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Saving for Retirement When You Make Minimum Wage

By U.S. News & World Report

At $7.25 an hour, a job paying the federal minimum wage doesn’t give workers much cash to spend. A person working 40 hours a week for 52 weeks will close out the year earning $15,080 before taxes.

Fortunately, not too many people have to get by on the federal minimum wage. Only 2.7 percent of hourly workers made that little in 2016, according to the Bureau of Labor Statistics. That’s partly because 29 states, plus the District of Columbia, have minimum wages that range from $7.50 to $12.50 per hour. However, even at $12.50 an hour, workers end up with only $26,000 before taxes and after a full year’s work.

Whether you expect to be earning minimum wage temporarily or for the long run, you shouldn’t put off saving for retirement. Here’s how finance experts say you can begin building a nest egg.

[See: How to Save for Retirement on Less Than $40,000 Per Year.]

Start with a positive plan. Planning for retirement when you make minimum wage can seem like a lost cause. That’s why you need to flip the switch on your thinking at the start of the process, says Linda Matthew, owner of MoneyMindful Personal Finance Coaching in Sacramento, California. She recommends you start by making a written plan.

“The act of putting pen to paper somehow gets us engaged in the process and then possibilities begin to emerge,” Matthew says. For instance, people may see that they are eligible for Social Security benefits that provide a source of retirement income. Younger workers may also find time is on their side and can compound the small amount they are able to save into a more significant sum.

Find an accountability partner or mentor. Creating a financial plan can seem like an overwhelming task for some people, and those making minimum wage can rarely afford professional help. Cheryl Nash, president of investment services for financial services technology firm Fiserv, recommends people look for a mentor who can provide financial guidance without the professional planner price tag.

“As you invest for retirement, finding a good financial mentor can pay big dividends in the future,” she says. Friends and acquaintances are a good place to first look for mentors. Otherwise, local churches or community nonprofits may be able to connect low-income workers with volunteers who are financially savvy.

Cut your budget to the bare minimum. Once you have laid the foundation for a successful retirement plan, it’s time to start saving. For those earning minimum wage, that typically means slashing the household budget to free up money. “The main obstacle for someone making minimum wage is the same obstacle for someone making a lot more money,” says Elliot Omanson, managing partner at Sage Financial in Kansas City. “We all seem to spend everything we make.”

Someone making less than $12.50 an hour can’t realistically expect to buy Starbucks coffee daily, have a cable subscription and still have money left over for retirement savings. Omanson says that those in their early 20s who save $187 a month by dropping cable for Netflix and brewing their daily coffee at home could retire a millionaire, even if they never get past minimum wage. However, they’ll need to earn a 7 percent annual return and save that amount consistently over 50 years.

However, not everyone who makes minimum wage is buying expensive lattes. For those who have already cut all the fat out of their budget, it’s time to think bigger. That may mean getting a roommate, sharing a car or even moving to a less expensive part of the country. “People can get super-strategic and find these opportunities,” Matthew says.

[Read: How to Claim the Retirement Saver’s Credit.]

Sign up for your workplace’s 401(k) plan. Even at businesses with low wages, workers may have access to retirement accounts. The quickest way to boost meager retirement savings is through a workplace 401(k) plan that offers matching contributions. The match means an employer will deposit a specified amount — such as 50 cents — into the account for every dollar an employee invests, up to a certain percentage of the worker’s income. “Take advantage of the matching contribution,” Nash says. “[It] is ‘free money’ to start building a nest egg for the future and reach long-term goals.”

Eliminate high-interest debt. Someone making minimum wage can’t afford to be paying interest on credit cards or other debt. A $10,000 balance at a 15 percent APR will accrue $125 in interest each month. Spending that much on interest virtually guarantees a person won’t have any money left over for retirement savings.

Look for ways to increase income. Minimum wage earners who find themselves in debt may find it difficult to pay off their balances on their current income. “You have to create margin so you can invest,” Omanson says. To find that margin, workers may need to look for another source of income.

Selling items from around the house is one way to bring in extra money, but finding a second job is a more reliable option. Omanson, who worked two jobs from his teens to his late 20s, understands it’s not ideal. However, it is also something many people need to do to pay the bills and meet financial goals. Another option to increasing income is to go back to school or get additional training that will command a higher salary.

[Read: How to Retire Without $1 Million in a 401(k).]

Use financial planning apps and tools. Thanks to advances in technology, minimum wage workers have access to a number of low-cost tools that can make retirement planning easier. For instance, the app Acorns lets people invest their spare change. And robo advisors such as Betterment help workers without access to a 401(k) open low-cost IRAs.

These resources fill a gap in a financial planning industry that has long catered only to those with significant wealth. However, apps and tools are only as good as the willpower of the person using them. Making minimum wage doesn’t rule out the possibility of a happy retirement, but it does mean you will need extra self-discipline and strategic planning to make it happen.

More from U.S. News

7 Tips to Live Well on Social Security Alone

6 Social Security Calculators That Can Help You Decide When to Claim

How to Reduce Your Tax Bill by Saving for Retirement

Saving for Retirement When You Make Minimum Wage originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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