Minimum wage is not a working wage. If you worked 40 hours a week for 50 weeks a year (assuming unpaid time off) you’d only earn $14,500. That’s gross salary, not net. So, it’s no wonder that when McDonald’s, who recently launched a website* that includes a sample budget and tips for managing money, has a sample budget that includes a second job.
The website is a joint effort between McDonald’s and Visa. The goal seems to be not only teaching money skills to their workforce, but to encourage signups of a prepaid Visa card. While I think these can be a good solution for a variety of reasons, there is no information about the fees involved on the website, something that should be heavily considered before giving up a traditional paycheck and bank account.
The website contains a sample budget, videos, calculators, as well as financial games. In addition to the content on the website there are links to videos on Khan Academy, links to a variety of guides (such as a car buying guide), and more. There is also a page dedicated to explaining some of the employee benefits that McDonald’s offers.
However, what I’m really interested in their budget suggestions. Let’s look at their suggestions.* (you can download the Budget Journal and read their suggestions here)
To start the journal wants you to understand the basics-what are expenses, setting up a budget and daily spending allowance, and learning to track your money.
Their tips for “being good with money” include;
- spend less than you earn,
- look for ways to save money (such as carpooling),
- set up direct deposit of your paycheck,
- open a savings account,
- and discuss financial goals with a friend.
These are all great concepts when it comes to basic personal finance, but given the number of fast food and minimum wage workers in the US, this is very beginner stuff. It doesn’t cover getting out of debt, how to budget for school, how to budget for families, or even basics like emergency funds.
In the best scenario this budget and advice is unrealistic and at worst it’s setting up employees for failure on a large scale.
Let’s look at their sample budget, so you can see what I mean.
McDonald’s Sample Budget
Let’s break it down. You need a second job (for a total of 74 hours a week) to make this budget work. Not only would it be tough to find two jobs, but to keep them both would be challenging. There would be no time for your family or furthering your education, much less money to spend on either.
Additionally, the expenses seem extremely low on average. There may be pockets of the country where this budget makes sense, but in most cases, unless you already live there it would be a challenge to make this work.
Rent/Mortgage
Average rent in most areas exceeds $600 for an efficiency or one bedroom apartment, and in many areas rent rates are increasing rapidly. You’d have to come up with a deposit on most apartments which generally equals 1-2 months rent. If we assume it’s a mortgage that means you not only have a good credit history but that your property costs between $100,000-$150,000 depending on the size of your downpayment. In many areas buying a home would be out of the question. Also let’s not forget maintenance costs of owning a home which can add up quickly.
Car Payment
Again, you’d need a downpayment or a hefty savings account to afford a car outright and avoid payments. To get a car loan, you’ll need credit-something that’s tough to build when your income is so meager. If you can secure a loan the interest rate is likely going to be higher due to a lack of or poor credit score. In some areas you won’t need a car, but transportation costs (and time spent on transportation) may equal $150/month or more.
Car and Home Insurance
A necessity for sure, but the rates seem low. Once again, the amount you pay is based on your credit history/score. You’ll also need to have an emergency fund to cover the deductibles on your policies. If you want a low deductible, you’ll pay more for your policy.
Health Insurance
Assuming you’re single, this wouldn’t even buy you healthcare from McDonald’s. If they are assuming it’s deducted and part of the $1,105 net pay that’s listed, $20 still seems low. I’m not familiar with their health plan details, but even with really good insurance we pay $15 per visit to our doctors and specialists. Also let’s not forget dental and vision insurance which can easily add up to more than $20/month.
Heating and Electric categories
It’s an odd that they broke these up into separate categories. Most people either pay their energy bill (gas and electric) or it’s included in the cost of rent. I suppose it depends on where you live, whether you have/need AC, and how careful you are about electricity usage. Note that the $50/month for heating was changed from $0/month after there was some criticism from websites and news outlets.
Cable/Phone
Arguably the closest to what you could pay, $100 could cover the cost of a basic cable/phone/internet package, or cover the cost of a monthly cell phone plan. Not both.
Other/Spending
Now you’re left with $850. That’s meant to cover food, gas, maintenance, clothing, and anything else you need. While this seems adequate when you consider that most of the other expenses are way off, it’s unlikely you’ll be left with so much each month. Considering things like having children, the need for a computer, maybe classes at a local college to get a degree, or even holidays, and it’s hard to imagine this budget working. Especially considering the number of hours this sample expects you to work.
Savings
Lastly, let’s talk savings. While it’s the first item on the list-the concept being to pay yourself first-that $100/month is hard to come by. You may be able to save $100/month (on two minimum wage jobs) if you already have no debt, and don’t need any type of downpayment, but it’s still short sighted. What about retirement? Emergencies? Health issues? Job loss? If you face any small issue it could set you back years. I think about things like the $1,000 we had to spend on a new water heater recently. No way a minimum wage earner could afford that easily. It would create a situation where you’re overworked, underpaid, and most likely in debt. Is it any wonder our savings rates have fallen?
Simply put minimum wage earners and those stuck in a cycle of poverty are having a harder and harder time getting out of that cycle. For many people who eke out a middle wage income they are also seeing costs on everything increase while their income remains relatively stagnant. There are no easy answers here. It’s no wonder that more and more Americans struggle (much like my own family has) with getting out of debt and creating long-term savings. While the Centsible Life is about learning smart spending strategies I know first-hand it’s not always easy. My own financial life is always a work in progress. Unfortunately there is no magic wand you can wave that makes your debt disappear, income increase, and your savings grow. It takes time, a lot of effort, and hard work.
Here’s an informative and funny take on the suggested budget from one of my favorite shows, The Colbert Report.
What do you think of McDonald’s sample budget? What are your thoughts on minimum wage? Share with me in the comments.
Read about how to budget here, and download my free budget printable and debt tracker. Have questions about budgeting? Share in the comments, and I’ll respond.
Kelly
*Screenshot and information came from the PracticalMoneySkills.com/McDonalds.
Well , if people are choosing to make minimum wage jobs their csareer choice thre upside is that based on their income level they would qualify for food , housing , medicaid , Obama phone and most other gov assistance programs to supplement their min wage .
The average age of fast food workers is 28. These entry level jobs are meant to lead to better skills that improve career options, ideally. However if you’re working two jobs just to support yourself it would be extremely difficult to spend the time and money necessary to learn skills to help you create a career. Additionally, there are people that make fast food work their career such as shift managers, store managers, and supervisors.
As far as the ‘left’ I find it problematic to categorize the conversations around this as politically motivated. For me it’s about the math.
McDonald’s is a good example of a corporation that is hardly being smothered. Their 2012 profit (after expenses) was $5 billion dollars (up 11% from 2011). None of that was passed on to workers, so I’m not sure how changing the climate to be more in favor of corporations would help.
Additionally I don’t believe this is an issue solely related to fast food. Wages of most American workers haven’t kept pace with inflation.
When did McDonalds go from a short term, entry level job to a career choice? The economy
is so poor now, good jobs are so scarce that the left is focusing on McDonalds and other fast food restaurants to save the country! Newsflash! It’s not meant to be a career job! Concentrate on improving the climate for existing and startups that are being smothered with gov regs and taxes. The overhead that is killing companies and jobs!
This is a great comment. I agree that all wages have suffered as expenses have increased.
There is definitely a dearth of skilled workers in the US, I have read several news articles recently about the need for skilled labor in fields like healthcare.
The concept *should* be that a minimum wage job allows you not only to live off that wage but to learn skills that allow you to become a skilled worker whether that’s through on the job training and experience or using your funds (or even company funds) to further your education.
This is not an easy problem to fix, but I do think raising the minimum wage will help those at the bottom tier of earners.
There’s a lot more to it than that of course. There are issues of race, privilege, location, and even work ethic come into play.
In the end, this post is meant to analyze the budget offered, and not make conclusions about the right path forward. I have my opinions, obviously, but I’m not versed enough in the issues to speak on what would be the best and most comprehensive plan.
This assumes a number of factors are in place:
-you’re single
-access to public transportation is readily available
-you have access to a regular grocery store (food islands are common in most cities)
-you have no health issues (a co-pay or medication alone could cost more than $100 depending on your health plan
The biggest issue with the math though is there is no savings. If your hours are cut, you lose your job, or you have any type of expenses that are outside these categories you’d be in the hole.
Is it possible? Yes, but only for a small portion of people, and even so I would challenge the concept that it’s ‘livable.’
What it doesn’t recognize is the wage differential between low skilled workers (those primarily employed earning minimum wage) and higher skilled workers (those with knowledge and expertise in the field). Wages in general, not just minimum wage, have not kept up with the rate of inflation. As such, increasing minimum wage will minimize the differential of wages between these two entities. From a firm perspective, it would be optimal to hire a higher skilled worker at a slightly higher pay rate than employ a low skilled worker. This is because a higher skilled worker already has a high Marginal Product to deliver to the respective firm, whereas a low skilled worker has to be invested in to produce at the same competency. Minimum wage jobs are typically used as a launching pad for people to acquire skills to make themselves more attractive in other labor markets, once they have acquired a higher Marginal Product. It isn’t so much about overall unemployment, or the costs consumers have to pay to cover these increased minimum wages. It is about who becomes unemployed as a result, and that typically is the young or the poor with little to no usable skills or industry specific knowledge. By creating a barrier to entry for these people, you will not enable them to acquire the skills necessary for a productive life. Just food for thought.
Actually, the assumed $1,105 is quite workable (for a single person in my area at least). Americans have a very skewed view of what is a necessity these days. You only actually need a few items on that list.
Rent is your largest essential expense. You’ll have to shop around and find something you can afford, but that goes for everything. The figure on this site is actually pretty close for my area. My apartment costs about $700/mo and this includes all utilities.
Renter’s insurance adds about another $20/mo.
Health insurance is estimated pretty low, I pay closer to $80/mo for medical/dental.
Phone is also an essential, but I’ll cover this later.
Moving on to the non-essentials…
Let’s start with the car as this is the largest cut I’ll be taking out of the budget. It is generally not a necessity. Take
advantage of public transportation, ride a bicycle, or walk. This eliminates the car payment, insurance, and gas, and will save you hundreds of dollars per month. This won’t
work everywhere, but assuming you live in a decent sized city it should.
Next we’ll tackle Cable/phone. I’m going to assume the amount budgeted is for bundled TV/Internet/Phone. None of these except phone are a necessity. Let me break this down. The television was invented less than 100 years ago. People have been around for much longer than that. If you feel you really need it, get a pair of rabbit ears. They’re free. You won’t get as many channels, but I spent several years of my childhood watching TV this way and it didn’t kill me. Home Internet access is not a necessity. It is a convenience. If you need Internet access, visit your local library. They even provide the computers. Phone is a necessity, whether landline or cell because you probably won’t be able to land a job without one. Not sure what landlines run per month, but I have a Tracfone and pay $80/yr for it. The service is limited, but I get by.
At this point, you’ll looking at just under $300 to allocate between bus fare, groceries, clothing, and other expenses.
31 day unlimited bus pass: $60
Groceries: $100 (overestimated, but it’s late and I’m about done with math)
Laundromat: $40
Clothing: Negligible, but I’ll throw on $20. Know you’re shopping at yard sales and resale shops.
Other: $78
All things considered, it is entirely possible (though difficult) to pull off living on minimum wage.
$20 is pretty laughable in today’s healthcare market. I can’t imagine how frustrating it must be. So often people on fixed incomes have to jump through hoops to get help they truly need. While I understand precautions and paperwork, it can be nearly a full-time managing it all.
That wasn’t their intention, though the math supports that splitting these expenses with a partner/spouse or living with other people would undoubtedly help.
I think you’re right about their intentions. In the end there’s a LOT to take away from this, but I focused on what made sense for my site and readers. I’m glad you liked it.
$20 for health insurance? I think someone forgot a zero!!! I have a family member who is on a fixed income of $800/month. It’s maddeningly frustrating and I personally have to supplement the budget to help them make ends meet, this despite them receiving limited help from assistance programs.
When I first saw the sample budget in your post, I took the 1st job and 2nd job line items as two separate people - 2 people, 2 jobs. Reading your article and looking at the original site, it’s clear that’s not the intention; there’s an agenda here. It’s tiring to see companies still barely putting out the minimum PR they need to have a positive community face. I feel like this is just another “See? We’re doing more than giving people jobs; we’re teaching them how to budget. We give back to the community and help solve problems.” — There’s a can of worms here, but I think you did a phenomenal job of pulling out the important parts.
It’s truly shocking.
Thank you!
Thanks Kelly. 🙂 I agree. While I grew up in a middle class bubble when we had our first child we were both in college and working. We lived below the poverty line for several years while my husband went to school and worked full-time. It would have been impossible to change things had we not had the support of my parents and let’s face it-been privileged enough to be in college already and have connections to people who helped him secure his first better paying job, and eventually a position at a startup.
I’m so sorry to hear that you were in an accident, but I’m glad you’re ok! I can only imagine. Many people are in the same boat, and one incident or health scare away from not being able to put food on the table.
Agreed. It’s not about politics for me at all. It’s about paying forward the kindness I’ve received (and the privilege I was born into) to folks who are struggling. I’d like to think that in 2013 we’ve woken up to the fact that poverty doesn’t look like we’d expect. We have members of our community who struggle every day, and I’m grateful there are organizations (including our school’s home and school association) that help.
Communism? Hardly. As Mr. Colbert put so well in the video, there should be a bottom line. In my opinion, that should mean no one goes hungry, is sick without the ability to get care, or living on the streets.
As for who should fund it- there are many options. Mainly the money of individuals who feel moved to give (people like Warren Buffett who have pledged their fortunes to help others for instance) can make a huge difference to help those things happen. There are organizations and charities that do this work both here and abroad every day. They are mainly funded by donations from private citizens. I think reforming our federal and state budgets, and changing laws surrounding lobbyists would help tremendously.
My opinions though, don’t change the facts I shared in this piece. Based on one full time income at minimum wage you can’t earn enough for the basics. Even adding an additional part-time income makes it nearly impossible.
~ Emily says
Awesome post! I had no idea minimum wage would net out such a low annual salary!
excellent post Kelly
If by this “everyone should be fed, everyone should have a roof over their head, and everyone should have access to affordable health care” …you mean these things should be provided by the government, this is communism. There’s just no getting around that.
“from each according to his ability, to each according to his needs”
With zero exception, there is no place or time in history where this has worked
— or turned out well.
The concept is noble, the practice impossible. It is a utopian dream that will never be achieved.
As an aside …should this idea of everyone fed and sheltered with affordable heath care be extended globally? And if so, by whom? Who pays for it in either circumstance?
Excellent post Kelly. I honestly do not think that the majority of non-working poor Americans have any concept of what the life of the working poor actually entails. I’m willing to bet some executive naively thought that they could come up with this teaching about budgeting strategy to improve their image without realizing that you know…you have to work two jobs like the ones at McDonald’s in order to survive.
One last thought. Last week I was in a 4 car accident caused by a drunk driver. I wasn’t hurt too badly being the last car hit, but the poor woman who took the brunt of the damage and ended up going to the hospital? Her clothes were not expensive, her car was old (but she told me she had just paid it off after 6 years of payments…it was totally destroyed), her babysitter for her kids was her sister, and the look of panic on her face when she realized that she was going to miss work for a few days (or longer) because of her injuries? It is one I won’t forget.
And in thinking about her quite frankly it disgusts me when people start throwing out political garbage to brush away the actual hardships of the working poor in this country. And that’s exactly what this budget helper from McDonald’s is…political garbage.
So funny. He nailed it.
It is complex, and I don’t mean to make it sound simplistic. None of the issues we face in the US are easy to solve.
However, there aren’t the same opportunities for people who work in low and minimum wage positions to take advantage of the free market because they don’t have enough income to live off of, much less opportunities to learn new skills that would help them earn more. It’s a vicious cycle that many low income earners face.
It’s a sample, yes, and I’m not holding it up as fact, but I am examining how accurate it is-something I think is a fair assessment. The main point being that the sample doesn’t hold up to reality, and anyone in a situation where they are solely working in a minimum wage position will have extreme difficulty making ends meet.
I don’t disagree that we should have smaller government in many ways, however I strongly believe that everyone should be fed, everyone should have a roof over their head, and everyone should have access to affordable health care.
“For $20 you can get a tourniquet, a bottle of Night Train and a bite stick.” Love it.
I see the problem as very complex, one that includes a lot of factors but bottom line is A) the government shouldn’t be mandating any sort of minimum (or otherwise) wage. Let capitalism and free market principles work. …and B) this is where the illegal immigration problems come in ….low-skilled workers working in jobs that were traditionally held by young people in (or just out of) high school. This demographic alone is suffering more from unemployment than any other.
That being said, for some reason this ‘sample budget’ is being held up as fact. It’s a sample, designed as a guideline to give an example of how a budget should look.
We’ll be much better off as a country in the long run when people realize the government is not *daddy* and should be removed as the arbiter of so many aspects of our lives.