Managing Money on Minimum Wage

Devon Delfino
By Devon Delfino 
Managing Money on Minimum Wage

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When you’re earning minimum wage, it might seem as though you need to work magic to make ends meet — let alone save for the future.

But you don’t have to be a financial wizard to effectively manage your money. By setting clear goals with achievable milestones, you can put yourself on the path toward a better future.

Map out attainable goals

First, set your financial goals. This might feel overwhelming when you’re contending with challenges today, but it's actually the best way to overcome those challenges. Your goals might include getting out of credit card debt, establishing an emergency fund or saving for college. You'll want to break bigger goals down into smaller, more quickly attainable achievements so you'll stay engaged and encouraged.

“It’s important for people to think about those short-term savings goals,” says Jonathan Mintz, president and CEO at the Cities for Financial Empowerment Fund, a nonprofit that works with low-income individuals and families throughout the United States. “Those are the important first steps to make sure that you’re moving forward.”

Create a flexible budget

Next, build a budget that supports your goals. Consider starting with the 50/30/20 budget. This approach allocates: 50% of your income to necessities such as housing and groceries; 30% to “wants” like entertainment and dining out; and 20% to savings, such as a retirement or emergency fund, and debt, such as credit card bills.

  • 50% of your income to necessities such as housing and groceries;.

  • 30% to “wants,” such as entertainment and dining out

  • 20% to savings, such as a retirement or emergency fund, and debt, such as credit card bills

You’ll need to know your monthly income to get started. If it's variable due to irregular hours or tips, use old tax returns to establish an average. Then use a budgeting worksheet to visualize your expenses. Include expenses that don't occur regularly, such as car maintenance or health insurance copayments.

Compare your expenses with the 50/30/20 budget and adjust those three buckets to fit your circumstances. For example, if credit card payments wipe out your 20% allocation for savings and debt, you might temporarily reduce your “wants” spending so you can still make progress toward your savings goals.

To make the process easier, you can track your spending and progress with an app or website. And be sure to revisit your budget whenever your income or expenses change.

Open checking and savings accounts

People with lower incomes and greater income volatility are less likely to have a bank account than higher-income individuals. And unbanked workers must often spend money on prepaid debit cards or check-cashing services to get paid.

“Not only are those expensive ways to operate, but it actually slows down the progress that you’re trying to make,” Mintz says. A NerdWallet study found that unbanked households that used a prepaid debit card paid $196.50 to $488.89 in fees in 2013.

Start by opening a savings account separate from your checking account, if you have one. (If not, open one of each.) That will make your saved cash easier to track and harder to spend, but it'll still be accessible when you need it.

Choose your accounts carefully. Some charge fees if you can’t meet minimum direct deposit or monthly balance requirements, and that can be a financial drain, says Matthew Konsa, associate director of programs at Neighborhood Trust Financial Partners, an organization that provides financial empowerment programs for people with low to moderate incomes in New York.

Consider automating

There are some big benefits to automating your bill payments and savings. You'll avoid missing payments and getting hit with late fees while steadily building your fund for emergencies or long-term savings goals.

However, you might not be ready to fully automate payments if you don't always have enough money to cover your bills. And checking account overdrafts come with fees and can indirectly hurt your credit score. Weigh the benefits and risks to determine if automating is right for you.

Get government help

Federal programs for low-income workers can lower some of your living costs. It’s worth looking into options such as the housing choice voucher program, Medicaid, the Health Resources and Services Administration, and the Supplementary Nutritional Assistance Program. You might also be able to find help with child care, utilities, heating, car insurance and phone costs, to name a few.

Use the government’s benefits finder to determine which federal programs are available to you. If you receive assistance, adjust your budget to account for it.

If your income isn’t stable, make sure to research program requirements before you apply; a good week at work might jeopardize your eligibility. Many programs determine eligibility on an annual basis, but recertification periods for SNAP benefits can be as often as monthly for users without regular income. Keep this in mind if your income is close to the qualification threshold.

Avoid bad debt

It can be tempting to fall back on credit cards and payday loans, but those can lead to more trouble, especially if you don't have an immediate way to pay them off.

“People don’t recognize that these bridge or ‘payday’ loans are only exacerbating the challenge, rather than giving them a break,” Mintz says. Instead, he suggests seeking professional financial help from a trustworthy source, such as city counseling services and community-based nonprofits.

You can also get fast cash in other ways, including selling your stuff or getting a community loan. It’s worth taking a look at your monthly expenses and trying to lower your bills to create more wiggle room in your budget, too.

Build credit

Regardless of your goals, building credit should be a part of your financial game plan.

Your creditworthiness doesn't just affect your credit card's interest rate. It can also impact the apartment you can rent and your cell phone plan, among other things. If you don’t know where you stand, start by getting a copy of your free credit report, which contains information that determines your credit score.

If you have poor credit — or no credit — look into options such as credit-builder loans, secured credit cards and secured personal loans. Then make sure to use your credit wisely. That means paying bills on time, avoiding credit card debt and keeping your oldest accounts open as long as you can. If you already have credit card debt, focus on paying off as much as possible, starting with the balance on the card with the highest interest rate.

Boost your earnings

If you’re living on minimum wage, it’s important to explore other money-making options. Start by assessing your skills, experience and interests. For example, if you’re always the designated photographer for friends’ gatherings, maybe you can offer your photo skills on a freelance basis.

If you have time to explore a new line of work, take advantage of your local job training center or visit for online training options. Free online courses or community college classes might also be helpful.

If you pursue a college degree, fill out the Free Application for Federal Student Aid, or FAFSA, for each year you’re in school to access financial aid such as grants and scholarships. And be wary of for-profit colleges. On average, students at these schools pay more than those who attend an in-state public school, according to data from the National Center for Education Statistics. Those who attended for-profit colleges are also more likely to be unemployed six years after starting at the school, according to a National Bureau of Economic Research paper. If you're considering a for-profit college, ask these questions before you enroll.

Remember, you don’t have to tackle all these steps at once. Start with smaller tasks — setting goals and creating a budget — and then move on to larger ones, including building credit and increasing your earnings. With time, you'll become more comfortable and confident managing your money.

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Devon Delfino is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @devondelfino.