So I got to thinking the other day: you know, working at McDonald’s really isn’t so bad.
Wait a minute. Aren’t “McJobs” brainless, rote, and soul-destroying? Isn’t flipping fries all day an awful way to whittle away a lifetime?
Well, I look at it this way. I don’t work full time, but if I did work full time at McDonald’s, I could replace about 70% of my income. Based on my current standard of living, this would more than cover my daily expenses, leaving a little surplus cash which could be used to fund investments. Thus, I assert that financial freedom is not out of the picture even if you work a McJob.
But don’t take my word for it. Run the numbers!
Minimum wage in California, where I live, is $8 per hour. It’s less elsewhere, but so is the cost of living, so the general principles behind this example should apply anywhere. If you work full time at $8 an hour for 50 weeks out of the year, you’ll bag $16,000. Let’s say you’re single and don’t itemize your taxes; Uncle Sam will snag roughly $2,000 and the Golden State will snarf about $250. Your annual after tax income will total about $13,750.
If you consistently contribute 15% of this income to a Roth IRA and earn a 12% return on your investments (matching the average annual return of the S&P 500 from 1967-2007), you’ll be able to retire in comfort. Coming up with this money on a minimum wage income isn’t easy. To do it, you’ll have to truly buckle down and live cheap. But it really, really is not impossible.
Let’s assume that you continue to work a minimum wage job until retirement, that the minimum wage does not increase, and that you never receive a promotion. After 30 years, you’ll have accumulated nearly $500,000.
Now let’s assume that you’re able to increase your contribution by 10% each year. This is not unrealistic if you are steadily promoted and don’t allow your standard of living to increase too much. 30 years later, you’ll find yourself sitting on nearly $1,300,000. I truly believe that you can work at McDonald’s and become a millionaire. Of course, you have to start your McJob at a fairly young age; with such small contributions, it really takes a long time for compound interest to work its magic.
I’m not suggesting that McDonald’s is a great place to work. I’m suggesting that financial freedom isn’t about finagling a raise – it’s about using the money you already make in the most efficient, waste-free manner possible.
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April 22nd, 2008 - 7:07 am
Excellent point! People always seem to think that they will be rich once they get a raise, make more money, etc, etc, and the point really comes down to how you manage your money, not how much money you have.
May 2nd, 2008 - 9:06 am
I agree that manageing your money is essential for achieving a long-lasting financial success. I disagree however with you that a Mcdonalds employee could afford to stash away 15% of their money in a ROTH IRA.
I have worked at McDonalds several years ago and I had the followign expenses.
I have ran the numbers for KC, KS. With a wage of 7.50/ hour after deducting all FICA, State and local and Fed taxes, your income comes out to $6/hour. If you work 40 hours/week that’s $240/week. If you work 50 weeks ( i don’t think you get paid vacation initially ( I only worked for one summer)) that comes out to $12,000/year. Rent + utilities comes out to 7200/year. ( I assume that you don’t watch cable TV and only use water and electricity, but live in a single bedroom apt. If you live with a roommate in a decend apartment, you can save $2400/year imho))
How much do you spend on food? You can eat at McDonalds one meal when you are working ( on your lunch/dinner break). That leaves you 2 times/day. I would put your food expenses at $200/month. That’s 2400/year.
What if you have to drive to the restaurant you work at? Add $50/month ( at least).
What happens if you get sick? You can find a second job in order to pay for insurance premiums and hope that your employer subsidizes you.
What happens if your car breaks down?
I would suggest that you watch the documentary “30 days “, where the guy and his girlfriend try to live on minimum wage for one month.
The only way out for a McDonalds employee is to work 2 jobs ( 80hrs/week) and get a decent college education in order to get out of the trap of working at McDonalds.
May 2nd, 2008 - 12:08 pm
First off, you mentioned $7200 as a yearly total for rent and utilities. That comes out to $600 a month. A quick search on Craig’s List turned up a number of apartments in Kansas City that are renting for $200-$300. I’m sure these are not as nice as apartments that cost $600, but I never suggested you could live the high life on a McDonald’s income. I do assert that you can get by. Let’s say you were willing to share your $200-$300 apartment; then your housing expenses are down to $100-$150 per month. Well, I suppose you do have to add on utilities, but let’s assume those cost $50 - then we’re up to $150-$200 for housing.
$200 might already be less than most people spend per month on food - but that doesn’t mean this expense can’t be significantly lowered. There are plenty of recipes out there that you can make for $1 a serving or less. An example would be spaghetti with homemade tomato sauce, garlic bread, and a simple lettuce salad. You can try pricing it out at the grocery store. If you eat ramen noodles for every meal, which I don’t recommend, clearly your food expenses are going to be even lower. I think that a person who lives very frugally could spend well under $100 a month on food, and I’m talking about a full three meals a day.
If you have to drive to work, this is a significant expense that is hard to avoid. I can only suggest carpooling or taking the bus. For this, let’s stick with your figure of $50 a month.
When working a job that doesn’t offer health insurance, you can buy your own. A young, healthy person should easily be able to insure him or herself for under $100 a month (this is assuming you purchase a high-deductible plan and keep enough money in an emergency fund to cover the deductible).
At this point, assuming you don’t have a family to support, we’re talking about unavoidable basic expenses of less than $500 a month. Most people - including me - find it hard to live on the bare minimum. It’s not fun. But “not fun” is different than “impossible.”
I have been intending to watch the documentary you mentioned. I know the conclusion is that it’s impossible to get by on a minimum wage job. Taking my own experience and knowledge into consideration, I just don’t agree with that!
Thanks for sharing your comments.
May 14th, 2008 - 6:47 am
In 30 years $1,300,000 won’t have the same buying power as $1,300,000 today. Inflation and increases in the cost of living will definitely make that amount much less. But by the same token a penny saved today is worth more than a penny saved tomorrow.
May 14th, 2008 - 7:39 am
May 22nd, 2008 - 4:36 am
Good discussion. One thing that may make it difficult is that some experts think that the stock market rate of return over the next few years will be closer to 7% and not 10-12% range.