Navigating the Reality of Minimum Income Struggles 

Introduction to the problem 

It is commonly understood that bias is often viewed as a negative concept because it involves disregarding evidence that contradicts one’s preconceived notions or way of thinking. However, there is also a phenomenon referred to as the “positive bias” or “Pollyanna Principle” where individuals tend to focus solely on the positive aspects while disregarding any negative aspects or challenges (Ackerman, 2018).

It’s important to keep in mind that adversities can be more severe than they appear, particularly when excessive positivity is present due to an increase in income. Even a slight increase of 5% can push one’s income into a taxable bracket while the exemption limit remains unchanged. For instance, in the UK, the tax-exempt income is £12,570. Let’s assume you earn £12570 annually, and your income increases by 5% (equivalent to £630), bringing your total income to £13,200. Now, since the excess income is taxed at 20% (£126), you will receive only £504 after paying taxes, which is 4% of the tax-exempt income. Interestingly, the current inflation rate in the UK is also 4%. It is surprising to note that despite the increase in the minimum wage, there is no significant difference or positive impact on income levels.

If there were tax exemptions for the increased income percentage and lower inflation rates like the European Union’s 2.6%, there could have been a 1% difference. Additionally, the rent has increased by 7%, along with other services such as gym, transportation, groceries, etc.

The possible Solution 

It is essential to seek uncomplicated approaches to address the problem of excessive spending, which is frequently disregarded. Nevertheless, bringing about such solutions can prove to be a challenge. Although the solution might seem clear when explaining it to others, applying it to our personal lives can be troublesome. We are frequently lured to indulge in purchases we’ve always desired with any additional income. So what is the remedy? The solution is “Sensible spending”(Galdi, 2020).

Sensible spending habits entail making conscious and informed decisions regarding the utilization of financial resources to ensure economic stability while simultaneously preserving our objectives and necessities. It can be achieved by making wise spending decisions, and adhering to the budget while understanding the difference between needs and desires (Abdikarim, 2023). 

The intention of this article is not to convey a pessimistic outlook on income growth or to advocate for prudent expenditure as a tactic. Rather, this article aims to offer readers a perspective to contemplate the economics at play and to foster a mindset where individuals can make an approximate assessment of how their spending patterns could affect their overall financial plan. It is crucial to increase awareness about the potential impact of economic discussions on vulnerable populations and adopt a more empathetic approach towards them. 

In the forthcoming article, we will emphasize sensible spending habits by using examples and research data to highlight the key points.

References

Ackerman. C (2018) Pollyanna Principle: The Psychology of Positivity Bias. 

https://positivepsychology.com/pollyanna-principle/#comment-list

Abdikarim. M (2023) Learning the Art of Budgeting and Sensible Spending Overview. https://medium.com/@shukriyare7070/learning-the-art-of-budgeting-and-sensible-spending-overview-2edd471d000a. 

Galdi. S (2020) The Bright Side of Pessimism: Promoting Wealth Redistribution under (felt) Economic Hardship. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7735630/