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Living on the Minimum Wage – Is It Possible in 2021?

Since 2009, the federal minimum wage has been fixed at $7.25 per hour, with no adjustments for inflation. Over that same period, the value of the dollar has fallen by roughly 17%, according to the Economic Policy Institute. Because of this, many politicians and policy wonks argue that the minimum wage is no longer a living wage.

Yet there are still many Americans living on it. According to the United States Bureau of Labor Statistics (BLS), 1.1 million workers — about 1.5% of the U.S. workforce — earned wages at or below the minimum wage in 2020. That’s right — tipped employees, full-time students, and certain other workers can legally be paid less than minimum wage in certain circumstances.

These 1.1 million workers are somehow getting by on $7.25 an hour, day after day and week after week. How are they doing it?

A Minimum Wage Budget

According to official government guidelines, single people supporting themselves on minimum wage are not technically living in poverty. If you put in a standard 40-hour workweek at $7.25 per hour, you earn $290.

Assuming you work 52 weeks per year — taking no time off for vacation, illness, or family emergencies — that adds up to $15,080 per year. That amount is enough to place a single worker $2,200 over the official poverty guideline set for most of the country by the U.S. Department of Health and Human Services.

However, that’s not the case for single parents trying to support themselves and one or more children on minimum wage. A minimum wage income falls below the poverty line by more than $2,000 for a two-person household, more than $6,000 for three people, and more than $11,000 for four.

According to a 2017 Government Accountability Office (GAO) study, roughly half of all single-parent families with the parent earning minimum wage were living in poverty in 2016. A majority of them had to rely on a variety of government aid programs to get by.

But for single people with no dependents, the government claims the federal minimum wage is more than enough to survive and stay out of poverty. To put this claim to the test, let’s look at the budget of a minimum wage worker we’ll call Kai. You can picture Kai as a man or a woman of any age or race. They live alone, have no kids, and earn $15,080 per year.

We can get a rough idea of Kai’s personal budget based on a set of figures provided by Quicken. These show what percentage of your household income should typically go into different budget categories — for example, housing, transportation, and food.

Taxes

All Quicken’s category percentages are based on disposable income. That’s the amount you actually take home after taxes and other deductions. So before we can figure out how much Kai has to spend in each category, we have to work out how much of each week’s paycheck is coming out in taxes.

Even minimum wage workers have to pay federal income tax. According to the Tax Foundation, Kai can use the standard deduction to skip paying taxes on the first $12,550 of each year’s income. That leaves $2,530, which the IRS taxes at a rate of 10%, for a total of $253 in taxes. That reduces Kai’s net earnings from $15,080 to $14,827.

Kai won’t get much help from the earned income tax credit (EITC), either. This tax credit mainly helps low-income parents, so with no children, Kai would have to earn much less than minimum wage to get the full credit. In fact, if Kai is under age 25 or over age 65, they can’t claim the EITC at all.

Assuming Kai is between 25 and 64, the IRS’s EITC Assistant says the maximum credit they could get with an income of $15,080 is $57. That boosts their net earnings back up to $14,884.

However, Kai’s tax obligations don’t end there. The IRS charges a 6.2% Social Security payroll tax on the first $142,800 of every individual’s income, with no deduction allowed. Additionally, all income is subject to a 1.45% payroll tax for Medicare. For Kai, these two taxes together add up to another $1,154, bringing their net pay down to $13,730.

In many states, Kai would owe state income taxes as well. According to the U.S. Department of Labor, the federal minimum wage currently applies in 23 U.S. states and territories. Three of these states (Tennessee, Texas, and Wyoming) have no state income tax. One state (New Hampshire) taxes only income from interest and dividends, which Kai probably would not have.

In every other state, a worker making $15,080 per year would have to pay at least some income tax. For example, in North Carolina, Kai would pay 5.25% in tax on all income above $10,750, which is the standard deduction for single people. That comes to another $227 in taxes, reducing Kai’s income to $13,503.

Dividing that total by 12, Kai’s disposable income is roughly $1,125 per month. Now, let’s take a look at how that amount breaks down in terms of spending.

Housing

A common rule of thumb for home-seekers is to spend at most one-third of after-tax income on housing. Quicken’s sample budget loosely follows this rule, allotting 25% to 35% of income for housing costs. This amount covers only rent or mortgage payments (most likely rent for a low-income worker like Kai). Other portions of the budget cover home insurance and utilities.

For Kai, one-third of after-tax income would be $375 per month. However, in many cities, it’s just not possible to find a home for that price. For instance, on Apartments.com, the cheapest listing for a studio apartment in Asheville, North Carolina — a state where the federal minimum wage applies — is $550 per month.

Kai could try to save money by sharing an apartment with a roommate. There’s one listing for a two-bedroom rental at $750, exactly $375 per person. But this apartment isn’t currently available, and the next cheapest is $789, or $394.50 per person, which is still out of Kai’s budget.

Kai could attempt to reduce these costs by applying for government housing aid, such as the Housing Choice Voucher Program (formerly known as Section 8). However, in many areas, there are long waiting lists to get into this program, and even those who are accepted often have trouble finding a home.

Realistically, then, Kai will almost certainly have to spend more than one-third of their after-tax income on housing. According to the Consumer Expenditure (CEX) Survey from the BLS, households with less than $15,000 in income spent an average of $6,671 on shelter in 2019 — more than 44% of earnings.

Fortunately, Kai doesn’t have kids, so they can do a little better by sharing a two-bedroom apartment for $395 per month, which is only around 35% of their income. That leaves just $730 per month for everything else.

Utilities

Quicken’s housing cost doesn’t include utility bills, such as heating fuel, electricity, water, phone, and Internet service. Quicken recommends spending 5% to 10% of after-tax income on all these services combined. For Kai, that would be $56 to $113 per month, or $675 to $1,350 per year.

Once again, this number isn’t realistic. According to the CEX Survey, workers making less than $15,000 per year in 2019 spent an average of $2,313 on “utilities, fuels, and public services.” That includes $290 for fuel oil and natural gas, $977 for electricity, $681 for phone service, and $366 for water and other public services.

Kai could use a variety of strategies to pay less for these services, including:

  • Phone and Internet. Kai could get a bare-bones cellphone plan through a company like Ting for as little as $10 per month. To save on high-speed Internet, Kai could apply for one of the various subsidized plans for low-income users, which cost as little as $5 per month. That would bring their total phone and Internet bill down to $15 per month.
  • Home Heating and Cooling. Kai could lower their heating bills by keeping the apartment colder in the winter and covering the windows for insulation. To lower summer cooling costs, Kai could keep the apartment warmer and open windows for ventilation. Kai could also apply for the Low Income Home Energy Assistance Program (LIHEAP), but only a fraction applicants receive any aid.
  • Electricity. Tricks for saving electricity include turning off unused lights and electronics, using efficient light bulbs, and line-drying laundry instead of using an electric dryer. Replacing inefficient appliances could help still more, but a minimum wage worker like Kai probably doesn’t have the savings to do that.
  • Water. Kai could conserve water at home by taking shorter showers, fixing leaks, and washing only full loads of dishes and laundry. Water-saving showerheads, faucet valves, and toilet tank devices can also help. However, Kai may need the landlord’s permission to install them.

Assume these strategies can cut Kai’s heating, electricity, and water costs by 10%s. That would bring these bills down to a total of $1,470 per year. Adding $15 per month for phone service brings the total up to $1,650 per year, or $138 per month. Even with the savings, this is more than 10% of Kai’s take-home pay — and it leaves them with only $592 per month to spend.

Transportation

Quicken recommends budgeting 10% to 15% of your after-tax earnings for transportation. For those who own a car, this expense includes your car registration, auto loan payments, gas, maintenance, parking, and tolls. However, it doesn’t include auto insurance, which Quicken puts in a separate category.

According to AAA, it costs an average of $6,521 per year to own a small sedan if you drive 10,000 miles per year. Minus the cost of insurance, that’s $5,179 per year, or $432 per month. That’s far more than 15% of Kai’s take-home pay, and more than two-thirds of the total amount left in the monthly budget. So they will most likely have to live without a car.

If Kai lives in a city with good public transportation, that could offer a cheaper option. According to the American Public Transportation Association, the average transit fare in 2019 ranged from $1.71 for a city bus to $3.73 for commuter rail.

Assuming Kai makes 10 trips per week going back and forth to work and two on weekends, bus fare would cost $1,067 per year ($89 per month), and commuter rail fare would be $2,327 per year ($194 per month). Both are much more affordable than driving, but only the bus falls within 10% of Kai’s take-home pay ($113 per month).

Admittedly, just two weekend trips on public transit don’t give Kai a lot of opportunities to run errands or visit friends. However, they can keep the number of trips down by combining multiple errands into a single trip and making shorter trips on foot. If Kai can manage to keep transportation costs to $89 per month, that leaves leaving $503 in the budget.

Food

Another expense Kai absolutely can’t cut from the budget is food. Quicken allots 10% to 15% of after-tax income for all food expenses, including groceries and meals eaten out. However, given the high cost of dining out compared with cooking at home, it’s a luxury Kai probably can’t afford on a budget of $113 to $169.

The U.S. Department of Agriculture estimates the cost of food prepared at home at four different spending levels, from liberal to thrifty. On the cheapest plan, a month’s worth of food would cost about $198 for a single man under 50, or $176 for a single woman. However, even these low figures are too high for Kai’s budget.

There are several government programs to help Americans who can’t afford food. However, many of these, such as school lunch programs and Special Supplemental Nutrition Program for Women, Infants, and Children (commonly referred to as WIC) are available only for kids and (in some cases) their parents.

The only program available to childless single people is the Supplemental Nutrition Assistance Program (commonly called SNAP), the program formerly known as food stamps. However, because Kai’s take-home pay is more than $1,064 per month, they don’t qualify for this program either.

To get by, Kai will have to get their food spending down well below the level set by the thrifty food plan. They can attempt to save on groceries through strategies like meal planning, avoiding food waste, extreme couponing, and buying store brands. Eating more vegetarian meals can also save Kai money since meat tends to be one of the priciest foods to buy.

If this isn’t enough, Kai may have to seek assistance from local food banks or food pantries. They wouldn’t be alone in this. According to Feeding America, more than half of the households that rely on aid from food banks have at least one employed person in them.

Using all these strategies, Kai could probably get their grocery bill down to $5 per day, or $150 per month. That reduces their monthly supply of available cash to $353.

Health Care

One of the toughest expenses to cover on a minimum wage budget is health care. Quicken’s sample budget allots 5% to 10% of take-home pay for health care expenses that aren’t covered by insurance, plus 10% to 25% for insurance itself.

Adding these two categories together, Kai could devote as much as 35% of after-tax income — about $394 per month — to health care. However, after paying for other necessities, Kai has only $353 per month left to spend.

According to the CEX survey, it is possible to get care for this amount. Workers with incomes of less than $15,000 spent an average of $2,318 per year — about $193 per month — on health care in 2019. Adjusted for inflation, that adds up to about $205 per month in 2021 dollars.

If Kai’s workplace doesn’t provide a health plan, they can receive a subsidized health care plan under the Affordable Care Act (Obamacare). A Kaiser Family Foundation (KFF) calculator shows that Kai could get a silver-level plan at no cost. That plan would cover an average of 94% of their health care costs, so their additional health care expenses would be low as well.

In this particular case, Kai is lucky to have an income that places them above the legal poverty level. If they fell below the poverty level, they wouldn’t be eligible for an Obamacare subsidy. The law was written this way because people with incomes up to 138% of the poverty level were supposed to be covered under Medicaid.

However, many states chose not to expand their Medicaid programs. According to the KFF, most of these states provide Medicaid coverage only for parents who are well below the poverty level, and childless adults aren’t eligible at all.

However, if Kai’s job does provide a health insurance plan, that could actually make health care more expensive for them. According to the 2020 Employer Health Benefits Survey conducted by the KFF, single people with workplace health plans paid an average of $1,243 in health insurance costs in 2020 — about $103.60 per month.

Moreover, 83% of covered workers have a deductible — an amount they have to pay out of pocket before insurance kicks in. The average deductible for single coverage is $1,644. So if Kai has a workplace insurance plan, they could pay $103.60 per month for the premiums and still have to cover most of their health care costs out of pocket.

In this situation, Kai would have to use as many tricks as possible to lower their out-of-pocket health care costs. They could receive care from free or low-cost health care clinics, choose generic drugs whenever possible, and use prescription discount cards to cut prescription costs.

With a combination of good health habits, ingenuity, and luck, Kai could probably keep their total cost for health care down to $200 per month. That would leave just $153 for all other expenses.

All Other Expenses

According to Quicken, only the expenses listed above are truly necessities. It treats all other expenses, from haircuts to entertainment costs, as nonessentials that should account for only 15% to 30% of your total income.

However, this catch-all category covers many things that most workers would probably consider essential. For instance, it includes laundry costs, which are a necessity for those who don’t have a washer and dryer at home.

Other “nonessentials” include education and clothing, which could both be essential for a worker trying to get a better job that pays more than minimum wage. This category even includes basic household items and personal care products, such as cleaning supplies, shampoo, soap, and even toilet paper — a must-have if ever there were one.

These miscellaneous expenses fall under several categories in the CEX survey. In 2018, workers making $15,000 or less spent an average of:

  • $184 on alcoholic beverages
  • $405 on gifts
  • $764 on household furnishings and equipment
  • $410 on housekeeping supplies
  • $476 on other household expenses, such as lawn care or laundry
  • $862 on apparel and services
  • $340 on personal care products and services
  • $1,047 on entertainment
  • $875 on reading and education

That adds up to $5,363 per year, or $446 per month — much more than Kai has left. To make ends meet, Kai will have to find ways to cut way, way down on all these expenses.

For example, Kai could:

Using every trick in the book, Kai could conceivably manage to stay within the $153 left in their monthly budget. It wouldn’t be easy, but when you’re on a budget this tight, you do what you have to.

Savings and Debt Payments

There’s one more category in Quicken’s sample budget: saving, investing, and debt payments. Quicken says this is “arguably the most important” category on the whole list. It recommends setting aside 10% to 20% of income to either build up your savings or pay off debt.

Unfortunately, this is pretty much impossible for Kai. If they set aside $113 out of every month’s earnings, they’d never be able to stretch the remaining $1,012 to cover all their expenses. They’d end up dipping into their savings immediately just to make ends meet, and they’d never manage to build an emergency fund.

The inability to save is a particularly big problem if Kai has any existing debts, such as student loans or credit card debt. Meeting those loan payments every month on top of other expenses could easily eat up all of Kai’s income and then some. With no emergency savings to fall back on, they’d have to borrow more just to make ends meet, sinking deeper into debt each month.

Unfortunately, many low-wage workers are in this situation. According to the Federal Reserve, American families with incomes in the lowest 20% held an average of $9,850 in debt in 2019 — or $10,468 in 2021 dollars. At 5% interest, the payments on this debt eat up around $523 of their income every year out of a budget that’s already stretched to its limit.


Real People Living on Minimum Wage

Judging by Kai’s story, it looks like it is just barely possible to live on minimum wage — in some cases.

A single person with no debts can stretch an income of $1,125 per month to cover all the necessities of life, but they’ll have nothing left over for savings. And a single person who also has debts to pay, or kids to support, or unexpected expenses of any kind, probably won’t be able to make ends meet.

For married couples or others who share a household, it can be somewhat easier. Even if both partners make minimum wage, two people sharing household expenses can typically live on less money than one living alone, so these couples are likely to have more wiggle room in their budgets.

However, this benefit vanishes for couples who are raising children together. They must either sacrifice one income so one parent can stay home with the kids or pay for child care, which could potentially eat up an entire minimum wage salary by itself.

But we also know that in reality, there are around 1.1 million workers in the U.S. who are, somehow, living on minimum wage. News sources such as The New York Times, The Los Angeles Times, Vice, CNBC, and Vox have interviewed some of them to find out how they manage it. Although each person’s story is unique, several themes come up repeatedly.

Government Aid

Many of the minimum wage workers interviewed by news sources rely on some form of government aid. Numerous workers say either they or their family members rely on SNAP, and one woman receives housing aid as well.

Most interviewees don’t mention health care benefits. But according to the 2017 GAO report, about 29% of families with at least one worker earning federal minimum wage or less were enrolled in Medicaid as of 2016.

Help From Family & Friends

Nearly all minimum wage workers interviewed by news sources are financially dependent on friends or family members. Workers in the Los Angeles Times article say they rely on relatives and friends for child care, baby supplies, and help with bills.

Many workers say they have moved in with parents or other relatives because they can’t afford an apartment, and one man reports renting a room at below-market rate from a friend. And one woman interviewed by Vox says she delayed getting a divorce because she couldn’t afford to live on her own.

Multiple Jobs

Both Vice and the Los Angeles Times say many workers hold multiple jobs at once to make ends meet. For instance, one man works as both a janitor and a fast-food worker, putting in around 60 hours a week in total. According to the BLS, 4.6% of U.S. workers age 25 and older — nearly 6 million people in total — held multiple jobs in 2020.

Other minimum wage workers earn extra money from a variety of odd jobs. Interviewees mention delivering food for Grubhub and DoorDash, taking part in paid medical studies, or donating plasma.

Constant Stress

Basically all the minimum wage workers interviewed say they live paycheck to paycheck, always struggling just to pay that month’s bills. Some consistently work 50 hours or more per week, while others never know from day to day what their working hours will be.

Some spend hours each day commuting on public transport, forcing them to get up as early as 5am to make it to work on time. A single mother says she often has to choose between taking her kids to see a doctor and working to earn the money she needs to support them.

Minimum wage jobs are often physically demanding as well. According to the BLS, 70% of workers making the federal minimum wage are in service jobs, especially food preparation and service. One worker describes spending eight- to 10-hour shifts at a grocery store constantly on her feet, running back and forth between the cash register and the stockroom.

Living on the Edge

Even with all these sacrifices, many workers say they’re unable to pay all their bills each month. One woman talks about a $100 emergency room bill that’s gone unpaid for months because she can’t raise the money to pay it. A young man interviewed by Vox is facing a $2,000 medical bill from multiple trips to the emergency room.

Vox also talked to a Walmart worker in Arkansas who says she puts off paying bills in order to buy food for herself and her family. Other workers describe having their utilities cut off, being evicted for unpaid rent, and even being homeless.

Doing Without

The theme that comes up most often in workers’ stories is going without things — not just luxuries, but necessities. Workers describe dropping out of school because they can’t pay their tuition, walking to work in the rain and snow because they don’t have bus fare, and going hungry because they can’t afford food.

One woman says that if she got a raise, her priority — after catching up on all her unpaid bills — would be to stock up on cleaning supplies, which she can’t currently afford. And the young man with the $2,000 medical bill told Vox’s reporter she’d have to call him on a Kindle tablet, since he can’t afford a phone.


Final Word

Some people believe that if workers can’t survive on minimum wage, it’s not because the wage is too low — it’s a result of their own personal or moral failings. They argue the workers either aren’t working hard enough or aren’t using their money wisely.

However, based on the stories above, it’s clear that many minimum wage workers are already working as hard as possible. They’re going without both luxuries and necessities and still struggling.

These days, the difficulties of living on minimum wage are attracting a lot of attention from business and government leaders. Many politicians, especially Democrats, are calling for a federal minimum wage increase to improve workers’ quality of life.

However, Republicans say this could result in job losses that would actually leave low-wage workers worse off. They argue that many employers can’t afford to pay their workers more, so raising the minimum wage would force them to cut employees’ hours or eliminate some jobs entirely.

Raising the minimum wage isn’t the only way to help low-wage workers. One alternative is dramatically expanding the EITC to provide additional income for those who don’t earn enough from work. This approach wouldn’t lower employment, and it would benefit only struggling workers, not teenagers working part-time at minimum wage jobs.

However, paying for this plan would require either higher taxes on well-to-do workers or significant cuts in social programs. Since most of the working poor now rely on those same programs to get by, this change could leave them no better off than they are now.

Another idea that’s attracted some attention recently is universal basic income (UBI). Under this plan, all Americans, regardless of how much they make, would receive a check each month for enough money to cover basic necessities.

Replacing existing government benefits with UBI would reduce red tape and the stigma associated with taking “handouts.” However, this program would require either substantial tax increases or a dramatic increase in the national debt.

While the federal government debates the options, many states are moving ahead to raise their own minimum wages. According to the National Conference of State Legislatures, 20 states saw their minimum wages rise in 2020. One more state (Florida) will implement a minimum wage increase in September 2021.

A total of 29 states plus the District of Columbia now have minimum wages above the federal minimum. In addition, 18 states automatically raise their minimum wage each year to account for inflation. In those states, at least, workers in those states don’t have to worry about falling farther behind as the dollar falls in value.

Amy Livingston
Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

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