Have you ever wondered if a minimum wage increase will help us stay out of debt? The continuing rise in consumer debt means a rise in credit obligations to. You should not forget that your debt will further increase because of the interest rate that it will accrue.
It is true that it helps to increase your income to pay off debt but it is not safe to assume that a wage hike will help you accomplish that. There are so many factors that we need to look into first.
One thing is for sure, we always strive to earn more money than what we have today simply because we want to improve our lifestyle. This is probably why the speech of President Barack Obama during the State of the Union address last January came as a welcome relief for a lot of workers. He said that he will campaign for a federal minimum wage increase of $10.10. He mentioned the same over the Valentine weekend. Here is a video of that address as released by the White House.
According to an article from the HuffingtonPost.com last January 11, the President scheduled to sign an executive order to set the minimum wage increase at $10.10 for all federal workers on January 12. The signing took place in the White House.
This was done despite the lack of minimum wage bill from the House or the Senate. The President encouraged both to work with him to provide every American with better salary arrangements. This amount is intended to set incomes to be at par with the inflation rate and thus help minimum wage earners live more comfortably.
Despite the fact that the majority of American workers will support this, a lot of issues are cropping up as to whether this will really benefit our economy or not. People are saying that this could lead to more problems as small businesses struggle to adhere to the new law – in case this minimum wage increase will be implemented across the nation.
A comparative study of the 1992 increase in wages
It is really difficult to know for sure if this increase will lead to a positive or negative effect in our economy. Of course, all we can really do is to look at the past to see what happened during the various wage hikes that occurred.
In particular, a study published on DavidCard.Berkeley.edu revealed the effects of a 1992 wage hike that happened in New Jersey. David Card and Alan Krueger compared the before and after situations in New Jersey and Pennsylvania. The former had a wage increase from $4.25 to $5.05 while the latter did not.
Based on their observations of 410 fast food establishments, the following were observed.
There was no evidence that the minimum wage increase led to an increase in unemployment (at least in the fast-food industry).
The increase in wages actually increased the employment.
The wage hike also had no effect on the number of stores that were planned to open
The prices of the products increased in New Jersey as employers passed on the burden to consumers. However, there was no evidence that companies who were more affected by the increase implement the most change in their prices.
So what does all of this mean? A minimum wage increase will not necessarily lead to job loss that is caused by the employer’s efforts to cut back on overhead expenses. That means you are not in danger of being placed in a position whereing you have to take on debt just to help your family survive. You can even say that companies will benefit from this because they will employ productive workers who are experiencing contentment with their compensations.
The question is: will a higher minimum wage keep you from debt
Let us admit that living on a minimum wage is tough. If you want to see if you can survive on it, we encourage you to look at the interactive minimum wage calculator on NYTimes.com. It is tough, we admit but the amount that you are earning is not the indication that you will stay out of debt. As long as the lifestyle you are living is within your means, you should be alright.
In the end, a minimum wage hike can be helpful but it is not a guarantee of you staying out of debt. There are a couple of changes that will happen in your life but you have to be very cautious about how you will implement it. If you are quick to raise your standard of living, soon you will find yourself trying to support a lifestyle that have grown to be too expensive for you. It may seem alright at first but once the inflation rate kicks up again and your compensation is not rising with, you will find yourself with a deficit on your budget.
We cannot ignore that there are benefits to a minimum wage increase. Here are only some of them.
Extra money to spend. The obvious effect is it will provide you with extra money to spend. When you start earning more, your budget increases and that means you have the means to spend on more things that will make your life a lot easier and more comfortable.
No more financial stress. There are so many reasons why you may feel stressed in your life and your finances is one of the major influences of that. People who have no money to spend on their basic needs are usually feeling a huge amount of stress day in and day out. If you want to be more confident about your personal finances, a minimum wage increase can help you with that.
Ability to invest in the future. Lastly, having more money will give you the ability to invest in your future. This includes growing your retirement fund or saving up for the down payment of your home. It can even be to save up for your future wedding plans or the college fund of your kids. These are important expenses that you have to consider for your future.
But even if that is true, make sure that you will concentrate more on the last. Save your money to make sure that your future is covered.
Tips to help you live debt free even without a minimum wage hike
In truth, it will be very difficult but it is possible to live a debt free life even if the minimum wage increase does not push through. Here are our tips to help you accomplish this.
Learn how to manage your finances. More than ever, you need to learn how to allocate your money so it only goes to where it should. Given your limited resources, concentrate on the bare necessities so you can put more money on your savings.
Make sure there is an extra to save. Some people fail to save because they think that the little amount that they have is useless. This is not true. Even if you can only put aside a couple of dollars every week, you should still save. That amount will grow eventually. If your current budget does not have room for savings, you have no choice but to cut back on something to make room for it.
Simplify your lifestyle. If you really want to achieve a debt free lifestyle, the key is to make your life a more simple. Live in a smaller house. Own only one car. Buy your stuff in thrift stores. Get rid of your junk. There are so many things that you can do to lessen your expenses.
Get another source of income. Lastly, you want to get a second job or an alternate source of income. Do not depend on your day job alone. You can invest your money in bonds or stocks. Or you can set up a company that will run itself to provide you with some passive income.
All of these may seem daunting but if you take it one step at a time, you should be alright with or without a minimum wage increase.
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.