12 Smart Tips on Living on a Minimum Wage Budget
If you have ever wondered, “How do people survive on minimum wage?”, you’re not alone. It is admittedly hard but not impossible. However, those who rely on minimum wage to get by openly acknowledge its hardships.
When you’re living on minimum wage, odds are your finances are pretty tight. Luckily, you don’t have to be a financial wizard to manage your money the right way. By having a clear idea of your financial goals and how you can achieve them, you can make significant changes in your life.
The minimum wage is the lowest legal wage that companies can pay their employees. The U.S. current national minimum wage is $7.25 per hour. If you work a full-time minimum wage job, you will earn $15,080 annually.
Initially, it was meant to protect workers against exploitative companies willing to take advantage of people’s desperation. This amount of money was supposed to provide necessary means for enough food, clothing, and shelter. In other words, people should be able to afford normal living conditions on this wage.
However, as time went on, the minimum wage has been moving further and further from its initial purpose. The reason is that the law did not account for inflation. If it did, the minimum wage would be $23/hour. In this context, workers need to be very smart and frugal in order to live on a minimum wage budget and maintain decent living conditions.
1The first thing you need to do is figure out where your money is coming from. Your income is not only limited to your wages, and sometimes you don’t even realize it until you check. Take note of different sources of income, such as:
- House property
- Alimony and/or child support
- Capital gains/loss
- Business and profession
- Other sources
There are particular challenges in budgeting for unpredictable income. Whether you’re in sales, a freelance writer, an interior designer, or any other self-employed worker, you need to come up with a system that works for you.
A lot of the time, you face difficulties in having a bad month. Your budget should be based on your lowest income throughout the year. Whatever is left out of that sum should be saved for the following months. Thus, you don’t overspend and create a financial cushion just in case. Even though it takes more work, update your budget every time you receive another paycheck.
2Once you figure out how much you can earn, it’s time to evaluate your spending habits. If your minimum wage budget plan goes over your earnings, it will be more like a wish list or debt-inducing behavior. The primary recommendation is to track your spending for the last 30 days. Make sure to include everything – from big purchases to smaller ones that eventually accumulate to a significant sum. Here are a few ways to be informed about your spending:
- Record your expenses in a notebook or a spreadsheet: It implies a much more hands-on approach. Despite the necessity to spend more time on it, you are less likely to forget your expenditures if you explicitly write them down.
- Download an expense tracker app: If you can’t be bothered to write down everything meticulously, it might be useful to have your tracking system automated. By linking the app to your bank account, you make sure everything gets noted without you even noticing it.
- Use your bank statements: Some apps lack detailed information. A clear summary of financial transactions provides essential details, including the specific products/services you purchase. Plus, you can start right away – your bank already has this information, which contains several months of old statements.
Some people feel anxious when looking into their purchases and prefer to not even look at them. However, this approach will lead to careless spending. The least you can do is figure out what you spend on necessities – food, housing, insurance, debt payments, etc.
3Many people forget to consider irregular expenses, such as holidays and birthdays. Even though you’re budgeting for minimum wage, you can still afford certain luxuries. You simply need to plan them ahead of time. Many Americans take out loans for holiday costs, which can easily be covered by smart budgeting. If you know when you will need money for gifts or infrequent bills, you can slowly save up for it throughout the year. For example, calculate how much you might need for:
- Birthdays of family, friends, and colleagues
- Christmas, Hanukkah, or other holidays with gift exchange
- Planned vacations
- Wellness examinations, including your pets
- Insurance premiums, etc.
Mark them on your calendar with the approximate sums of money they will require. When setting monthly budgets, refer back to the calendar to see if will you need to tighten your expenses. It will give you a sense of control and certainty.
4When you have a clear idea of how much you earn and how much you spend, it is time to adjust and restructure your spending patterns. Consider starting with the 50/30/20 budget. This rule means you should stick to the following structure:
- 50% of your income is allocated to necessities such as housing and food
- 30% goes to secondary needs such as entertainment and going out
- 20% should be saved, such as retirement or emergency fund, and debt, such as credit card bills
However, the key to budgeting on a low income is to be realistic. Your needs and expenses may vary from month to month, and you should be able to adjust your budget accordingly. The 50/30/20 budget gives you a rough idea of how to divide your income. But it is up to you whether you want to reduce your spending in a particular category.
You shouldn’t beat yourself up every time you go over budget – after all, this is why you should keep a savings account. Similarly, there is no reason to spend more money than needed just because you have some room in your budget.
5For most people, keeping housing costs reasonable is the most crucial part of budgeting. However, if you’re earning minimum wage, it will be tricky to find a decent option, especially if you live in a city. With a take-home pay of approximately $1,000 a month, you might need to compromise something.
Here is how you can reduce housing costs:
- Share accommodation with other people. There are multiple options of how you can do this – rent an apartment with a friend or, even better, friends; rent a room from someone who owns a house; find someone who rents out a portion of their house like a furnished basement.
- Search for work-for-rent options. If you find a suitable option, exchange or reduce rent costs for maintenance jobs or something similar.
- Opt for an inexpensive part of the city. There are many sustainable and cost-effective housing options for those living in urban areas, which are hardly worse than their mid-town counterparts.
Your search for affordable housing will not necessarily be easy, but you have to be persistent. The best options are not around for a long time, so keep looking until you find one. And lastly, don’t hesitate, or someone else will rent it instead.
6Slimming down your grocery bill can be the healthy choice for you and your wallet. Even though it may initially seem that eating cheaply means eating poorly, you can take simple steps without even noticing a huge difference in your diet. Here are our top tips to keep food costs at bay:
- Set a weekly food plan. If you have already done your grocery shopping, you will be less tempted to order take out, which usually costs more.
- Cook from scratch. Processed foods are not only less healthy but also often more expensive than whole foods. If you like sandwiches, salads, cookies, cakes, etc., make them at home.
- Plan your meals around seasonal foods. Local, seasonal fruits, and vegetables are always cheaper. If you know what will soon be in season, look up some recipes to get inspired.
- Don’t buy a lot of snacks. In addition to not having much nutritional value, snacks tend to be quite costly purchases.
- Don’t be ashamed to shop for sales. Buying meats and other more expensive items on sale can be great for your budget. Make sure to check the “best before date”.
Interestingly, the item that takes the biggest bite out of our food budget isn’t even food at all. It is coffee and tea, colas and other carbonated drinks, bottled water, fruit drinks, and sports drinks. You might want to cut down on them to make more progress.
7Transportation is another significant expense in many people’s budgets. It costs $2,700 to $5,300 a year for Americans to own and operate a car. Between car purchase prices, insurance, and the ever-growing price of gas, people are allocating a significant portion of their wages to owning a car.
This arrangement is not feasible for minimum wage workers. However, you can find an affordable alternative depending on what you have available. Here are some options worth considering:
- Living and working close to work if it’s not in the busiest, most expensive part of town. This way, you can commute by walking or biking.
- If you can’t live in the area where you work, take public transportation. Find the best deal by purchasing a monthly pass.
- If this applies to you, carpooling with co-workers can be a great way to save a lot of money. Also, check with your HR department to see if your company has a carpool program.
- Explain your situation to friends and family and get rides from them on occasion.
Odds are you’ll be better off financially if you look for other options than owning a car. But there can be a chance that you will find a car for as cheap or cheaper than what public transportation costs. In this case, you need to set some money aside for unexpected auto repairs, which happen from time to time.
8Part of learning how to make a living on minimum wage is knowing when we’re entitled to financial help. As part of a poverty reduction strategy, the Government has a variety of programs targeted to low-income people and vulnerable groups. They respond to different policy problems, so it will be easier to find the right program.
Since the biggest expense is usually housing costs, you may want to tackle them first. Look into available options for lowering some of your living costs. Also, you might be able to receive additional funding for childcare, utilities, heating, car insurance, and phone costs, among other bills. Check the requirements for applying and make sure you’re eligible.
9The key to learning how to save money making minimum wage is to establish a habit. If you are not used to living beneath your means, it will be an essential experience and a learning opportunity. Here are some tips on how to do it:
- Set a specific target that you want to save each month, even if it hurts a bit. You may think you have nothing to put aside, but even small amounts will eventually add up.
- Automate your savings. Research has actually proven that by automating your finances, you are more likely to save more and stick to it.
- Be strict about taking out money from your savings account. Don’t tap into it unless there is an emergency.
- When you run into the occasionally found money, always put it into savings. For example, if you receive a check you forgot about, some money in your jacket from last year, or a larger-than-usual tax refund.
- If you get a raise, put at least 25% of it aside. Even if you feel that you deserve a gift, you will reward yourself by having more money to live on.
- Invest something regularly, no matter how small, towards your retirement. If your employer offers a 401(k) program, consider contributing some of your pre-tax dollars to an account. If it’s not provided, open up a Traditional IRA or Roth IRA.
You can’t go on forever surviving on $700 a month, so you need to have a bigger picture in mind. While you should try to find comfort in living on a budget, you need to set financial goals so that you have something to guide you. And when you have enough savings, you have more stability when pursuing your goals.
10 Despite the difficulty of living on minimum wage, you shouldn’t entirely rely on credit cards and payday loans to get by. While these solutions have immediate benefits, you may get into trouble if you fail to make timely payments.
You should understand that payday loans or similar solutions may exacerbate the challenge, rather than give you a break. Instead, consider professional financial help from a trustworthy source. Specialists will share their knowledge and give their recommendations on how to avoid or get out of debt.
If you are already behind on your bills, there are many ways you can manage, restructure, or even lower your debt. These services are also available at specialized companies. If you struggle to get your finances in order, always seek professional help.
11Your creditworthiness is essential, not only because it will determine whether you get that car loan or that new credit card. It will also affect what apartment you can rent, your cell phone plan, etc. If you don’t know how to start, examine your credit report. The information in your report is used to generate your credit scores, so you should be aware of where you stand.
If you have poor credit or even no credit, take action to build it. But the most important part comes next – you should use your credit cards wisely and responsibly. Meaning, you need to keep track and pay bills that come in, don’t max out your credit cards and keep your oldest accounts active.
12Now, you know the most effective tips on cutting spending and saving money. Is it possible to live on minimum wage? It certainly is if you have excellent money management skills and the right attitude.
Don’t neglect all the essential steps of the budgeting process – the earlier you get into the right routine, the easier it will be. If you’re feeling overwhelmed, look at your financial situation from a different perspective. Since you know ways of how to survive on minimum wage, you need to find an arrangement that suits you personally. You can have a budget, save money for your future, and spend some of your earnings guilt-free.