When you’re looking for full-time employment, it can be hard to know what is and isn’t a decent salary. Sure, you know what the overall annual figure is, but how does that break down to your monthly income? And, more importantly, can you live on it? Can you be comfortable? Is 40k a good salary? Let us take you through the ins and outs of those questions.
What does $40,000 a year break down to pre-tax?
Put simply, your monthly take-home figure from an annual salary of $40,000 will vary depending on where you live.
Some states don’t charge you tax on your income. Others do.
So your monthly earnings will differ in the breakdown, but so you have a ballpark initial figure, we’ve laid it out below.
If we go off the fact that there are 52 weeks in a year, and if we assume you work 40 hours a week, that’s 2080 hours. So your breakdown will look like this:
- $40,000 ÷ 2080 hours a year = $19.23 per hour
- $19.23 x 8 hours per day = $153.84 per day
- $40,000 ÷ 52 weeks = $769.23 per week
- $769.23 x 2 weeks = $1,538.46 per fortnight
- $40,000 ÷ 12 months = $3,333.33 per month
But don’t forget, that’s based on the gross earnings (the initial figure), not the net earnings (your income after taxes are deducted).
If you earn $40,000 you’ll need to pay between $6,000 and $9,000 in tax depending on where you live.
So if you want to make $40,000 after tax, you really need an annual salary of $50,000.
What about after tax?
Like we said, it can vary state to state, with some places not taxing you on your income.
But if we go off an average figure of between around $6k – $9k, you’re looking at a net salary of $31,300 and $33,800. So, your breakdown will look like this:
- $598.08 – $650 Weekly
- $1,196.15 – $1,300 Bi-Weekly
- $2,591.67 – $2,816.67 Monthly
Some difference! Of course, if moving is an option, head to Wyoming, Texas, New Hampshire, South Dakota, Florida, Tennessee, Alaska, Nevada, or Washington; they don’t tax your income.
Having said that, there might be a higher rate for goods and services there, so it’s worth weighing that up to see whether the move will pay off.
So is 40000 a good salary?
In terms of the U.S. national average, $40,000 is a bit below where you want to be.
In 2019, the annual median personal income for full-time, year-round employees was $52,000, according to the U.S. Census Bureau.
That’s a difference of just over 25%. But the main question isn’t really ‘is $40,000 a good salary?’, it’s ‘is it a good salary for me?’
Can you live comfortably on $40,000 a year?
Consider your living arrangements and where you are in your career.
Is 40k a year a good salary for a recent graduate? Yes, it’s pretty decent.
A recent survey by LendEDU found the average salary 5 years out of college was $48,400. So that’s between 0-5 years of working.
If you have a large family, you’re a single parent, or you live in a more expensive area, then it could be tight to make ends meet.
If you’re living alone, you live with a partner, or maybe you only have a couple of kids, it’s still pretty comfortable (depending on the cost of living in your location, of course).
Is 40k a year a good salary for a single person? That depends. Say you’re single and living in Memphis, TN.
According to the Massachusetts Institute of Technology’s Living Wage calculator, you only need an annual pre-tax salary of $27,580. So you’re going to be very comfortable.
Over the other side of the States it’s a different picture, though.
The cost of living in Los Angeles is a lot more, so you’ll need to be bringing home $39,982 before tax.
Not much spare change there. If you’re single in San Francisco, CA however, you’re going to need a salary of $47,587 before tax, generally speaking. So that won’t cut it.
Is $40,000 enough to live on?
The important thing to think about is, how does the salary breakdown compare to your living costs?
If you make a note of your expenses in a budget tracker it’ll quickly add everything up for you and tell you what you have left over.
However, just so you can get a rough idea, here’s a breakdown of how it would work out (based off the top end take-home figure of $2,816.67).
- rent (33% of your income) = $930
- utilities = $200
- car payment = $200
- car insurance = $100
- health insurance = $200
- cellphone = $50
- internet = $50
- gas = $60
- groceries = $150
- personal & misc = $200
- entertainment = $100
This would give you a total expenditure of $2,240.
So you’d have $577.67 left over.
Say you want to put 10% of your paycheck into your savings (which we all know is advisable).
That’s $282 rounded up, so a total outgoing of $2,522. That’d still leave you with $295.67 for emergencies, sinking funds, or just treating yourself now and then.
Or save 20% ($564) and you’d still be within your income (just) with $13.67 to spare.
Can you buy a house with a $40k salary?
Yes. Obviously it depends on your credit rating, monthly outgoings and existing debts, but if you can afford a rent of $930 per month, you can afford mortgage payments of the same or lower.
If we go off the top end of the monthly income above, you could afford to buy a house after about 2 years of saving a deposit.
- say you save 20% of your paycheck ($564), in two years you’ll have $13,536.
- Currently, in West Virginia, the average house price is $116, 902.
- So you’d have enough for a 10% deposit on a 30 year mortgage at a fixed rate of 3.196%.
- Not only this, your monthly payments would be $709 – way lower than the 33% figure we were calculating for your rent.
So is 40k a good salary?
If you have kids or live in more expensive areas of the country, obviously the numbers change.
The outgoings increase, the available spare decreases.
In that case, you might have to cut back on a few things, hunt around for deals or add in a couple of side hustles to make your money work for you.
Develop some frugal living hacks to save spending.
Reduce debts where possible so you’re not wasting money on interest. It also means you can build up your credit score.
The main thing is making sure you’re following the main principles of financial literacy:
Number 1: Never spend more than you earn.
Otherwise you’re either going to struggle or be in debt. And you don’t want that.
Number 2: Always plan for the future.
Be prepared for the unexpected. Think about the years ahead. You want something in the pot to fall back on for a rainy day or retirement.
Number 3: Help your money grow.
Make your money work for you, not the other way round. This can be through solid savings choices (think interest), or investments.
Find out more about improving your financial literacy here.
Overall, is 40k a good salary? Yes, if you make it work for you.