I’m not afraid of pay cuts because I’ve learned how to make the most of my financial situation no matter how gloomy it becomes. A recent article by The Huffington Post talked about how middle-class jobs in the recession have been replaced by low-paying jobs. Although I’m not working at a minimum wage job, I’m making $20,000 less a year than I made in the 1990s. Because of periodic pay cuts, my salary has stagnated for the past 7 years.
According to projections by the Bureau of Labor Statistics, most of the jobs that will be created in the next decade are foodservice and retail jobs as well as jobs as home health aids and personal care aides. The Huffington Post points out that 50 percent of the employees make less than $20,000 a year. I’m in favor of raising minimum wage. Raising minimum wage will get low-wage employees off public assistance. If I had to make it on an annual income of about $20,000 to $30,000, I’d take advantage of tax benefits and savings plans geared for low wage earners. I’m also helping my Millennial sons figure out how to make the most out of their lower wages.
Getting earned income tax credit
According to a recent article by The Center for American Progress, the federal poverty line is about $23,300 for a family of four. Lawmakers are considering expanding the Earned Income Tax Credit to include childless adults. They may also lower the eligibility age to 21. As a parent of two young adult sons, I would love to see the earned income tax credit expanded so my sons will be rewarded for starting at the bottom and working their way up.
Paying off my house
Although my home won’t be paid off for another 10 years, I feel less concerned about pay cuts as I get closer to the finish line. Refinancing my mortgage gave me a lower monthly payment which makes it easier to afford on less income. Once my mortgage is paid off, I’ll only have to be concerned about paying my property tax bill every year. I always hear experts argue that it’s better to invest than to pay down a mortgage. However, with employment prospects as dim as they are in the future, I’d rather live in a paid-off home so my income can go toward food and other necessities other than housing.
Saving in the Roth IRA
As they are starting out, people in the Millennial generation could benefit from the starter retirement savings account proposed by Obama. The myRA is designed for people who don’t have access to a 401(k). However, the Roth IRA gives young investors more choices if they are financially savvy or, at least, have parents who can guide them. I helped my son start a Roth IRA when he started earning income. The IRA offers a retirement savers credit for low wage earners who aren’t attending college. My son will be eligible next year to take the saver’s credit as long as he keeps contributing to his Roth IRA.
Although no one likes to have their income slashed, it’s not always a financial disaster. I am preparing now for a lower income in the future by getting rid of debt of all kinds including mortgage debt. I’m also saving as much as I can in my retirement accounts. If my income is lower for a few years, I’d use that as a window of opportunity to roll money over from a traditional retirement account into a Roth so I’ll owe less money in taxes when I’m retired. I understand why economists are worried about the low wage future, which is why I’m going to be prepared to live well on less.
More from this contributor:
What We Gave up to Buy Our Dream Home
Recession Over, but Frugal Habits Remain
Six Figures and Still Living Paycheck-to-Paycheck