Once again we see fast food workers striking in New York City, Detroit, and elsewhere, demanding “living wages” of $15 per hour and the right to unionize. Certainly it would be difficult to live in New York City on $8 per hour, but that doesn’t mean that the people visiting fast food restaurants would be able (or willing) to pay enough for their hamburgers to sustain workers at $15 per hour. At some point people will decide to just cook at home or heat something up in the office microwave instead of going for fast food. You can’t charge more for a service or product than it is worth to the people buying it, no matter what your cost of living is. You would think that people in Detroit, of all places, would have figured this out by now.
The fact is, what your costs are has no bearing on the value of the product to the person buying it. This is also true for the owners of the fast food restaurants. Just because their labor costs are higher doesn’t mean that they can sell their products for more. Cities can certainly pass laws to require high wages or labor unions can strike and force through high wages and other work rules. This will force employers to raise prices, however, and as they raise prices to cover labor costs they will sell fewer products. At some point they won’t be able to make enough money to cover costs at all. At that point they will close up and open a restaurant somewhere else or just do something else to earn money. Then none of the workers will have a job anymore even if they were making a lot of money before.
So, if you can’t live on $8 an hour in New York City, and you can’t get paid $15 just because you need that much to get an apartment and buy food, maybe you shouldn’t be living in New York City. Go just 100 miles up the road into upstate new York or rural New jersey and you can find apartments at one tenth the price of NYC apartments. You can find food at 50-65% of NYC prices as well. It might be that fast food restaurants can’t survive in New York City at all, or maybe they will only be staffed by teenagers and retirees who don’t depend on the job as their sole source of income.
While it is a lot less extreme that the NYC/fast food worker example, many other people attempt to maintain a lifestyle that they can’t maintain with their income. They will complain about all of their bills and say there is no way they can live without maintaining a credit card balance. They may live in an area where home mortgages consume 40% of their take-home pay each month and then wonder why they can’t afford to save for their kid’s college or retirement.
In many cases, the place you live has a big effect on your ability to grow wealthy. Often a move down the road less than 100 miles could change your station in life entirely. Perhaps instead of living in San Francisco, you live in Fresno and then drive into San Francisco when you want. Or maybe conversely you live closer to work to reduce the costs of your daily commute (and the meals out you buy because you spend 2 hours a day in their car) and then dive back to visit friends in the small town you grew up in when you want.
Some may say, for them, the benefits of living in a big city or their small town outweight the additional costs. If this is the case, that’s fine. Becoming wealthy generally requires living in a different way from most people. It requires sacrificing for a period of your life while you are building up assets. You will not be able to do this if your living costs are large compared to your income. Some are not willing to make the changes needed to bring these things in balance. It is not for everyone.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.