Whether you are a college graduate on the job hunt, changing careers, or just assessing your current work situation, your salary is an important consideration. You have bills to pay, retirement to start funding, and life to afford. So, when a job that pays 40K per year piques your interest, it’s natural to ask the question, is $40,000 a good salary?
According to the Bureau of Labor Statistics, the median individual income in America, for the third quarter of 2019, was $47,788. So, from a statistical standpoint, an annual salary of $40,000 is slightly below average.
That said, determining whether or not $40,000 per year is a good salary depends heavily on the cost of living in your geographic location. In other words, a $40,000 salary might be more than enough for someone living in Omaha, Nebraska. Meanwhile, somebody living in San Francisco — where the cost of living is among the highest in America — would have a hard time making ends meet on more than double that amount.
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$40K Per Year (Hourly, Weekly, Monthly)
Before you accept a job that pays $40,000 per year, it is a good idea to break down your income. In fact, we recommend setting up a hypothetical budget with the salary to make sure the income will work with your lifestyle.
So, to make things a little easier, here is a quick breakdown of $40,000 per year. Please note, this is gross income, which doesn’t account for taxes.
$40,000 per year equals:
- $3,333.33 per month
- $769.23 per week
- $19.23 per hour (based on a 40 hour work week * 52 weeks per year)
How Much Rent Can I Afford On A $40,000 Salary?
When determining how much rent you can afford, there are two schools of thought. The first is that your gross monthly income should be greater than or equal to three times the cost of rent. So, if you make $40,000 per year, you would be able to afford rent up to $1,111.11.
In general, this is the standard that most apartments and property management companies will require in order for you to qualify as a renter. However, this rule of thumb does not allow much room for debt repayment, extra bills, and very much saving or giving.
So, here at Be The Budget, we take a different, more conservative approach. We recommend that your rent should not be more than 25% of your net income. In other words, 25% of your take home pay.
As an example, if you make $40,000 per year, and after taxes you take home $2,775, then your rent should be no more than $693.75 per month.
Now, I understand that this figure might seem low. But if the main point of making a salary is to save money, give generously, and build wealth, then the last thing you should do is spend too much money on rent. So, you might need to find a roommate or two. Or, you might need to move to a less expensive part of town.
How To Make The Most Of A $40,000 Salary
Whether you make $40,000 per year, or $100,000 per year, if you aren’t careful to live within your means, you will end up broke. And to keep that from happening, we’ve put together a few key financial tips to make the most of your $40,000 salary. These tips will help you keep the money you make, in order to build a strong financial future.
Get On A Budget
As I mentioned earlier, a $40,000 salary is slightly below the median salary in America. For that reason, if you want to make the most of your money, you need to get on a budget. Now, that does not mean you can’t have any fun. It just means that you need to create a monthly financial plan for your money and dedicate yourself to it.
No matter how much money you make, you need to be intentional about it. Your net worth is not determined by how much you make, but how much money you keep. So, get on a budget, and prioritize saving at every turn.
Get Out Of Debt
The more debt you have, the harder it becomes to make ends meet. And when you make $40,000 per year, you need to maximize every penny that comes in.
Track Your Money
Tracking your money is a key aspect of maintaining your financial health. Without knowing exactly how much money you have coming in each month, and how much you are spending, it is difficult to make financial improvements.
Give, Save, Live
For most people, the process of personal finance goes in the following order: earn money, spend money, save and give based on the leftover money. However, this is not the financial pattern of the wealthy.
Your savings should not be determined by how much you spend. Instead, your living expenses should fit within the boundaries of whatever money is leftover after you give and save. Essentially, your financial pattern should fall in the following order: give, save, and live off of what’s left over.
Over time, this way of living will lead to financial freedom, no matter what salary you make.
If you want to build enough wealth to live off of the interest of your investments, you need to make investing a big part of your financial plan. Now, I know that $40,000 might not feel like a salary that could generate any kind of wealth, but that is dead wrong.
Consider this: if you were to invest $500 every month for the next 30 years, and earn an average annual interest rate of 10%, you would end up with over $1 million in investments. At that point, you would be earning $100,000 per year on interest alone. I’m betting if you really try, you can find a way to invest $500 per month on a $40,000 salary. (Especially if you are debt free.)
10 U.S. Cities Where A $40K Salary Might Not Be Enough
In most cases, when paired with a solid budget, a $40,000 salary is more than enough to survive. However, there are definitely a few exceptions. More specifically, there are a few cities in the U.S. where $40,000 would be particularly difficult to make work.
According to Kiplinger, the top 10 most expensive cities to live in the U.S. are as follows:
- Manhattan, NY
- San Francisco, CA
- Honolulu, HI
- Brooklyn, NY
- Washington, D.C.
- Seattle, WA
- Oakland, CA
- Arlington, VA
- Queens, NY
- Boston, MA
Though a $40,000 salary might be below the median individual income in America, in general, it is more than enough to survive. That said, it depends on the city in which you live and how you handle your money.
Would $40,000 be enough for you to survive in your city? Comment below. We would love to hear your responses.