A Minimum Wage Scenario

In the U.S., the federal minimum wage is currently $7.25 an hour, although some states have different minimum wages. So Over Debt got to thinking about a client of hers who was excited to be making $7.50 an hour, and wondered how people survive on minimum wage. (Go check out her post, both it and the comments are interesting.)

My response was that it’s doable if you don’t live “normally” — meaning you don’t have a car payment, a student loan, a fancy cell phone, credit card debt, etc. — and if you live in a low cost of living area or have roommates.

Figuring out take home pay

If we estimate $7.25 an hour at 40 hours a week, for 50 weeks a year (assuming there are some days you’re not scheduled or can’t work, since you don’t get paid for the days you don’t work when you’re making minimum wage), that’s $14,500 a year gross. According to this take home pay calculator, that brings the total down to $13,390.75 per year after social security if you’re filing as married with one dependent.

That’d give an average take home pay of $1115.90 per month — which is a little misleading, since the months would not be exactly even but let’s go with that number for this purpose.

Budgeting for a minimum wage scenario

If our family of 3 had to live on that amount, here’s what our monthly budget would look like for our current living situation:

Mortgage $225 (because we’re lucky and could pay only our ridiculously low minimum payments on our significantly paid-down mortgage if we absolutely had to)
Self-escrow $162.55 (for annual taxes and insurance)
Groceries $170 (we would not be eating anything expensive or particularly tasty)
Electricity $110
DSL $50
Water $50
Postage $1
Netflix $17.48
Pets $35
Gas $60
Car insurance $120 (guessing here on what the reduced rate would be)
Car license fees $28
Haircuts $14
Doctor visits $12.50
Dental visits $31.25
Savings, $9.12
Gifts, clothing, or a couple of very cheap meals out, $20

To do this, we’d have to cut out:

My medication, since I don’t actually need it to live — “just” to concentrate!
Our expensive cell phones
Buying anything we wanted to eat in grocery stores
Almost all eating out
My son having a driver’s license (because it would make our insurance rates completely unaffordable)
Driving my son’s truck
Driving my car most places (my husband’s gets the best gas mileage)
College tuition & books (my son would have to switch to community college and get a grant for his first two years, borrow his books from the library or a friend, and work on getting both a job & additional grants for the next two years)
Half of our dental checkups (and we’d be in trouble if we actually needed work)
Expensive procedures for our pets or us if we got sick, unless we could find some way to get them covered
Travel
Movies out
Massages
Health club
Life insurance
Hobbies
Gardening
Books
Wearing contacts
Eye exams

Of course, if this scenario turned into a long term thing, we’d actually have to sell the cars that would bring the most money — which would live us with just my two seater. We’d probably also start renting out a room in our house, because that would help immensely.

What sad (good?) is, there are actually still a lot of luxuries on our list: DSL, Netflix, insuring multiple cars, pets, at least one of us getting a haircut monthly, etc.

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8 comments

  • If you were making minimum wage, your son would have a whole lot more financial aid options (not just grants). But this budget assumes you to to minimum wage now, after you’ve raised your son, after you’ve been able to buy a house and a car. So yes, you can still afford some luxuries, but think about how all that would change if you had to pay for child care? If you were paying the standard rent in your area?
    Most people who have to live on minimum wage aren’t people who have had a lifetime to build up assets. They are people who are essentially being prevented from ever getting any assets.

    • This does assume 2 of us lost our jobs and I went to minimum wage, so yes, a different scenario.

      But I’ve been there — paying for child care, making much, MUCH less than minimum wage annually, and paying the standard house payment in our area (which was the same as rent then). But even then I was lucky, because my son was on his dad’s insurance and I had a paid-for car. (And a roommate — first someone I didn’t know, then my boyfriend who paid half of the house payment & utilities.)

  • Yeah I was wondering about the Netflix as I was reading the list and thinking to myself.. Netflix is a necessity? lol

    Anyways I like how you broke the numbers down, its very similar to how I break numbers down when I am helping someone with managing their debt. Their reaction is often “oh, I didn’t know I only had that much” and I would tell them how most people think they have 150% of what they actually earn. Having them realize that they only have 100% to work with gets them thinking of ways to eliminate things that they don’t necessarily need.

    Great read. Numbers and breakdowns like this gets my brain all excited.

  • I see one flaw, how would you save for a down payment to get that mortgage?

    • This scenario was with me going to minimum wage now, so I’d already have it. Renting would have to be another option. The biggest flaw though is what’s very common to people just scraping by — you’re in deep trouble if the littlest thing goes wrong.

  • I actually think that living at a minimum wage makes you realize that there’s still more even if a lot has been taken away. Although it obviously compromises vital expenses such as education and insurance, I think it can also inculcate a good sense of value for the money that one earns. Not everybody lives at a marginal income. Those who don’t should probably think of themselves more in this shoe and maybe, just maybe, be able to make good use of their money.

    • Well, I know that once you’ve improved your financial situation or even just get a little extra bit of money, you really appreciate it. I never take going to the grocery store and being able to buy anything I want to eat for granted.