Have to start somewhere: what is a living wage?

I will admit that I approach this weeks post with a degree of trepidation.  Delving into what motivates people is a very difficult subject.  It is obviously very difficult for someone with very little formal education in psychology.  If you even call motivation psychology.  I am not sure what field of study motivation falls into.  Also I am not a financial advisor so any numbers presented are not to be taken as financial advise.  However even though not formally trained in human psychology or personal finance I do keep my eyes and ears opened and I do feel that experience and a life lived allows me to make certain observations about the world.

I am continuing on from my previous post where I question the need for formal financial training to compute simple benchmarks such as net worth.  Much has been made about the public and financial ignorance as a root of peoples economic problems.  This previous post got me thinking about financial decisions and how they may or may not differ from the other decisions we make.  What really had my mind in a twist was the information regarding high income earners living paycheck to paycheck.  I will fully admit that my biggest concern in all this is purely selfish.  If people are not saving for retirement I am afraid that my savings will be taxed to support them.  As we have all seen government tends to support the biggest block of voters.  If some of the numbers are true there is going to be a very large block of boomers with very little savings and no pensions.  I do not think the federal government is going to let them all starve.

So lets try and put some numbers to this issue.  Lets start with a number that represents what it costs to live.  I am choosing a number generated by the Federal Governments Bureau of Economic Analysis, the personal consumption expenditure.  The image above was copied from the site PCE.  This is the wikipedia page for the PCE explained.  The PCE  does not include food and energy.  This allows for a basic non volatile measure of the cost to maintain a household.  The state by state break down is not surprising.  California and the north east are expensive and the south is generally cheaper.  I am going to use my state Texas as an example.

You may not be able to see it in the image above but if you go to the site you will see that the CPE for a Texas household is $45,114 (remember this does not include energy or food).  If I add in food at about $100 a week (about what our weekly food bill is) it adds another $5,200 a year.  This brings the total to $50,314.  To be conservative lets round the total up to $60,000.  If you check out this SoFi site it shows similar figures.  At the top of the page are 3 charts that show the hourly wage needed to cover basic expenses.  The charts are sorted based on the number of adults and children. They generally indicate values higher than the $60,000 I generated from the BEA.  For example the living wage for a 2 adult household with one adult working and one child is $30.64 an hour.  This scales to an annual salary of just under $64,000.  So being even more conservative a yearly salary of $65,000 to $70,000 is a decent threshold.  If you are at or below this threshold you are just covering the basics.  The SoFi  also clearly points out that basics are:

"That income would pay for rent and utilities, minimal food, healthcare, child care, and other basics."

Basics are NOT:

"But it’s not enough to cover DoorDash deliveries, restaurant meals, a deluxe apartment, vacations, or savings for retirement or a house."

What about being above the threshold?  Anything above the threshold is what has been called discretionary.  We have no choice of any spending below the threshold, they are the things we need to maintain the basics of life.  Above the threshold we have options.  That is were we need to examine our decisions.  A good topic for next week.

I used this calculator to bounce between hourly wage and yearly salary figures.