How To: Calculate Living Wages, Income, Expense and Budget Rule

In order to plan a sustainable lifestyle, with minimized friction, it is important to apply math. Apply mathematics to work with the facts of our daily expenses, rather than the sentiments. Every working human is required to understand the best and sustainable math that would govern their daily expenses, in relation to their expected daily income.

The daily basic income of every worker, when aggregated for 24 working days of a month, then determines their monthly basic salary. 

The understanding of your living wage calculation is essentially to stay informed about your living expenses, in relation to your living wages, that should follow the standard budgeting rule.

Wages

Wages are remuneration a person receives based on the time he/she spends on a particular work. Wage is what you earn each hour per day, it’s your working rate. That also includes overtimes work you do.

Salary

A salary is a fixed amount that is paid to an employee at regular intervals, irrespective of the hours or amount of work performed.

Income

Money received, especially on a regular basis, for work or through investments.

What is a living wage: 

A living wage is a socially acceptable level of income that provides adequate coverage for basic necessities such as food, shelter, child services, and healthcare. The living wage standard allows for no more than 30% of income to be spent on rent or a mortgage and is sufficiently higher than the poverty level. (Source: What Is a Living Wage? Definition, History, and How to Calculate)

The Living Wage Calculator:

This calculator is inspired by MIT Living Wage Calculator (source: https://livingwage.mit.edu/counties/36025 )

Budget Rules

Understanding your spending can help you better plan for the future. The 50-30-20 rule organizes spending into needs, wants, and goals. (Source: https://www.unfcu.org/financial-wellness/50-30-20-rule/ )

We will be basing our calculation on MIT’s living wage expenses attributes, and the budget rule for allocating expenses to achieve a comfortable and sustainable lifestyle;

• Budget Rule : 50/30/20
• Budget Rule Recommendations for Income Allocation:
  • 50% for Needs (Food and Housing)
  • 30% for Spend on Wants for individual or families
  • 20% for Savings or Debts payments

Living Wages:

• Data Model Sheet: Standard Living and Wages
• The living wage is the hourly rate that an individual in a household must earn to support themselves and/or their family, working full-time, or 2080 hours per year. 

Example1: Expected Living Wages and Working Hours: 

Budget Rule Allocation of Living Wages:

Find below the breakdown for budget rule 50/30/20 allocation and distribution of your Yearly, Monthly or Daily wages according to the budget rule needs.

Typical Expenses Table:

The table below shows the expense category, and typical expenses attributes. You can also assign cost to every attribute on a Daily, Yearly, or Monthly basis. These records would then go into estimating the living wages the best suit your expenses. Like the living wage, the expense values vary by location and family size.

Applying these costs to the 50/30/20 budget for 50 U.S. states, MIT’s living wage is assumed to cover needs (i.e. 50% of one’s budget). From there the total wage was extrapolated for individuals and families to spend 30% of the total on wants and 20% on savings or debt payments.

If you aspire to maintain a comfortable lifestyle, the 50/30/20 budget rule recommends spending approximately 50% of your income on basic needs like food and housing, 30% on wants and putting away the remainder toward savings or paying off debt. 

Keeping this in mind, SmartAsset applied the 50/30/20 budget rule to cost of living data in each U.S. state to determine how much income a single adult needs to live comfortably, as well as two working adults raising two children.

External Resources: 

Here’s the Income It Takes to Live Comfortably in Each U.S. State – 2024 Study: https://smartasset.com/data-studies/state-salary-living-comfortably-2024 

The Income Needed to Live Comfortably in Every U.S. State: https://www.visualcapitalist.com/mapped-the-income-needed-to-live-comfortably-in-every-u-s-state/