Shocking & Fascinating McBudget

From the last to know category I stumbled across this proposed budget that McDonalds put together for its front line employees, most of whom make minimum wage. The budget as follows via Minyanville;

Monthly Income

1st Job $1105
2nd Job $955
Total Income $2060

Monthly Expenses

Savings $100
Mortgage/Rent $600
Car Payment $150
Car/Home Insurance $100
Health Insurance $20
Heating $0 (this was later changed to $50)
Cable/Phone $100
Electric $90
Other $100
Total Monthly Expenses $1260

Monthly Spending Money $800

Daily Spending Money Goal $27

I will say up front that the idea of a company trying to provide education in the name of promoting financial literacy is a positive. The particulars of this episode appear to have caused a PR mess for the company. For anyone who hasn’t thought about their budget in the context of a minimum wage salary the numbers above probably come as a shock.

One aspect of the PR mess is the items that are missing like groceries, gas, taxes and some other things. Another aspect of the PR mess is the apparent suggestion that front line employees need a second job–the company is conceding that employees don’t make enough to get by, at least when they start out. To get to $2060/month at $7.25/hour people would have to work 284 hours per month which works out to 71 hours per week (simple math 284 dividend by 4).

The $800 for monthly spending might be intended to cover gas, groceries and anything else and there is also an assumption that the employees have no debt to service. As far as taxes they still would have to pay their share of FICA.

Working 70 hours per week in this context seems like tall order. A couple, each making minimum wage and working 56 hours each (so two jobs each) might gross $812 per week or $3248 per month. This would still be a difficult existence but depending on the location these people would have a roof and food in fridge. Adding children to the equation would also make this scenario far more challenging in terms of expenses for the kids and paying for childcare.

A young person in this job could also have a chance of making the numbers mostly work if they live with roommates. To the extent young people have a lot of these jobs it is reasonable that someone who is in their early 20’s would have roommates.

Then there is the thread going around that started with an AP report that concludes “80% of US adults are near poverty, rely on welfare or underemployed.” The 80% figure is difficult to imagine as being correct unless there is a vagueness to it that makes the conclusion overly inclusive. Whether the 80% is correct or not it is easy to believe that the trends have clearly gotten worse.

Where I lay out a scenario above of a couple each working 56 hours a week for minimum wage I am assuming two jobs each to get to the 56 hours. A fly in this ointment could be Obamacare and what some folks say it will do to jobs. John Mauldin wrote about this over the weekend. He subscribes to the idea that many full time jobs will see hours cut so that employers won’t have to provide health insurance. I certainly have no way of knowing how pervasive this will be but there will be at least some of this.

The world is evolving into a more complicated place. To me this all speaks to many things including one of the things that we have at least some control over which is our spending habits. No one wants to be put in a position where they are forced to cut back but there can be no certainty. In conjunction with spending less is the need to save more for as long as you can.

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