Defining the amount that one has to earn to cover basic needs is a key question in managing personal finance. This answer depends on a few factors such as geographical location, energetic level, family size, and some other factors. However, there are some norms that one can use to approximate the minimum income necessary for need-based expenses.
The Federal Poverty Level
The federal poverty level (FPL) is a scale applied to determine the level of income that is deemed to be enough to purchase food, clothes, and shelter. In October 2022, FPL for the continental United States is $1,340 for a single individual and $2,640 for a family of four for the year 2023. This calculation assumes that you are getting food, clothing, utilities, and other necessary items at estimated prices.
The federal poverty level is useful in today’s world as a starting point, yet it has drawbacks. Most people believe that FPL is set at an exceedingly low level particularly considering the living standards in today’s world. Also, the FPL fails for taxes, medical expenses, debts, and other expenses that many American families face. Therefore, to be able to live in a basic way and meet all the necessary needs, one requires a higher amount of money than the poverty line.
The Living Wage
Another possible yardstick is the living wage – the calculated hourly or monthly rate for which a worker can just cover his or her expenses but have some amount saved up for emergencies. The amount of living wages is based on local costs, and thus it is significantly higher than federal poverty levels.
For instance, the living wage in 2023 for a single adult is between $15.82 per hour in the rural area of Tennessee, to $ 23.56 in Washington D.C. This amounts to about $30,000-$50,000+ annually based on location. Working people with children or with high medical needs need even a better form of wage that can sustain them adequately.
It is, however, more realistic than FPL, though still very close to barebones existence or what is known as the living wage. It permits the bare necessities like electricity, water, rent/ mortgage, food and transport, and the bare minimum in all other aspects. Hence, more people and households aim at higher wages to obtain even greater levels of well-being and wealth.
Aspects that affect your minimum wage
When estimating your needed take-home pay, key factors include: When estimating your needed take-home pay, key factors include:
• FOCUS ON EXPENDITURES FOR HOUSING, UTILITIES, FOOD, AND TRANSPORTATION – These expenses differ significantly with your geographical location. Adjust income needs accordingly.
• Number of family members – Multiple people per house – children, spouses, elderly people need more money for their support.
• Ongoing liabilities – Balances due today’s student loans, automobile loans, credit cards, and other types of loans should also be included.
• Emergency fund – Liquidity which must make up the amount equal to three to six months of one’s income is the backup in case of sudden unemployment, sickness, or other unforeseen circumstances. Deduct the necessary amount from your wage for building emergency funds into your needed wage.
Overall, the calculation of what you need is a delicate and highly individualistic process. The first step in choosing your goals is thus to aim at the living wage for your city. But, other factors such as other responsibilities you have towards your financial needs, your ability to withstand any shocks in your financial status, or any future aspirations must also come into play when determining what your definition of the minimum viable wage is. This means that one should assess one’s status continually to make changes in the income requirements progressively.
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