One of the first things a financial planner will suggest to a client trying to get control of his expenses is to create a written budget. Putting the numbers on paper gives a whole new reality to spend and save. Most people go from paycheck to paycheck, watching the balance in their electronic bank statements dwindle away without much advance thought about where they want their money to go.
Impulse spending is easy when you don’t have a plan for your money. A dinner out here, a few items at a sale there. That new phone you just have to have or all those BOGOs right when you walk into the grocery store. Who can resist? A budget is a way to put the brakes on impulse spending when you know how much of your paycheck is “mad money” and how much is earmarked for the electric bill or the rent.
It’s hard enough for someone with a middle- or high-income job, but minimum wage workers or just above have got it the toughest. McDonalds knows this, and as one of the largest minimum-wage employers, thought they would help out their employees by teaching them how to create a budget. While this act of benevolence is admirable, it made it even more evident that it’s near impossible to live on minimum wage. A Forbes article, “Why McDonald’s Employee Budget Has Everyone Up In Arms,” revealed how McDonald’s sample budget, in collaboration with Visa, made everyone take a second look at the economics of minimum wage employment.
The budget started out with the admission that no one can live on McDonald’s or any other company’s minimum wage jobs. It assumed that the person was working two jobs. It also left off some important line items, like childcare, groceries and gas. Certainly, these are necessities for people with small children who have to drive to work. And eat. When setting salaries for open position, recruiters can learn from McDonald’s efforts. Offering a low wage to save the company money can force employees to divide their attention between two employers just to make ends meet.
The budget grossly underestimated the cost of healthcare, with a line item of $20 per month. Companies are struggling with the Affordable Care Act’s regulations, deciding whether to offer health care or take the penalties. The allocation of $100 per month for cable and phone was also low. Cell phone charges, data plans and the phones themselves can cost twice that, even with a family plan. Add cable with premium channels, and you can add another $100 per month. In today’s digital world, these are necessities, not luxuries.
The budget got rent right, since it’s possible to find housing for $600 a month in many parts of the country. Does that include a roommate paying half the $1200/month rent? The budget does include one of the best tricks to building wealth—paying you first in the form of a savings allocation. Savings is the first line item of the budget plan. Savings plans with a company match are an attractive benefit no matter what the salary, and can help build a college fund or retirement for low-income workers.
Company provided Employee Assistant Programs (EAPs) offer employees many free services, including financial planning. Learning how to stretch a paycheck, whether it’s from one job or two, is a welcome perk. It can help relieve the anxiety of dodging bill collectors and help employees focus on the job.
Photo Source: Freedigitalphotos.net
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