Can You Live on Minimum Wage?

Minimum wage earnings can make it difficult to make ends meet, especially if you live in an area where the cost of living is high.

There are a few important points to understand when it comes to how much you earn if you’re making minimum wage. While the federal minimum wage is only $7.25 an hour, that doesn’t mean that’s what you’ll be making.

State governments are allowed to set their own minimum wage standards based on the cost of living in their state. They do need to at least pay the federal minimum, but many states pay more. For instance, the District of Columbia has the highest minimum wage in the country at $12.50 per hour. Massachusetts and Washington follow close behind at $11 per hour. And California just a little less at $10.50 per hour. That’s because it costs significantly more to live in those areas. Keep in mind though, these are considered “premium wages” based on working 40 hours per week. If you work less, your hourly wage may be less. If you’re interested in finding out the minimum wage in your state, you can find it here.

Unfortunately, we haven’t seen a significant increase in minimum wage over the years. Back in 1997, the federal minimum wage was only $5.15, but it took ten years to see an increase to $5.85. It increased again in 2008 to $6.55 and landed at the current rate of $7.25 in 2009. Since then, we haven’t seen an increase in the federal level of minimum wage.

Minimum wage is determined on the Consumer Price Index (CPI), which is an inflation indicator government agencies use to determine the inflation rate where businesses and consumers are concerned. In July of this year, the CPI only rose 0.1 percent, and over the last year it has risen a total of 1.7 percent. Not enough to call for an increase in minimum wage.

So, can you live on minimum wage? The answer is a little more complicated than a simple yes or no. It depends on a few factors.

• Where do you live? If you’re living in an area where the minimum wage is higher, you can also expect a higher cost of living. That means you’ll pay more for rent, utility bills, gas, and groceries. It’s usually easier to find more affordable options in areas where the minimum wage is lower.
• How many hours do you work? Remember, you only make the higher, “premium wage” if you’re working at least 40 hours per week. Working that many hours also allows you to bring home more in your paycheck, making it easier to make ends meet.
• Where do you work? While the federal and state governments set minimum wages, many companies choose to pay their workers more and set their own minimum wages for new employees. For instance, Costco has advocating raising the federal minimum wage. Their starting pay is $11.50 an hour across the board, but the average employee makes $21 an hour not including overtime.

Living on minimum wage requires some cutbacks and creative budgeting, but it can be done; especially if you’re working at least 40 hours per week. Living in an area where the minimum wage is about $10 an hour will give you the most affordable living options while still making more than the national standard.