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Monday, July 1, 2019

Dollars and Sense

On June 25th, the New York Times featured a story titled, “What a ‘Living Wage’ Actually Means.” I was interested to learn how they would define the terms and the pay rates. There is a never-ending political push for higher minimum wages. I guess the intent is to move people toward that “living wage” objective.

My views on the amount of money needed to live on have been shaped by some key discoveries along life’s journey. One of the most impactful lessons came from a class I audited for a college journalism assignment many years ago. In my six years of writing this blog, I am sure I’ve mentioned it along the way.

The class was titled something like, “How to Get Rich.” Obviously, a LOT of night school students signed up for this one. The instructor was outlining a reality that he had experienced—that he doubted most of the class was willing to follow his path.

He started with an average monthly amount of money for these daytime working students. I think it was in the $900-$1000 ballpark. He quickly showed how it was “impossible” to live on this relatively meager amount of money and become wealthy. Rent, an auto payment and insurance, clothing, food bills, and utilities alone would eat up the majority of the money—leaving little room for entertainment.

But then the instructor became radical. He explained how you could not only significantly reduce rent, but eliminate it in some cases as an apartment “manager.” He explained that if you moved closer to where you work, you could get rid of the car and start using a bike. Next, join a food co-op. Shop for clothes at thrift stores. And study ways to reduce your utility bills. Now…you have spending income to invest.

Invest? In what? For him, it meant saving up for several months and then purchasing a duplex. Rent out the other half and most of the house payment would be paid by your renter. Successfully achieving this, he bought a second duplex. Then a third. Et cetera. Not long after, he quit his “day job” to become a full time property management expert. A quite wealthy one at that.

His prediction was that 95% of the people in the class were unwilling to make these life changes to pursue their dream of financial independence. I’m sure he was right. For starters, I didn’t do it.

The second wise life lesson on this subject came from an attorney friend. Annually, he would take a group of young teen boys on a camping trip. To get them motivated on a project, he promised to explain to them how to become rich. Over the evening campfire, my friend would get the boys to agree that being rich meant having everything you want. The solution, therefore, is simple. Reduce your wants.

Once again, who wants to do that?! This is why I believe trying to clearly identify a “living wage” is futile. And the New York Times story I cited found it highly complicated.

Federal poverty guidelines track with the minimum wage. Thus the calculation that “a two-person household with a total annual income below $16,910 is considered to be living in poverty.” To get above the poverty line, one person would need to make at least $8.13 an hour. Seventeen states have minimum wages higher than that.

New York City has a $15-per-hour minimum wage creating an annual income of $31,200—almost twice the federal poverty level for a household of two.

The Times writer concludes, “Anyone living in New York City can tell you how laughably low $32,000 per year is for a single-income household.”

Want to help people? Here’s my two-fold solution. First, reward free enterprise for creating LOTS of new jobs. Full employment means competition for quality workers. And you have to pay decently to get them. Second, teach sound wisdom on money management.

But don’t just simply give money. As the writer of Proverbs correctly guides us, “Why should a fool have money in his hand to buy wisdom when he has no sense?” (Proverbs 17:16, ESV)

You need dollars. And sense.

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