A recent report from the Brookings Institution found that nearly half of American workers between the ages of 18 and 64 are in low-paying jobs. This report was released before the global COVID-19 pandemic forced millions of people out of work. As a result, in today’s world, millions of Americans must carefully weigh every purchase to get by.
At the federal minimum wage, a full-time employee will earn $ 15,080 per year. To make $ 20,000 a year, a full-time employee would have to earn more than minimum wage – $ 9.61 an hour, to be exact.
If you’re trying to get by on $ 20,000 (or less) a year, you’re not alone. And we’re here to help.
Living on $ 20,000 a year is a challenge. With an annual income of $ 20,000, you can expect your after-tax salary to be around $ 1,457 per month. The national median rent for a one-bedroom apartment in 2019 was $ 1,078. This means that your rent alone is probably consuming most of your salary. A lower salary leaves little for groceries, health care, or other necessities – let alone putting anything aside in a savings account.
There’s no right time to earn below average income, but here’s how you can get the most out of your money.
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Minimize the cost of housing
If you earn $ 20,000 per year, you are probably eligible for rental aid of your local government. There are different forms of rental assistance. For example, you might receive a check for part of the cost of your current rent. You can also request a new apartment with reduced rental costs. Check with your local HUD office on how to get started in your area.
Other options to consider include moving to a cheaper neighborhood, hiring a roommate, or renting space to a friend.
Get help paying utility bills
If utility costs are pushing your budget to the brink, check out the Home Energy Assistance Program for Low-Income People (LIHAP). Be careful though: the amount of money available is limited. The funds are dispersed until exhaustion. Even if you qualify, offer a backup plan.
If you have a good relationship with your landlord, work with them to keep your costs down where possible. For example, your landlord could improve your insulation to reduce your heating and cooling costs. If your toilet or water heater is leaking, it could increase your water bill (and that’s something your landlord should fix anyway). Work together to find a solution that is better for everyone.
Finally, call each of your utility providers. Learn about programs that help low-income residents cover their bills. Often times, these companies offer assistance to those who are facing difficult times.
Take advantage of public transport
If you live in an area with public transportation, you’re in luck. Unless you absolutely need a car to get around, public transport offers an inexpensive alternative. In fact, it can save you thousands of dollars every year.
According to AAA, it costs an average of $ 9,282 per year ($ 773.50 per month) to own and maintain a vehicle. Even if you own your vehicle completely, you still have to cover the other costs. Gasoline, maintenance, repairs, and insurance can drain your bank account quickly.
Importantly, the coronavirus has led some urban transport systems to cut operating hours and limit routes. Also, depending on the spread of the virus in your city, it may not be safe to rush public transport at this time. Nonetheless, if you are considering selling a car, take the opportunity to learn more about the options available in your area. Perhaps it is a gesture that is worth it.
If public transportation isn’t available in your area, check to see if carpooling would cost less than car maintenance. It will depend on your area, how far you need to travel, and what time of day you typically need to travel. And if you live close enough and are healthy, consider walking when the weather permits.
Finally, if you are one of those who worked from home during the COVID-19 shutdown, ask your employer to allow you to continue to do so. You will save money on transportation. You can also cut your budget even further by brewing your own coffee each morning and having your lunch in the fridge.
Save on food
Take the time to find out if you are eligible for the Supplementary Nutrition Assistance Program (BREAK). And check food banks in your area where you can go and fill your cupboards between paychecks. You don’t have to be unemployed or starve to qualify for a food bank. If you’re having trouble paying for groceries, a food bank in your community would be happy to help.
How else can you save on food? The US Department of Agriculture reports that the average American wastes about a pound of food every day. While it might sound outrageous, think about how many times milk or produce has gone bad in your fridge, or how often you find yourself throwing away leftovers rather than eating them the next day.
Here are some more ideas for saving on food and avoiding food waste:
- Buy seasonal foods when possible. They will last longer and cost less.
- Shop for sales. The back of the grocery store usually has a clearance section with items about to expire.
- Clean your refrigerator at least once a week. Keep near-expired items up front.
- Create a menu each week. Make a list of necessary ingredients and once you’re in the store, only buy what’s on your list.
- Cut down on the snacks and soda you buy. In addition to having little nutritional value, they can be expensive.
Avoid bad debts
Debt is a vicious cycle, regardless of your income level. Sometimes debt is inevitable. Understanding which types of debt are “good” and which are “bad” is important so that you have the best chance of paying off your debt and maintaining a good credit rating.
Here are some types of debt to avoid:
- High Interest Credit Card Debt: Credit cards are convenient, but lenders can charge high interest charges for credit card debt. Getting rid of credit card debt can take decades. Try to avoid credit cards, especially those with higher interest rates.
- Payday Loans, Title Loans, or Quick Loans Without Credit Checks: These “predatory lenders” make borrowing easier and then impose abusive loan terms that can cost up to 400% in interest.
If you’re struggling to make ends meet due to an unexpected expense (like medical bills, major auto repairs, or something similar), try these solutions instead:
- 0% APR credit cards: These cards do not charge interest for a short period (sometimes a year or more). After that, however, the interest rate rises. 0% APR cards are best used for debts that you are sure you can pay off before the interest-free period ends.
- Personal loans: If you have a good credit rating, a personal loan can be a relatively easy and affordable way to borrow money. Interest rates can be as low as around 6%, and the money can be used for any purpose. However, if your credit needs work, lenders can charge interest of 20% or more, making the loan at least as expensive as a credit card. Find the best rates available and make sure you can pay off the debt on time before committing to a personal loan.
- Medical payment plans: If you’re struggling with bills for hospital or emergency care, call your healthcare provider. Some places will allow you to pay in small monthly installments. In some cases, the institution will charge little or no interest on your debt. Call the billing center and explain your situation to find out if a low interest or no interest payment plan is available.
- Deferred payments: If you need extra help while you pay off your debt, consider lowering some of your monthly fees. Some utility companies, owners, cell phone companies, and car manufacturers will allow you to defer payments if you are going through particularly difficult times. Call for the exact terms available to get a better idea of if this is right for you or not.
If getting over debt is part of your financial experience, be sure to include it in your budget. If you find yourself in a debt situation that seems impossible to you, seek help. A nonprofit debt management agency like the National Foundation for Credit Counseling provides valuable resources and can direct you to a certified counselor.
The bottom line is this: your future matters. Once you’ve taken control of the big ticket items, you can create a budget that really works. Your primary goal should be to build or grow an emergency fund to help you get through rough financial waters and invest in your retirement, even if you’re starting out small.