One of the first things that everyone pays attention to when hunting for a new job is the salary. How much money you’re going to get from your hard work is always important to know because there are a lot of expenses that need to be paid every year.
The amount that you can earn from a job can vary greatly depending on the employer, but in some cases, the average job may pay you about 40k every year. If you’re just starting to work, you may be wondering if that amount is actually good. I wondered that myself, so I did my research.
Wages vary a lot between states, and many additional factors come into play. If you’re offered a job with this salary, is $40,000 a year a good salary?
According to the Economic Policy Institute, the average median salary in 2019 was approximately $19.33 per hour. This equates to $40k a year if you worked full-time. So a $40,000 a year salary is right at average.
Whether that amount of money is good for you depends on your current living conditions. There are some states, such as New York, where the cost of living is considerably high, but there are some other states such as Tennessee, in which the cost is lower.
Some other factors, such as the number of people living in your home, the services you’re paying, or the specific area in which you live, may also affect your cost of living.
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How Much is $40,000 a Year (Hourly, Weekly, Monthly)?
To understand your wage better, I suggest that you break down your annual salary into parts. You are not going to get one single payment of $40,000 each year; in most cases, you get paid by the hour, week, or month.
The best thing that you can do to make things easier is to make a list of all your expenses, and then break down your annual salary to see if it works for you.
A gross income of $40k per year equals:
· Hourly: From $19 to $21 per hour.
· Weekly: About $769 per week, or $1,538 every two weeks.
· Monthly: About $3,333 per month.
Keep in mind that this is just an example based on approximate calculations. The amount of money that you can earn per hour depends on how many hours you work each week.
For example, if you work 37 hours a week, you can make about $20.79 per hour, but if you work 40 hours a week, you earn $19.23. In essence, you would be earning the same yearly amount in the end, but fewer hours are spent at work.
How Much Will My Check Be If I Make $40k A Year?
It’s vital that you remember that your earnings depend on where you live and several other conditions. In most cases, you are going to earn about two paychecks each month.
The final amount that you receive depends on your tax deductions. These taxes involve state income tax, federal income tax, medicare tax, and social security.
For example, if you live in the California State, and you get a gross income of $1,538 every two weeks, you can get a total of $273 in tax deductions. In this particular case, you would be earning a net pay of $1,266 every two weeks.
In the case of your annual salary, if you make $40k in California, you could be taxed approximately $7,090, which gives you a net pay of $32,910 yearly. Remember that this can vary from state to state, so make sure that you do your calculations properly depending on the tax deduction in the state you live in.
How Much Rent Can I Afford On A $40,000 Salary?
On average, if you make a $40k yearly salary, you could afford up to $1,111 in rent. This follows the idea that your monthly gross income has to be equal or higher than three times the cost of the rent. Most people consider this approach when evaluating rent qualifications.
In my particular case, I recommend that you use only 25% of your monthly gross income to pay your rent or mortgage. This means that if you make $2,742 each month after your tax deduction, your rent should be equal to about $685.5.
Both approaches are fine, but keep in mind that the idea is not to spend all your salary on rent. If you take the latter approach, you can still have some money to save and do other things.
How Much Mortgage Can I Afford On A $40k Salary?
If you have a gross income of $40k a year, the maximum value that you could afford for a home would be from $100k to $120k.
This is just an estimation though. Everyone’s financial situation will be different. Don’t forget to factor in the cost of property tax, annual maintenance, and upkeep.
Some financial experts say that you should spend a maximum of 28% of your monthly gross income in the mortgage, which means that you would spend up to $933 each month with a $40k yearly salary.
As with the rent, I recommend that you take 25% of your monthly gross income to pay your mortgage. The point of this is to save as much money as you can. A salary of $40k a year is considered a little below average, but it doesn’t mean that it isn’t enough to live.
Most people can perfectly live their lives with a $40k year salary, but they have to make significant adjustments to their budget if they want to make it work.
Taking that into account, the approach of 25% can significantly help you look for an affordable home, and that doesn’t take all of your monthly income, which gives you more room to breathe.
What is the 28/36 rule?
The 28/36 rule is a financial guideline that states that a household should spend a maximum of 28% of its gross monthly income on housing and no more than 36% total on debt. The 8% difference includes debt in the form of car loans, credit cards, and student loans.
For someone on a $40k income, this would mean $933 being spent on housing and no more than an additional $267 per month being spent on other debt.
This financial calculation is what many lenders and creditors use to determine whether they’ll let you take out a loan. This doesn’t mean that you should spend $1200 a month on debt. Obviously, spending less would be better.
Is it your fault if you can’t live off $40k a year?
Whether or not you can live on a $40,000 salary depends on both your personal money management and what part of the country you live in. In many parts of the United States, a $40k salary simply isn’t enough to live off of.
If the cost of living is too high to live there but you want to improve your lifestyle, you can either find a job that pays more or move to a lower cost of living area. I give some examples of where you could live a little later.
If you live in a low cost of living area but are having money stress on this salary, you should take a closer look at where you’re spending your money. By not keeping track of your money, it’s easy to overspend. Follow the tips below for making the most of your $40,000 income.
How To Live On A $40,000 Salary Successfully
Regardless of your salary amount, if you aren’t a good steward of your money, you’re going to end up broke or in debt. Here are some tips for managing your $40k salary:
1. Learn To Budget
Understanding how to budget is the first step for making your paycheck go far. Even though $40,000 seems like a lot of money, if you’re not tracking your money, you can easily overspend.
Budgeting your money and making a plan for how each dollar should be spent is like giving yourself an instant pay raise. You now know where all your money is going!
2. Pay Off Debt
Debt is cancer to wealth. Yes, I realize that’s a strong statement but you can’t build wealth if you constantly owe money. Debt steals your future from you.
All your efforts to save and grow your money gets eaten away by your debt’s interest payments. The smartest thing you can do is get on a plan to pay off debt and then vow not to take on any more.
3. Live Within Your Means
In order to live within your means, you must be content with what you already have. There’s always going to be something newer or that you perceive as better. Don’t try to “keep up with the Joneses.”
If you’re constantly chasing new cars and status goods, you won’t have any money left for saving. Follow these tips for being happy when you don’t have a lot of money.
Having fun doesn’t need to be expensive, including dating. These date night ideas are either completely free or extremely cheap to do.
10 Best U.S. Cities To Live Well On $40,000 A Year
The AARP did a study about the 10 best American cities where you can live comfortably on $40k a year or less. They took into account the weather, cost of living, population density, and housing prices.
Here are 10 cities perfect for a $40,000 a year salary:
- Sheboygan, Wisconsin
- Eugene, Oregon
- Cleveland, Ohio
- Fort Walton Beach, Florida
- Abilene, Texas
- Bristol, Virginia and Tennessee
- Cheyenne, Wyoming
- Cañon City, Colorado
- Rochester, New York
- Sioux Falls, South Dakota
Although some of these cities are more rural, that doesn’t mean there’s nothing to do there. Before you write off any of these locales, dive in and do your own research first.
A 40k annual salary is good enough for you if you know how to manage it. There are some cities where that salary is perfect for you, and there are some cities in which it isn’t. Keep in mind the average cost of living in your town to make a more accurate calculation of your expenses.
Overall, if you live in a place that doesn’t have a high cost of living, and you organize yourself and your expenses, you may be able to avoid as much debt as possible and even save money, in most cases.