# Reader Case Study: Minimum Wage with a Baby on the Way

## By Mr. Money Mustache

## Mon, 26 Sep 2011 12:04:17 +0000

I originally started this blog to both Ridicule and Educate the rich and privileged group of people known as the American middle class. Being a newly minted member of this group myself, I feel that we are all living large, and the vast majority of our financial problems are of our own making. Thus the solution is simply to get everyone to stop complaining and start saving.

But as time has gone by, I have learned that there actually many people out there who are not currently being showered in easy salaried office worker cash. They have been writing to me for advice, and due to the 20 year period since my own minimum wage days, I have not known what to say.

But let’s have a crack at it together, by studying the situation of this young guy who just wrote to me recently:

> Hello Mr. ‘Stache,

> You strike a chord with people who realize that their goals of financial security are insane considering the fact that most are living outside their means. I know you’ve caught my attention. Unfortunately I have stumbled upon your blog too late to save myself from a lot of debt.

> I have a cheap mortgage, sure, but I’ve added two auto loans and a few maxed out credit cards. My wife and I (aged 21 and 22) combine to bring home around $2000 a month working fast food. She commutes 20 miles to work by car daily and I’m fortunate enough to have a job 2 miles away. We live in a very small town on the highway so cheap groceries are a half-hour commute away.

> We are also fortunate to have extra room in our house for now to rent out, so we receive $1000 a month in rental payments to help us.

> I desperately want to provide a comfortable and enriching life for my son, who will be born in January. I’ve decided that the TV bill has to go and that we need to pay down the credit cards and auto loans ASAP. We will also be cutting out our fast food expenses entirely (easier said than done). Reading your methods gives me hope that I can achieve some financial security and have home time to raise my child the way I dream of. Thank you for the inspiration.

Key Financial Details:
Cash on Hand: $290

Credit Card Debt: $3645 spread across 3 credit cards, with $120 in minimum monthly payments
Mortgage: $75,164 balance with $502 monthly payments. 28.5 years left. Appraised on purchase at $89,000.
2007 Nissan Versa: $12,700 balance with $240 monthly payments, 5 years left
2004 Chrysler Sebring: $3500 estimated balance with $220 monthly payments and 3.5 years left

Monthly expenses:
$130 auto insurance monthly
$220 last electric bill (Normal months, the bill is around $140)
$20 water bill
$24 a month for trash pickup service
$100 a month for satellite tv (an obvious area for improvement, but it isn’t easy to convince the rest of the family about the waste here)
$45 a month for internet
$250 a month average for 5 cell phone lines (on behalf of a few family members including my wife and I)
$50 estimated in gasoline a week for travel to work & other appointments
$300 a month or so on groceries.
$60/month in fast food (recently cut down from $400)

Total Expenses including Loans: 120+502+240+220+130+140+20+24+100+45+250+50+300+60 = $2171

Income:
$880/month (at $7.35/hr x 35hrs) for me. My job is about 2 miles from the house. I do own a bicycle and plan on using it more as the weather cools down.
$1100/month for my wife ($8.50/hr for 40 hours a week). Her job is 20 miles down the interstate. She is also pregnant and due in January with our first baby, a boy. We have not yet spent any of our own income on the child. We have been gifted a lot of clothing and supplies. We already have a crib from when I was a baby.
$1000/month from renting out two extra bedrooms in the house.
Neither of us are expecting major income boosts within the next few years. Her best case scenario in the current line of work is ending up with a $25-30,000 salary within a couple of years, worst case is she stays around her current pay with slight raises during that time.

Total Income: $2980/month
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First of all, I’ll start with the obligatory “AAAAAUUUUGGGHHH!!!!!! HOLY SHIT, WHAT ARE YOU DOING, MAN!?!”

But then we can get into some real analysis.

First of all, on the surface it looks like your income is quite a bit higher than your expenses, even at current levels. Most significantly, you are making a killing on your house, by living there AND getting $1000 in monthly income from it, even while the whole thing only costs you $500 per month. Fantastic work!!

You should be able to pay down about $800 per month of debt even before you undergo the radical changes I am about to throw down upon you. We can cut a load from your expenses, and I also think you deserve to be making a hell of a lot more than Minimum Wage, so we can work on that too.

Let’s start with the expenses:
First of all, your vehicle fleet is off the hook. I am Mr. Money Mustache Himself, and yet my vehicle fleet is only worth about HALF of what you have sitting in your driveway. A 2007 Automobile?? Damn brother, I thought I was being ridiculously frivolous by keeping around my 2005 Scion, which still has the new car smell.

If you need a loan for a car, YOU DEFINITELY CANNOT AFFORD THAT CAR, so what can we do? We need to unload one or both cars, of course!

Looking at the Edmunds Used Car appraisal, the Versa is worth about $8100, and the Sebring is worth $4500. That means you are $4,000 underwater on the Versa, but possibly above water on the older car. It is difficult to sell a car when you have a larger loan than the car, since the lender won’t sign over the title until you pay off the loan. So for now, we’re going to sell that Chrysler. You don’t need a second car, because you live 2 miles from work. That is a close enough distance that it can be done by bike in about 7 minutes in nice weather, and on foot if you live somewhere with deep snow or other non-bike conditions in the off-season. Hell, you could even swim that distance. There’s your first $220 per month in savings!

The $12,000+ Nissan Versa was a HUGE mistake for someone with your income level, but at least it is an excellent and reliable car with good fuel efficiency. Over time, you can pay down the loan balance, sell the car, and buy a $4,000 car like a late 1990s Honda/Toyota/Nissan IN CASH instead. Make sure it’s a hatchback or a wagon, so you have room for baby stuff once your baby comes.

Depending on your eventual career path, you might need a second motorized vehicle someday. If you’re not carrying around tools, you can get around quickly and cheaply with a Scooter.

Your car insurance sounds very high for a rural area. Just in case I’m right, spend an hour poking around on the online insurance sites, including Geico. Select the highest deductible and minimum coverage your auto loans will allow (which is probably still very thorough coverage, since those lenders are sticklers about protecting their collateral.)

Also shop around for house insurance. You might save a couple hundred per year on this as well. Geico has several affiliated homeowners insurance companies. Call by phone and ask them to give you a quote from whichever company comes in lowest for your property.

Next, of course, the cable TV has to go. I mean, right now, before you finish reading this sentence. Again, that is such an insanely high monthly bill for such a useless service, I could barely breathe knowing it was connected to my house sucking out my life energy. Cumulative Savings so far: $320 Per Month

Next let’s have a look at your electricity bill. I have a family of 3 and a 2600 square foot house, a busy professional woodshop, and a blogging and computer habit, and my electric bill is about $30 per month. Yours should be only a bit higher with 4 people. Unplug your electric dryer, since you’ll be hanging clothes to dry, make sure ALL lights in your house (except very rarely used ones like closets) are compact fluorescent bulbs, and if you have an electric water heater, turn down the temperature and make sure your shower has a low-flow (2 GPM) head. Cumulative Savings: $420 Per Month

Cell phone plans at $250 a month!?!? What are you, Steve Jobs? You new plans will be PRE-PAID mobile phones with a $0 monthly fee. You make short calls when you need to, using maybe 5 minutes a day. For your longer conversations, you use Google Voice on your computer, for free, from home. Your new phone budget is $60 per month. Cumulative Savings: $610 Per Month

Fast Food: Mr. Money Mustache doesn’t buy it, so you don’t need to either. That will cut your monthly costs somewhat (although you will have to buy a bit more fresh food at the grocery store to replace the empty calories). It will also improve your health and save you drastically on health care bills over the long-run. Cumulative Savings: $650 Per Month

Driving: You’ve got a bad situation for now, with a 40-mile round-trip commute for your wife. Using the IRS-standard estimate of total cost of driving of 55.5 cents per mile, she is losing $22.20 every time she drives to work. That’s more than THREE HOURS of her work, not to mention the HOUR OF HER LIFE that gets wasted EVERY DAY by living so far from work! Of course, the IRS figure is the TOTAL cost of driving rather than just the marginal cost. But even marginal cost, with gas, oil, tires, maintenance, and wear, is more than you can afford. In the long run, to be financially independent you should both live within biking distance of work. Once you have built the foundation of your ‘Stash, you might be able to rent out your entire house (or sell it) and find one (rent or buy), in the middle of a town with better employment possibilities.

Similarly, that 60-mile roundtrip to the grocery store is costing you a crazy amount. This trip should not be done more than once per month, and it should be a big $250+ bonanza to make it worthwhile. Then you get your milk and bananas at the local store, even if it costs more, during the non-bonanza weeks. I live 20 miles from Costco, and I go only every 3-6 months..usually combined with another errand in the area. That is how carefully I avoid driving just for the purpose of shopping.

OK, now you’ll have expenses that are $650 + 800 lower than your total income. That’s $1200 in debt reduction you can do each month.

The first three months will go towards paying off the credit cards. Then, you will cancel two of them, and keep one for emergencies. Of course, you will NEVER let the balance go unpaid in full again. If there is a risk of this ever happening again, cancel the third card as well and just use a bank account debit card, since credit cards are NOT for borrowing money.. they are just for conveniently tracking your expenses and getting a few cash-back bucks each month.

The next $12,000 of savings will go towards paying off your car, so you can eliminate that car payment.

There is a time limitation here, however, since you’re having a baby in January. At that point, you will lose at least one income, plus you’ll probably incur some out-of-pocket medical expenses for the birth. With your wages, it will be far cheaper to have one parent (probably Dad) stay home with the baby, rather than to pay $1000+ per month for full-time daycare. Unless you are eligible for some sort of social assistance or have family who will do the care for you for free. On the positive side, you are on the right track with the minimal baby spending – see Mrs. Money Mustache’s article on What Newborn Babies Really Need.

That’s the harsh reality on your costs – you are spending more than my entire family, but don’t yet have the income to back it up. But there is some good news – YOU have a great chance to drastically increase your own income.

Both you and your wife are currently underpaid. I don’t care what you do for a living – under ten bucks an hour is a shitty wage even for a 15-year-old-high-school student to be earning at his first job. When I hire laborers to help me occasionally in carpentry or even dig trenches for an irrigation system, I would be embarrassed to pay them less than $12 per hour. HOUSE CLEANERS CHARGE $25 to $40 PER HOUR FOR VACUUMING CARPETS!! Millions of people in our country unfortunately do receive minimum wage, but it should be regarded as an insult to your usefulness as a human, and you should fight like hell to earn more.

Do you have any skills? I notice you are a very good writer. What about using that, plus your free time, to get the word out and pick up some freelance work? Computer assistance, carpentry/handyman work, apprenticeship with a local plumber or electrician, house cleaning, errand running, carpet steam cleaning, duct cleaning, auto mechanic work, waiter/bartender, teaching music or art lessons, selling stuff on Ebay/Craigslist or administrative assistant work at a good company. I don’t know what the economy is like in your area, but hopefully there are at least other people and businesses around. And with the Internet, you can make money everywhere. Look at Craigslist and other job postings, and apply every day. With your new time saved from canceling the TV service, read library books and old articles on Iwillteachyoutoberich.com to get yourself pumped up about earning extra money for yourself.

My mission, for both you and your wife, is to fight your way up to at LEAST $35,000 per year each, as this is an absolute baseline for a fair level of pay for a hardworking person.

Even a plumber, which is an enjoyable job you can learn in about two years, is able to charge $60-$80 per hour, which is $120-160k on an annualized basis if he is able to work full-time. A self-employed tile installer, who meticulously cuts and sticks tiles onto bathroom floors and showers, can charge $40 per hour. You can learn this job with about 6 months of on-the-job practice working for another contractor, then you buy yourself about $1500 of equipment, throw it into an old Ford Ranger for $1500, and you are now an $80k contractor, set for life.

I wish you and your family all the best, and hopefully my bossy voice will be in your ears for years to come as you build up a more secure life for yourself.