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Thursday, January 3, 2013

The "Minimum Wage" Problem

Numerous times I have come across frugal bloggers' and commenters' calculations they have done to determine whether something is a worthwhile activity for them to engage in, based solely on the amount of money it would bring them on an hourly basis. Usually 'minimum wage' is chosen as an arbitrary benchmark.

They may say something like "That isn't worth my time because it would take me 5 hours and I would only get 30 bucks, that's not even minimum wage!"

In my opinion, until McDonald's lets you come in and work an hour or two here or there for minimum wage whenever you feel like it, this is not a valid argument. There is no way to automatically convert your free hour(s) into minimum wage pay, so limiting yourself by avoiding anything that 'pays' less than minimum wage is leaving money on the table.

I wrote before about how you should try to fill your time with activities that make you money or are at least cost neutral. So many of the things people spend their time on actually COST money, that switching to activities that bring in money, regardless of how little, is a huge benefit.

The way you should think about it is not in terms of minimum wage, but in terms of opportunity cost. If there is another activity you could do instead that would get you MORE money, then by all means do that instead.

But if there isn't, it doesn't really matter if you could technically get more for an hours work at McDonald's, because you can't just go work an hour there whenever you have free time. But you can spend an hour clipping coupons instead of watching TV, for example, even if that hour of activity only nets you 6 dollars. Remember, that is an after-tax 'earnings' as well.

And if you did that 2 hours a week, at the end of the month you would have $48 more than if you decided not to do that simply because it was 'paying' less than minimum wage.

Of course I would suggest trying to find ways to spend your time that get you much more than that, but don't avoid something solely because it gets you less than minimum wage.

-The Money Monk

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