all because we have to much experience so they won't hire us.

Anonymous said...

I'm impressed! I'm so thankful that I'm not at minimum wage. I live in an expensive city, and although my income looks good on paper, I'm only just getting by. Rents average $1500/month which is why I ended up buying with 5% down; my monthly payments are cheaper, but I did buy a fixer upper condo. The cost of living has made me rethink how I do things; I drive a cheap little car which averages $100/month in gas, purchase discount movie tickets through a friend - this is a good deal since it's up to 1/2 the regular price. If you have a Costco membership, you can get the discounted tickets there as well. Even though cable is an additional expense, it's worthwhile looking into. Our cable company always seems to have promotionals on, and can be persuaded to extend them rather the loose you as a customer. I could go on, but will finish by saying that I am truly glad that I'm not making the $8/hour minimum wage. Oh, before I forget...someone mentioned about immigrants often ending up with minimum wage. We have a two-tier system BC, where it's $6/hour for people with no Canadian experience (think immigrants), and then it goes up to $8/hour after a certain amount of hours (I think it's 500).

Anonymous said...

I live in downstate new york, working minimum wage of 7.25/ hr. My rent is $450/ month with internet and utilities not included. altogether it adds up to about $600/ month in the winter. Not including the gas that I pay for my car (i am fortunate enough to have family that is willing to pay for my car insurance).
I have no children to take care of and I have managed to make it work. I think it's because i've managed to utilize the blessing that is ebay and craig's list- selling old items of mine online to gain a little extra spending money. I have to be very careful- no extra expenses on things I don't need. I make my own food at home to bring to work. Living paycheck-by-paycheck is certainly not the most comfortable way of living, but I can make it work. Moneychallenge, it is very possible to live on minimum wage, as long as you're very careful and smart- use the coupons you receive in the mail, pick up any promotions or deals possible, and comparing prices from store to store can really surprise you! Plus, saving any gift money from holidays or birthdays really helps to keep your checking account balanced. I try to spend gift money only on necessary things- groceries, toiletries, etc.
And probably one of the easiest things to do is to keep your change in one place. its amazing how quickly change can accumulate to an extra $10 for that rare cup of coffee and a "free" meal. And, most importantly, avoid those credit cards!! the debt can accumulate extremely fast and before you know it, you can't afford to pay your bills. If you're living on minimum wage, the best way to stay out of debt is to avoid any way of gaining it.
Those are just some little tips for those who are looking for some advice.
Thanks for the article moneychallenge, and I hope that this helps.

snossg said...

Instead of trying to figure out how you might do it theoritically do like I did and try to help someone who is actually trying to do it and you will find out how VERY hard it is. First depending on the business her hours get cut. Second if she is out sick or misses a day for any reason she doesn't get paid. third what about laundry? fourth one month of extreme cold and a bad utility bill and your sunk. You overdraw your account and get charged a $35 fee which is very easy to do on minimum wage because you are cutting is so close. Either that or pay someone $8 to cash any check. you make alot of assumptions about stuff you have in middle class that minimum wage earners do not have like bank accounts and savings accounts. read The Framework of Poverty

Anonymous said...

Minimum wage where I live is currently 6.55 an hour. I have 2 children and a mate who lost a job six months ago. I am finding that it is not possible to live on minimun wage but congratulations to you.

ecofrog said...

well i'm in england and the minimum wage for under 22 year olds is £4.73

so after tax i get just over £704

i pay 330 on rent/bills
then 208 on a electricians course
and 50 on debt

which leaves me with £122 for the month on food cloths shoes haircuts and general household bits and bobs.

Anonymous said...

Minimum Wage is easy.
I'm a 19 year old student living with my brother in Australia.
I'm on centrelink(dole) which is $375 a fortnight.

And these are my costs, not theoretical..

Fortnightly
$130 Rent.
$25 Gas+Electricity. (On Average)
$15 Internet+Phone.
$140 Food
$30 Gym Membership.
$18 Bus tickets.


Total: $358 of $375

It's easy where I live, if your smart.
<3 Australia.

Mme Ivy said...

Have you had anyone attempt your theroy? would you attempt it? I am going to keep this in my favorites. I will take 2 weeks to look at my finances and if possible will attempt your theroy.

george said...

I make more than minimum wage here (actually about double) but I still live on less than $900 per month. Actually, I just roughly calculated it out and my expenses are roughly between $631 and $791 per month. Specifically, here is everything that I spend money on:

$325 per month rent
$35 per month utilities
$27 per month car insurance
$9 per month car registration
$95 per month health insurance
$100 per month gasoline*
$100 per month entertainment**
--------------------------------
$791 per month

*this is my maximum gasoline expenditure. There are a lot of months that this is less (mainly because I didn't go visiting on the weekend which costs about $20 for the gas).

**this is my maximum allotment for entertainment. It includes going to concerts, bars, buying alcohol, and eating out. I don't remember the last time that I spent all of this allowance.

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Anonymous said...

this is hilarious. i spend more than most of these people do in a month, in a day.

Anonymous said...

let me rephrase that. i spend an annual minimum wage salary in one month. monthly food for 100 bucks? not in this country. my lunch was 26.95.

Anonymous said...

You're my hero.

Nightvid said...

I think it is possible to get transportation below $25/month on average if you don't have pets or family. Just move somewhere within 2 miles of work and grocery stores and walk. Occasional use of other modes is fine, but keep the average low. (Personal experience here...)

And no, you wouldn't have a car. At bare minimum, for gas, insurance, depreciation, registration, parking, and maintenance/repairs combined it will run $400/month unless you drive so little you could walk or bike instead, in which case, why bother? (The Average solo-personal-vehicle-commuting American's total vehicle expenses add up to about $600/month.)

In my case by not owning a car and walking most places I need to go I can spend $25/month give or take on average, 95-96% less on transportation than the average American, and I live in the Maryland suburbs of DC!!!

Megan said...

I love this article. I was actually doing a little research to write my own similer article when I found this. I would love to swap some guest blogs with you or publish this article on my blog with a link back to your blog if your interested.

Terry Pratt said...

Working two minimum wage jobs can be tricky to navigate, especially without a car.

Minimum wage jobs often have variable schedules which are changed weekly by employers. What happens when you are scheduled to work both jobs at the same time? This is most likely to occur on a holiday, which is precisely the time when you will be least likely to find a co-worker willing to trade shifts with you.

This happened to me once on the Fourth of July, which in US is a holiday very few people want to spend at work, and I had to choose which minimum wage job I wanted to keep and which I was willing to give up.

Also - sorry kentuckyliz - 49% of minimum wage workers are over the age of 25, so it is not true that the vat majority of them are pimply-faced teenagers.

November St. Michael said...

Smh... in theory what you said was nice but, in reality it really doesn't pan out so easy. No minimum wage job offers anyone 3 weeks off and many of US do have to work 52 weeks out of the year because time off means money lost. Paid vacation is a luxury the execs who own the companies that pay minimum wage have.

Um... You did give me an idea so I do appreciate the simplicity of your budget. Working for minimum wage means money is TIGHT... so wiggle room? Nah... I really dig your enthusiasm and candor but, seeing how you will probably NEVER, EVER earn minimum wage nor should anyone have to... you will never quit understand is binding and cyclical effect. *Sigh*

Poor to Rich a Day at a Time said...

I know this is way old but yes we live in a rural area lucky to have a minimum wage job. Family of 5 live off one minimum wage job and for a l long time without any assistance I finally took food stamps due to stage OF BREAST cancer but as I feel better already in plans to get back off. While challenging it can be done.

Bill Cover Insurance said...

Living up with such a shaky economy or low paying job requires a lot of patience and financial preparedness to get by.

Anonymous said...

You forgot: toilet paper, dish soap, laundry detergent, laundry cost from the laundromatt, shampoo, garbage bags, cleaning supplies (surface cleaner, glass cleaner, bleach), sponges, clothing, tampons, birth control, the fact that you don't have a car and a montly bus pass is more like $100 but you never have that at once so you end up paying more, internet (yes, you need this its 2014), your special shoes and clothes for work, draino/nails/tools for when things break, the fact that if you live in a city rent is probably twice that, student loans because a huge amount if people working for minimum wage have degrees, roach traps because youve got a shity apartment, birthdays, holidays, every time your hours get cut or you have to call off work because you are sick, a realistic cost for medicine because you either have pain from physical labor or deal with germy people all day or both, and probably a whole lot more I can't think of in just a couple minutes. Also don't kid yourself $100 a month on entertainment would make anyone go insane.

Anonymous said...

Have any idea how much moving costs? How are you saving for two months down on rent and a van and all that time off work and all that time to find a job and how are you finding a job in ritual Oklahoma when most jobs are in urban areas?

Anonymous said...

Who is living in minimum wage? Well, at my last minimum wage job over half of my equally paid co workers had a college degree and a couple had their masters. Believe it or not, most jobs are service jobs and are minimum wage or close to it.

guelph payroll providers said...

Min. Wage is supposed to be a living wage and can be raised by individual states the Federal government.The problem is people skilled or unskilled are fighting over any jobs that pay a living wage.