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💵 Minimum wage crisis

March 30, 2021 Sign up
TOGETHER WITH Finny

Happy Tuesday! Let's get right to the money topics for today:

  • The minimum wage crisis. It's not as simple as it seems.
  • It doesn't get better than a triple tax benefit. Do you qualify for an HSA?
  • Buying a car? How to get the most out of it.
  • Save money on your insurance bill by dropping these.

ECONOMY

The minimum wage crisis isn't as simple as it seems

One of the hottest topics in American politics, and economics too, over the last year has been the ongoing debate around the federally established minimum wage, which presently sits at a rather lowly $7.25 an hour. We won't opine on whether the government should or shouldn’t have a minimum wage, but simply shed some light on the situation.

A brief history. This rate of $7.25 hasn’t changed since July 24th, 2009 when it was upped from $6.55 an hour. From 1995 to 2009 it increased by $3, and has moved $0 since. The fed minimum hit its peak value back in 1968 if we adjust for inflation, and has steadily declined since as the adjustments made to it have come at an increasingly apathetic rate.

The state of the situation

Our most recent data shows that only about 2.3% of Americans are making the minimum wage or less. Not bad, right? Well, let’s also consider the fact that about 28% of the population still makes below $15 per hour, which equates to 39 million people. $15 per hour works out to be $2,400 a month if we assume a 40 hour workweek.

That $2,400 is enough to “get by'' in some states, and not even enough for rent in other locations. As you'd imagine, raising the minimum wage to $15 isn't a simple fix.

States also have different minimum wages, and so do cities. 

  • San Francisco has a minimum rate of $15.59 per hour because, in 2016, California enacted a gradual increase in the state’s minimum wage that's set to continue through 2023.
  • Georgia’s true minimum is actually just $5.15 per state legislation, though most employees are protected by the federal rate and the FFLSA.
  • There are also 38 states with a minimum wage of around $10 or below, and 20 of those are $7.25 states. At those rates, $2,400 becomes $1,160 to $1,600 a month, which is tough going in any locale.

Different locations have different implicit costs, so let’s benchmark some relevant statistics. According to Zillow, the median average cost of a home in Georgia is about $221,000 as of December 2020, which is actually up 8.3% over the year. Montana is at about $245,000, New York is $353,000, Kansas is just $169,000, and of course California clocks in at $635,000.

Broad range average housing costs are simply a leading indicator of the overall purchasing power in an area and are positively correlated to an overall higher price for goods in general, which is pretty clearly observed in most places. 

You can easily extrapolate how this pertains to and influences the debate over minimum wage, and how it’s abundantly clear that different locations require different levels of income from their residents in order to stay above the poverty line.

So what do we think this all means?

Because of this, uniformity loses to a nuanced situational approach with money. The government likely can’t “fix” this in one sweeping motion, and definitely not without significant growing pains. A federal bottom-line requirement for employers can serve as a moral and financial guard rail of sorts, but it could never dream of taking into account all the intricacies of the entire country’s economic situations.

Ultimately, it will likely be up to the states and municipalities to take ownership of their local community and the legislation governing their businesses.

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💥So, how do I qualify? If you and your family are on a high deductible health plan, you qualify. That means, your health plan has a minimum deductible of $1,400 for individuals and $2,800 for families. Qualifying plans must also have maximum out-of-pocket amounts of less than $7,000 for individuals and $14,000 for families.

💥Lively HSAs work alongside high deductible health plans to make healthcare more affordable. And, unlike other providers, Lively HSAs are completely free.

Don't pay more for peace of mind. Open a Lively HSA today and set yourself up for a stress-free tomorrow.

BUYING A CAR

How to get the most out of your car purchase

We know someone reading this is anticipating a pending tax return and hoping to put that extra income towards a new car. It happens every year, you’ve been thinking about it for a while and finally have enough of an excuse to do it when Uncle Sam decides to be generous in April. That’s okay, totally understandable. Just... don’t overpay in the process.

In case you didn’t know, new cars lose about 20% of their original value within the first year of purchase. Yes, if you buy a new car off the dealership lot in April 2021 for $30,000, by next year it could be worth about $25,000 at best. Toyota Tacomas are of course excluded from this, the dealership will actually just pay you more to buy it back. (Kidding, but seriously, Toyotas do hold value well.)

So if you want a new car, how do you avoid this instant depreciation and get a better deal?

Simple, if you want a new car, buy a used car. Instead of buying a 2021 model of the car you’re checking out, go online and compare it to low-mileage versions of the same car from 2019 or 2020.

Most cars this young, and if you filter for very low miles, will even still be covered under the manufacturer’s warranty. You’ll get what’s essentially a brand new car at a great discount, just because someone else was willing to take the hit off the lot for you.

Go with a private party seller. Doing business with a dealership is notoriously more expensive than buying from a private individual. They consistently come in anywhere from 10-20% higher for the total price of a car, even if the vehicle is seemingly identical to the one you could buy from a private party.

You’ll also avoid dealer and document fees, which can be anywhere from a few hundred to a thousand dollars, not to mention not having to be bothered by sales tactics and wait times.

Also, maybe buy something that will appreciate in value if you’re a collector. New cars will almost never appreciate, but if you’re just a car person and want to avoid losing money on your toys, buy cars that hold their value. Appreciating vehicles aren’t limited to classics, there are many affordable cars out there that have bottomed out in value and are now becoming more sought out by enthusiasts.

🚗 Take this bite-sized refresher on the basics you should know about car expenses & budgeting before you buy:

INSURANCE

Save money on your insurance bill by dropping these

Suitably placed considering your pending new car purchase, you should also take the time to make sure you’re not paying for excess insurance coverage you may not even be in need of. Here are a couple of types of insurance we’d like to highlight as policies to potentially drop.

Personal Injury Protection Insurance

This aspect of your vehicle’s coverage will cover the costs of any injuries suffered by you or your passengers in the event of an accident. Consider firstly how often you actually have passengers in your car. Do you mostly just drive to work or school alone? You probably don’t need it.  You also may be doubly covered for no reason if you already have sufficient medical insurance that would compensate you for medical bills in the event of an automobile injury. Check on your policies, and cancel the excess if you feel it’s unnecessary for you.

Comprehensive Coverage On Older Cars

Comprehensive coverage will take care of you in the instance where something non-accident-related damages your vehicle. Whether it be weather, theft, vandalism, or anything of the sort, comprehensive coverage pays for that. This is great for newer, more valuable cars, but if you drive an older vehicle, it could be an inefficient use of resources.

Depending on your deductible, you could be paying a lot of money just to get a small compensation from the insurance company if something happens to your car. If your car is worth $5,000 and you have a $1,500 deductible, you’ll be getting $3,500 for your totaled vehicle.

Let’s also make note of the fact that the insurance valuation of your car and the real-world valuation of it, are two different numbers. A “$5,000 car” may actually sell for $9,000 on the market. Insurance companies are notorious for this with older vehicles, and so it’s more like getting $3,500 for a car that would cost you $9,000 or so to replace. Is that really worth the monthly cost?

📚Need a bite-sized review on car insurance fundamentals?

✨TRENDING ON FINNY AND BEYOND

  • A brokerage that lets you check out what stocks other people are buyingPublic.  They'll give you $10 worth of your favorite stock if you open an account and deposit a buck (link)*
  • Key markets scanner: will the Dow be the last major index to pull back?  (Finnyvest)
  • The hottest new job of 2021: Head of Remote Work (San Francisco Chronicle)
  • Finny lesson of the day. With all this talk about the triple tax benefit of Health Savings Accounts and whether you qualify, take this bite-sized lesson to learn all about them:

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses!  It's sent twice a week (Tues/Thurs). The editorial team: Austin Payne and Chihee Kim.

*Sponsors or advertisers are mission-aligned and offer unique consumer services.  We're thankful for their sponsorship to enable Finny to offer free financial education. Here's our advertiser disclosure

If you have any feedback for us or interested in sponsoring, please send us an email to feedback@askfinny.com.

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