Across thousands of personal finance websites, there are many common themes to be found. One of these is to
Live Beneath Your Means

Living beneath your means is not always easy. Yet, for most of us, we look at people who make just a little bit more than us and wonder where their problem is. The extra $5,000 or $10,000 a year would make all the difference for us. How often though, do we look past our bulging budgets and look at how people making that $5,000 or $10,000 less than us do it?

For a challenge, I want to look at what is possible at the current minimum wage rate. To make the example possible, lets assume a single individual, in good health, with no dependents who works 40 hours a week with no days off or vacations. How will he fare?

There are a lot of variables to be considered. I am going to look at a best case scenario. Many things are possible that would make this less doable than we would like. To help make that clear, here is a list of the assumptions I am making for the sake of the example.

Assumptions

  • Transportation costs are zero. Either work and shopping are close enough to walk to, or our worker owns a bicycle and gets around under his own power, regardless of the weather or time of year.
  • Affordable housing is within range of this low paying job.
  • The only income our worker has is from his job.
  • Our worker is focused and keeps strictly to his budget.
  • There are no outstanding debts or credit card usage, so the common pitfall of interest expense is avoided

Minimum Wage Calculations

Well, according to the IRS withholding calculator, our worker will owe $343 in taxes for the year ($6.60 per week. Furthermore, Social Security and Medicare taxes will take an additional $930.85 for the year ($17.90 per week).

Minimum Wage Weekly Pay

Rate Hours Taxes Net Pay
$5.85 40 $24.50 $209.50

So, our hero has a grand total of $209.50 a week to live on. Hmm. This example is going to be a hard one. I’m not sure this is going to end well. Let us continue forward and see what the damage really is. Notes on individual expense items are after the table.

Minimal Budget

Expense Monthly Total Weekly Total
Rent 350 80.77
Utilities 100 23.08
Food 175 40.38
Houshold 50 11.54
Insurance 50 11.54
Entertainment 50 11.54
Charity 25 5.77
Clothing 50 11.54
Other 57.83 13.35

This worked out well. It looks like it is theoretically possible to live like that. Here’s my comments on each of these categories.

  • Rent – There is a grand total of 1 apartment complex in the area that I have found offering rent this low. There may be others, but they do not advertise very well. The offering at this price is a quad arrangement with 4 private bedrooms and the rest of the facilities shared. Anybody else see a potential concern? Avoiding this setup will take all of the money in the Other category.
  • Utilities – Careful control of utility bills can result in a total this low. It would be minimum phone service, very little water, gas, and electric usage and being thankful that trash is handled by the landlord.
  • Food – This is one category where there is not much that can be done. There is only so much that can be done to get 35 meals a week out of $40.38. Most fresh fruit and vegetables are unaffordable. Organic and light ingredients are even less affordable. Ramen, macaroni and cheese, and other high carbohydrate and calorie dense products will make up the bulk of this food budget.
  • Insurance – Many people will look at this an wonder if this expense could be eliminated. Can it? Probably not. If something did happen, is there any way for possessions to be replaced without going into debt (which there is no room for in this budget)? Plus, is there any way to handle getting alternative living arrangements while things got fixed without having insurance?
  • Household – A lot of things fit under this category. Everything from soap and shampoo to postage stamps, paper towels and garbage bags. All of the little things that are needed to keep things flowing smoothly around the home.
  • Entertainment – While many of us overspend on this category in our own budgets, there is not much entertainment going on here. Early showings at the dollar theater without popcorn or soda, using the public parks, and reading library books will help stretch this category. Even with those things, going out for a coffee or buying the latest DVD is not going to happen very often.
  • Charity – Everybody can contribute something to charity. Admittedly, $5.77 is not much. This is another category that some people may recommend being eliminated. While every dollar helps, there is something important about being able to recognize others needs and contribute towards it, even if only in a token manner.
  • Clothing – Two choices here for staying clothed and out of jail. Thrift stores and discount stores. Some things you will want to buy at one and not the other, while some clothes may only be available at one or the other. Either way, there will certainly not be a brand name label on much of anything in the closet.
  • Other aka Emergency/Misc funds. Not a whole lot of emergencies can be handled with this small amount of money. Having even a little bit of slack in the budget does give some options over having nothing.

Minimum Wage Summary

Weekly Summary      
Income Taxes Expenses Net
$234.00 $24.50 $196.15 $13.35

As we can see, it is a very tight budget for even one person to attempt to live on a single job at minimum wage. It is actually even tighter than I expected it to be. It is doable, but it certainly relies on a lot of assumptions. If housing this cheap is not available, or if transportation costs need to be included, there is suddenly no slack available in this budget.

Some situations will not be able live at this wage without additional support. Having dependents who are not working, being unable to work full time, or incurring an emergency will force this worker into financial crisis. Even missing a single day of work can be enough to cause problems.

Credit, especially with any fees or high interest rates, would be disastrous.

Conclusion

Thankfully, few – if anybody – that sees this article will be in this dire of a situation. For the majority of us that are living well above minimum wage, this exercise can still have some application. If it is possible for somebody to live on that small an amount of money, why do so many of us have trouble living on much more? Is there a rule that I am not aware of that is requiring me to live to the limits of my financial life?

Look at your own financial life. Is there anything you can take away from this academic exercise and apply to your own life? The takeaway I have from this is the need to really sit down and look at my spending closely. That review is to take a close look and really determine what expenses fulfill a true need and which ones fulfill wants. Once I have been honest about that, many more options for how to proceed will become clear.

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