Published in: Banks | July 20, 2020
Your budget probably won't follow the personal finance rule of thumb.
If you're making minimum wage, you might be more focused on survival than sticking to a proper budget.
The federal minimum wage still sits at $7.25 per hour -- where it's been since 2009 -- which is $15,080 per year before taxes, assuming a full-time work week. This is just above the poverty line if you live alone, and below the poverty line if you have even one dependent.
Finding better-paying work or fighting for a higher minimum wage might be your long-term goal, but in the meantime, here's what your budget should look like when you're making minimum wage.
The 50/30/20 rule is a budgeting rule of thumb that states that:
Unfortunately, it can be the 50/30/20 rule has some problems when you're making minimum wage. The national median rent for a one-bedroom apartment was $1,078 as of December 2019, which is more than many people making minimum wage take home in a month. Rent alone may take up more than half of your income.
Try to find solutions that will get your budget as close to this rule of thumb as possible. That might mean getting an extra roommate or moving in with family to cut housing costs. It might mean applying for food stamps, as discussed below, to lower those grocery bills.
Once you've minimized your fixed costs, adjust the other two categories accordingly. If your fixed costs are still taking up 65% of your income, you might only be able to dedicate 20% of your income to wants and 15% of your income to savings until you've achieved a higher wage. The most important thing is that you create a budget and stick to it.
Looking at the numbers above, it might be tempting to cut out the "savings" category entirely. If you did that, you could dedicate 70% of your income to needs and 30% to wants, maybe even freeing up enough funds to live without a roommate.
However, consider what might happen if you end up needing to pay for a $500 car repair or hospital bill. With no savings, you might have to rely on a credit card -- if you're able to qualify for one -- that will result in another monthly payment, plus interest fees. If you find it hard to fit saving into your budget now, fitting additional debt into your budget later will be even harder.
That being said, it's understandable if you're unable to save 20% of your income while making minimum wage. Even $50 or $100 a month will feel like a lot. But if you can stash it away in a free savings account, it's enough to make a saving habit second nature. As your income increases, you can increase the amount you save accordingly until you hit 20%.
If you're making minimum wage, there's a good chance you could qualify for some form of government assistance. This can help minimize your fixed costs and add breathing room to a stressful budget.
Here are some common forms of government assistance for minimum wage workers. You might not qualify for them, but it's always worth applying.
The Supplemental Nutrition Assistance Program (SNAP) program -- formerly known as "food stamps" -- provides a monthly food benefit to eligible low-income individuals that can be used to purchase groceries. You can contact your local SNAP office to find out if you qualify.
Medicaid provides healthcare coverage to eligible low-income individuals. In the event of a medical emergency, having this coverage could save you a lot of money. Contact your state's Medicaid program to find out if you qualify.
From low-income 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 secure affordable housing. Research your options and take advantage of any you might qualify for.
You'll also find federal, state, and local programs that help low-income individuals cover the cost of childcare, prescription medication, therapy, public transportation, and many other crucial services. As long as minimum wage remains at or below the poverty level, it's important to take advantage of these programs to ease your financial burden and create room in your budget.
For most people, making minimum wage isn't sustainable, and cutting costs is only half of the budgeting equation. The other side is increasing your income.
You can seek out ways to supplement your income, whether that's picking up a side gig or starting your own business on the side. However, if you prefer the security of a full-time job, your energy might be better used aiming for higher pay and better benefits in your current line of work. Research the market value of your job and ask your boss for a raise, focusing on your accomplishments. If negotiating doesn't produce results, it might be time to search for a job that pays better, or change your line of work altogether to something more lucrative -- just make sure you've secured work before quitting your current job.
If you don't feel you're 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 increased the federal minimum wage to $15 per hour by 2025, is unlikely to be passed by the Senate. However, you can still pressure your elected officials to support increases in the minimum wage and vote for representatives who share your concerns in upcoming elections. Localizing your efforts toward changing your state's minimum wage might 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 you can. Creating a budget and sticking to it will help you achieve some security while you work toward a higher wage.
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