Last week, I read a very interesting article from Michelle at Making Sense of Cents. She was asking Could you live on minimum wage? In this article, she reviewed her budget and tried to find ways to cut it down to make it work with the current minimum wage where she lives. She came to the conclusion that it was feasible but that her life would be quite boring:
“All work and no play definitely does not make for a healthy lifestyle.
Something would have to change. Either make more money or cut more out.”
While reading this post, I didn’t even have to check out my budget to see that I couldn’t live on minimum wage… unless I worked 120 hours a week!
The Ratchet Effect
The first reason I know I couldn’t live on minimum wage is linked to the ratchet effect. Nope, I’m not going to write about tools here. The ratchet effect is an economic analogy that explains why humans have a hard time to reverse a current situation. This is a valid theory at any level. For example, it’s as hard for someone to be forced to sell his house and move back into an apartment as it is for a millionaire to be forced to sell his mansion and go back to a regular sized house. The reason is simple; you get used to it!
We all get used to our lifestyle and it would be very hard to downsize anything we enjoy. There are, of course, expenses we wouldn’t mind cutting (like the 10 frugal habits that don’t bother Shawanda). But if I would go back to minimum wage, I would have to leave my whole lifestyle behind…
I’m not ready to sell my house, eliminate vacations and good food. I would need to find a way to fight back if I run into too much bad luck… I honestly don’t know how people making minimum wage do it.
Working Harder or Being More Frugal?
Let’s imagine for a second that you lose your job and can’t find anything in your field of work. You would eventually have to “quit” being picky and take the next job that comes your way. Chances are it would be a minimum wage job. What would you do: would you work longer to increase your pay check or look for more ways to become frugal?
I know the answer to this question for my own situation: I would work a lot longer and focus on increasing my income. To be honest, I’ve never been very good at cutting down on my expenses. I like enjoying life with my family. On the other hand, I’m not scared of working hard. When I was at school, I used to work 35 hours a week while doing my bachelor degree full time. Then, I got my first full time job and kept working on Saturdays delivering bread. I was living with my full time job pay check and saving my bread delivery money.
If I had to go back to a minimum wage job, I would focus on getting a job that nobody wants to do. The first reason is that it would be easier to get and keep. Chances are that I might be able to do overtime which would increase my salary. Working 6 days a week in order to be able to save money would also be part of my plan. You can’t get far if you work full time and spend all your money on essential needs such as food and rent. Unfortunately, I see too many people focusing on closing the end of the month and hoping they don’t have any cash emergencies. I would work additional hours to generate a minimum level of savings. This money could be used as an emergency fund that would allow me to go back to school in order to get a better job. There are a few jobs that don’t require a college degree and still pay decent. Among them, EMT salary seems good and it’s not a job that everybody wants to do because it’s a tough job. This would fit my job requirements (not a popular choice with opportunities of doing overtime) in order to get out of the rat race.
Another Option: Have a “B” Plan
There is a way to prevent you from going back to minimum wage; it’s called having a B plan. Since I graduated, I always kept a small sideline or a side job to make sure I have 2 sources of income. My main job always been my biggest money producer but I know I can always rely on a second source of income during hard times. This is better than an emergency fund since it will continue to produce income “forever”.
There are a few ways to generate that extra income:
– Having a second job on weekends
– Freelancing/consulting work (start with something you are good at and passionate about)
– Creating a side business (this is what I did with my websites)
– Teaching (if you have a higher level of education)
It’s not easy and it probably won’t pay well at first. I had several sideline jobs paying only a little bit higher than minimum wage. But the main goal was to increase my savings and enable me to earn money from more than one source. This is why I’m never stressed about losing my main job since I could temporarily live on my side gigs without giving anything up.
The funny part is that I had the idea of writing about minimum wage from Michelle while she got it from Vanessa at Vanessa’s Money… who got it from Andrea at So Over Debt and Jackie at Money Crush! I guess it’s a proof that it’s a good topic J.
What about you? Could you live on minimum wage? Do you have a B plan?
Financial professional and online entrepreneur, I'm best known as The Financial Blogger. I want to make money because I like enjoying life the way it should be; with a lot of great food and wine! I also love to spend time with my lovely wife and 3 kids!
I think there’s things we could cut back on, but I definitely wouldn’t want to. Maybe a point to remember here is go to school, hone your skills, be different…so you don’t ever make minimum wage. Great post; really enlightening.
Just did a minimum wage budget and we could do it as long as we didn’t have to pay daycare which is pretty outrageous here in NJ (1 kid, potty trained, full time 1400/month).
We don’t have loan/credit card payments (except for the expenses we put on our cards for cash back but pay off in full).
We are also under the poverty level at that point and according to the calculator I used we would get about 300 a month in food stamps, our bill is typcially 83 a week for 4 (5 when I have my oldest daughter) and qualify for medicaid (very low cost to free healthcare). Also our low income would qualify us for SSI for our son who has autism, a qualifying disability according to the SSA, which in NJ can be up to 700/month.
It’s not ideal to get state aid but it is there for just this case, a person/family struggling to get by.
No. We couldn’t. We almost do. And it’s already a struggle. It’ll get better when I’m done with school and go back to work. But it’s hard enough to meet our bills and keep our sanity…there’s no way we could do it with a pay cut. I’d probably work more. And be a little more frugal. I guess there’s always room for that. Would love to build up savings like you have with sidejobs so that it wouldn’t be as much of a worry.
Thanks for the mention! And it is a good topic to think about. With me I’d cut back since there are obvious things I don’t need. And I would also work more.
While I understand your perspective, I have to disagree with your advice about taking on more work; especially when there are children involved. There HAS to be quality family time. Children need that focused time; everyday, every week. There’s no substitute for a parent focusing on their child often. In two-parent families, this issue isn’t as problematic as it would be for a single parent, but look at how many single parents we have in society today. I guess if you don’t mind having your child raised by someone else, television (like THAT’S a good idea), or just simply leaving them to fend for themselves (making life-altering mistakes in the process) then that’s every individual’s decision to make.
I don’t mind giving up “luxuries” in lieu of making my children, my family, my priority. Vacations, big fancy houses, top designer clothes, and other so-called “needs” are really unnecessary. Happiness and fulfillment comes from relationships, not material goods. If you’re working so hard to maintain your lifestyle, where will you find yourself when your relationships fail? Alone. In a big, empty house; walking a foreign beach alone; eating at a fancy restaurant – table for one.
I appreciate your view on the issue of making ends meet on minimum wage, and enjoyed reading the article. I don’t think it was as hard for my parents (in the 70s & 80s) to make ends meet as it is for us today, but I could be wrong about that.
Hey Sorilea,
You are bringing a very important point. I have 3 kids and we have decided that my wife would stay at home in order to take care of them. If I would ever lose my job, I would try my best to keep our lifestyle by any means. We don’t need a big house, a sport car and crazy vacations to Disney World. But we like the fact that my wife can stay home, that my kids can do as many activities they want (my son is playing soccer and doing swimming classes while my daughter is taking ballet and swimming classes too). I think it’s important they can do things they like too.
There is obviously a balance to reach between the money you are making (vs the time required at work) and the time you can spend with your kids & family. I would not want to eat alone at the restaurant and see my kids every 2 weekends!
Good post, but I’d be careful about touting teaching as realistic side job. 🙂
Right, it may not be the most lucrative activity 🙂
I wouldn’t be able to live on minimum wage in Vancouver, simply because it’s a struggle to live on 100K /year here. Knowing me, I’d work SO MANY HOURS in a week that it wouldn’t be minimum wage anymre.
I guess that with house price rising in Vancouver, 100K is like the minimum wage if you have a mortgage payment, right? I just don’t get how young couple afford to buy a house in Western Canada!
Interesting question! I suppose if it came down to it, I would do a bit of both – look for ways to cut back on expenses and try adding a few extra hours here & there. To me it’s all about balance – I don’t believe in working to the point of exhaustion, so if I had to cut back, but could still enjoy a decent quality of life, then it’s all good 🙂
Reaching a comfortable balance is definitely the most important thing. Money doesn’t worth anything if you can’t enjoy it with people you love!