I make minimum wage. What should my budget look like?
If you’re on minimum wage, you may be more focused on survival than staying on a proper budget.
The federal minimum wage remains at $ 7.25 an hour – where it has been since 2009 – or $ 15,080 per year before taxes, assuming a full-time work week. It’s just above the poverty line if you live alone, and below the poverty line if you even have a dependent.
Finding a better-paying job or striving for a higher minimum wage might be your long-term goal, but until then, here’s what your budget should look like when you earn minimum wage.
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Try to get as close to the 50/30/20 rule as possible, but adjust as needed
The 50/30/20 rule is a rule of thumb in budgeting that states that:
- 50% of your take-home pay should be spent on necessities such as housing, bills and groceries
- 30% should be spent on needs such as entertainment, restaurant meals and clothing
- 20% should go towards your savings
Unfortunately, the 50/30/20 rule may cause problems when earning minimum wage. The national median rent for a one-bedroom apartment was $ 1,078 in December 2019, more than many people earning minimum wage at home in a month. Rent alone can represent more than half of your income.
Try to find solutions that will bring your budget as close as possible to this rule of thumb. This could mean finding an additional roommate or moving in with a family to reduce housing costs. This could mean asking for food stamps, as discussed below, to reduce those grocery bills.
Once you’ve minimized your fixed costs, adjust the other two categories accordingly. If your fixed costs are still 65% of your income, you may only be able to spend 20% of your income on needs and 15% of your income on savings until you hit a higher salary. The most important thing is to create a budget and stick to it.
Lower your savings rate if necessary, but don’t reduce your budget savings
Looking at the numbers above, it might be tempting to remove the “savings” category altogether. If you did this, you could spend 70% of your income on needs and 30% on wants, perhaps even freeing up enough funds to live without a roommate.
However, think about what might happen if you have to pay for a $ 500 car repair or a hospital bill. In the absence of savings, you may have to rely on a credit card – if you are able to avail it – that will result in another monthly payment, plus interest charges. If you’re struggling to fit savings into your budget now, it will be even more difficult to fit additional debt into your budget later.
That being said, it’s understandable that you can’t save 20% of your income while still hitting minimum wage. Even $ 50 or $ 100 a month will seem like a lot. But if you can tuck it away in a free savings account, just make a savings habit second nature. As your income grows, you can increase the amount you save accordingly up to 20%.
Seek help from the government
If you are on minimum wage, chances are you are eligible for some form of government assistance. It can help minimize your fixed costs and add wiggle room to a stressful budget.
Here are some common forms of government assistance for minimum wage workers. You may not qualify, but it is still worth applying.
Food aid
The Supplemental Nutrition Assistance Program (SNAP) – formerly known as “food stamps” – provides a monthly food allowance to eligible low-income people that can be used to purchase groceries. You can contact your local SNAP office to find out if you qualify.
Health aid
Medicaid provides health coverage to eligible low-income people. In a medical emergency, this coverage could save you a lot of money. Contact your state’s Medicaid program to find out if you qualify.
Housing assistance
From low-rental housing to rent relief to the Housing Choice Voucher Program (formerly known as Section 8), there are a number of government programs designed to help you get affordable housing. Research your options and take advantage of any that you may be eligible for.
You’ll also find federal, state, and local programs that help low-income people cover the costs of child care, prescription drugs, therapy, public transportation, and many other essential services. As long as the minimum wage remains at or below the poverty line, it is important to take advantage of these programs to ease your financial burden and create space in your budget.
Supplement your income and demand better wages
For most people, the minimum wage is not sustainable, and cutting costs is only half the budget equation. The other side is increasing your income.
You can look for ways to supplement your income, whether that’s getting a job or starting your own business on the side. However, if you prefer the security of a full-time job, your energy could be better used to aim for higher pay and better benefits in your current job. Research the market value of your work and ask your boss for a raise, focusing on your accomplishments. If the negotiation does not work, it may be time to look for a job that pays better or to change professions altogether for something more lucrative. Just make sure you have found a job before you quit your current job.
If you feel that you are not earning enough to make a living, you can also push for an increase in the minimum wage. The Raise the Wage Act, which would have raised the federal minimum wage to $ 15 an hour by 2025, is unlikely to pass the Senate. However, you can still pressure your elected officials to support minimum wage increases and vote for representatives who share your concerns in the next election. Localizing your efforts to change your state’s minimum wage could be even more effective.
It’s important to make your voice heard, but it’s also important to protect your financial future in any way possible. Creating a budget and sticking to it will help you achieve some security as you work towards a higher salary.