July 26, 2017
How to live on $25,000 a year in low wage America: A guide to living on the per capita income
MB360–Most Americans live paycheck to paycheck. We hear stories of people waiting until midnight at the end of the month so accounts can get filled with funds simply to buy food. This shouldn’t come as a shock given the per capita income of a working American is roughly $25,000. Does that seem like a lot or a little? Well we are going to find out in this article when we actually look at a full monthly budget at this level. Most Americans don’t have money saved for retirement because most of the living expenses are already eaten up by simply being alive.
Living on $25,000 a year
It feels like budgeting has a negative connotation in our society. It almost feels like it fits into the category of dieting or exercising when these things should be embraced. It is rather apparent that budgeting is simply one of those things that people choose to avoid or ignore when they probably would benefit if they took the time to it.
Looking at income data, we find that nearly half of individual workers make around $25,000 a year or less in reportable income:
Source: US Census Bureau
That is a big portion of our country. We are looking at nearly 100 million workers in this country having reportable income of $25,000 a year or less. So it might be difficult to save for retirement or even buy a home when you are simply trying to get by.
Now let us say you earn $25,000 a year. How does your monthly spending look like? Here is a sample budget for someone making $25,000 a year:
Let us go through the sections above.
Annual Income: After taxes, you are probably going to take home $1,757 a month. So right off the bat your pool of funds has lowered.
Essential expenses: You probably need to get a roommate here if you want to keep your housing expenses down. Car expenses are necessary for many just to get to work and it should not be a surprise that subprime auto debt has been one of the fastest growing debt sectors in the last few years.
Financial Priorities: Many young people now carry student debt. The nation has $1.4 trillion in outstanding student debt. We are also putting a tiny bit away into an IRA or 401k and some money for an emergency fund.
Lifestyle expenses: We’re trying to keep these things to a minimum here. We’ve discussed that for the first time last year, people are spending more on eating out than on groceries.
You hear nonsense like young people are living off of avocado toast and expensive lattes but does the above seem excessive? I really don’t see it. But then again, you have people thinking that $250,000 of income a year is middle class when it clearly puts you in the top 2 percent of earners.
The above budget should give you a line by line item of where money goes for most workers. 100 million people don’t need a budget to tell them this since they are living it today in America.