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Living on the Minimum Wage – Is It Possible in 2020?

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In the summer of 2014, several prominent politicians made an unusual choice. For one week, they all voluntarily set aside their generous salaries and tried to live on just $7.25 an hour — the federal minimum wage. They called it the Live the Wage Challenge.

The three politicians who started this challenge — Rep. Tim Ryan of Ohio, Rep. Jan Schakowsky of Illinois, and Ted Strickland, the former governor of Ohio — were trying to point out the federal minimum wage is not a living wage. Since 2009, it’s 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.

Even in 2014, not one of these three politicians made it through an entire week on a minimum wage budget. Many others who joined them in the challenge at #LiveTheWage on Twitter said they fell short as well. And the cost of living has only continued to rise in the years since.

Yet what these politicians, bloggers, and others couldn’t do for just one week is a daily reality for many Americans. According to the United States Bureau of Labor Statistics (BLS), in 2018, 1.7 million American workers — about 2% of all workers in the country — earned wages at or below the minimum wage. That’s right. Employers can legally pay workers less than the minimum wage if they also receive tips, although they must make up the difference if an employee’s wages plus tips come out to less than the minimum. They can also pay less than minimum wage to employees who are full-time students and in certain other special cases outlined by the U.S. Department of Labor.

These 1.7 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 about $3,000 over the official poverty guideline set for most of the country by the U.S. Department of Health and Human Services.

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.

However, 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, who lives alone with no children. You can picture Kai as a man or a woman of any age or race. The important thing is they have to get by on an income of $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 category percentages are based on your disposable income: 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 $12,400 of each year’s income. That leaves $2,680, which the IRS taxes at a rate of 10%, for a total of $268 in taxes. That reduces Kai’s net earnings from $15,080 to $14,812.

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. Based on the IRS’s EITC Assistant, with an income of $15,080, the maximum credit that Kai could receive for 2019 is $38. And if Kai is under age 25 or over age 65, they can’t claim the EITC at all.

However, Kai’s tax obligations don’t end there. The IRS charges a 6.2% Social Security payroll tax on the first $137,700 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 $13,658.

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. According to the Federation of Tax Administrators, two of these states (Texas and Wyoming) have no state income tax. Two others (New Hampshire and Tennessee) tax 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 $13,431.

Taking all these taxes and credits into account, Kai’s disposable income comes to $13,469 per year, or around $1,122 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 no more than one-third of after-tax income on housing. Quicken’s sample budget uses a looser version of 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 come to just $4,490 per year, or $374 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 a city in one of the states where the federal minimum wage applies — Asheville, North Carolina — is $550 per month. Two-bedroom rentals start at $775, or $387.50 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 2018 Consumer Expenditure (CEX) Survey from the BLS, households with less than $15,000 in income spent an average of $6,089 on shelter in 2018 — more than 40% of earnings. Fortunately, Kai doesn’t have kids, so they can do a little better by sharing a two-bedroom apartment for $388 per month, which is only around 35% of their income. That leaves just $734 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 $673 to $1347 per year, or $56 to $112 per month.

Once again, this number isn’t realistic. According to the CEX Survey, workers making less than $15,000 per year in 2018 spent an average of $2,205 — around $184 per month — on “utilities, fuels, and public services.” That includes $280 per year for fuel oil and natural gas, $967 for electricity, $647 for landline and cellular phone service, and $311 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 save on these services by doing without a landline phone and using only a bare-bones cellphone plan through a company like Ting. These plans provide a limited amount of phone type and data 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 could potentially get their phone and Internet bill down from $54 per month to $15.
  • Home Heating and Cooling. Kai could achieve lower heating bills and lower summer cooling costs by keeping the apartment colder in the winter and warmer in the summer. Covering windows for insulation in winter and opening them for ventilation in summer could help as well. Kai could also apply for the Low Income Home Energy Assistance Program (LIHEAP). However, only a fraction of people who apply for aid from this program receive any.
  • 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 Kai can cut heating, cooling, electricity, and water costs by 10% using these strategies. That would bring these bills down to a total of $1,402 per year. Adding $15 per month for phone service brings the total up to $1,582 per year, or $132 per month. Even with the savings, this is more than 10% of Kai’s take-home pay — and it leaves them with only $602 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, the average cost per year to own a small sedan is $5,822 if you drive it 10,000 miles per year. Subtracting the cost of insurance brings this figure down to $4,751 per year, or $395 per month. That’s far more than 15% of Kai’s take-home pay, and more than half 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 2020 ranged from $1.71 for a city bus to $2.26 for heavy 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 rail fare would be $1,410 per year ($118 per month). Both are much more affordable than driving and would actually fall within 10% of Kai’s take-home pay ($112 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. Using this strategy, Kai could pay around $100 a month for transportation, leaving $502 in the budget.

Public Transportation Friends Waiting For Train Subway Platform


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 $112 to $168.

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 thrifty plan, a month’s worth of food would cost about $195 for a single man under 50, or $173 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 $1,041 a 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 $352.


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 $393 per month — to health care. However, after paying for other necessities, Kai has only $352 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 $2,134 per year — about $178 per month — on health care in 2018. Adjusted for inflation, that adds up to about $183 per month in 2020 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). According to the Kaiser Family Foundation (KFF) Health Insurance Marketplace Calculator, Kai could get a silver-level plan for just $26 per month. 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 133% 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 2019 Employer Health Benefits Survey conducted by the KFF, single people with workplace health plans paid an average of $1,242 in health insurance costs in 2019.

Moreover, about 22% of all employer-sponsored health plans have an annual deductible of $2,000 or more for single coverage. That’s the amount a worker has to pay out of pocket before insurance kicks in. Firms with a lot of low-wage workers like Kai are particularly likely to have these high-deductible plans. So if Kai has a workplace insurance plan, they could pay $103.50 per month (one-twelfth the average cost of $1,242 per year) 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 $152 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:

  • $201 on alcoholic beverages
  • $529 on gifts
  • $790 on household furnishings and equipment
  • $486 on housekeeping supplies
  • $513 on other household expenses, such as lawn care or laundry
  • $753 on apparel and services
  • $340 on personal care products and services
  • $1,348 on entertainment
  • $1,071 on reading and education

That adds up to $6,031 per year, or $503 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 $152 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 & 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 “paying yourself first” by setting aside 10% to 20% of income to either build up your savings or pay off debt before you spend on anything else.

Unfortunately, this is pretty much impossible for Kai. If they set aside $112 out of every month’s earnings, they’d never be able to stretch the remaining $1,010 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. And because Kai is unlikely to qualify for a home mortgage, they can’t build wealth through home equity, either.

The inability to save is a particularly significant problem if Kai has any existing debts, such as student loans or credit card debt. Meeting those loan payments every month while also covering all their 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, causing them to sink deeper and deeper into debt each month.

Unfortunately, many low-wage workers are in this very situation. According to the Federal Reserve, American families with incomes in the lowest 20% held an average of $33,900 in debt in 2016 — or $36,413 in 2020 dollars. At 5% interest, the payments on this debt eat up around $1,800 of their income every year, or $150 every month, out of a budget that’s already stretched to its limit.

Empty Savings Jar Depressed Woman


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 $1,222 a 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 1.7 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, CNBC, and Vice 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 are enrolled in Medicaid.

Help From Family & Friends

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

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, 5.1% of U.S. workers age 25 and older — over 8 million people in total — held multiple jobs in 2019.

Other minimum wage workers earn extra money from a variety of odd jobs. Interviewees mention delivering food for Grubhub, 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.

The jobs minimum wage workers do are often physically demanding as well. According to the BLS, nearly three-quarters of workers making the federal minimum wage are in service jobs, such as food preparation and service, cleaning, and personal care. 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. 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.


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, going without both luxuries and necessities, and still struggling. And as the Live the Wage challenge showed, even highly educated people who have good jobs in real life find it hard (if not impossible) to get by on a minimum wage budget.

Thankfully, 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 — the very programs the working poor now rely on to get by.

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, the minimum wage rose in 10 states in 2019 and another 14 in 2020 as a result of new legislation. An additional seven states automatically raise their minimum wage each year to match inflation, so workers in those states don’t fall behind as the dollar falls in value.

Do you think the federal minimum wage is a living wage? Do you think raising it is a good or bad idea?

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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