Have you recently graduated from college? Perhaps you’re looking for a more suitable job?
According to a study by the Federal Reserve Bank of New York, among college graduates, only 27% are working in a job related to their major. Most people would accept the first company that hired them since it’s challenging to land a job nowadays.
Most of the time, recent college graduates can only apply to entry-level positions. On average, US companies offer $40,153 annually for entry-level jobs. But is 40k a year enough to live on?
We’ve researched the average and ideal salaries in the US and considered the most recent data on living costs, inflation rate, and other significant factors. Most importantly, we asked some finance experts for insights and tips.
So, make sure you stick with us so you’ll know whether $40k is good and what you can do to make the most out of it! Otherwise, you might accept a job that’s paying less than $40k or you could be living on this salary but always find it not enough.
Ready? Let’s delve in!
How good a $40,000 salary is
First, let’s break down the said annual salary before determining whether it’s a reasonable payment for your hard work. So, $40,000 a year is how much a month?
- $19.23 per hour
- $153.84 per day
- $769.23 per week
- $1,538.46 bi-weekly
- $3,333.33 per month
Take note, though, that the computation above is your gross income. It doesn’t include taxes and other deductions required by the state you live in.
The average personal income in America is $63,214, which is a bit higher than $40,000.
Below is the list of states and their corresponding average salary according to ZipRecruiter.
|State||Average Entry-Level Salary||Average Annual Salary|
Is 40k a year good in Florida? More likely. Florida has the lowest average annual salary, while New York has the highest average annual salary.
“$40,000 may be fine for you, depending on where you live and your spending habits,” said Anthony Martin, CEO of Choice Mutual and an official member of the Forbes Finance Council.
“Lots of people do just fine with that amount of money, while others struggle to make rent with six-figure salaries,” he added.
If you live in the countryside, you may consider a lesser salary a good one, but the exact amount might not be enough if you’re living in the city. It’s also important to evaluate your expenses and debt to determine if $40,000 is a good salary.
Can You Live Off $40K a Year?
Aside from the location that can affect whether $40k is enough for you, your expenses also matter and that depends on whether you’re single, have a family, recent graduate, or senior.
Recent college graduates and single individuals could live on a $40,000 a year budget just fine. Families and single parents may have to look for other sources of income so they can spend enough for their needs.
|Group||Average Annual Expenses|
|Recent college graduates||$37,886|
|Families of 2||$66,861|
Is $40k a year a good salary for a single person?
“I can live for under $40K (gross) per year as a single woman with no children or pets in Norfolk, VA. This translates to about $31,083.75 after tax. With this amount, I am able to cover food, clothing, housing (owner) & utilities, transportation, retirement savings, and many wants,” shared Monique Harps, a realtor.
It’s also a decent entry-level salary for fresh college graduates. Although it still depends on the debt you pay and how you handle your finances.
This will also change depending on your personal goals. If you're aiming to buy your dream car or house at this moment, the said salary won't be enough for you.
How much rent or mortgage can you afford on a $40k annual salary?
A big part of expenses goes to housing costs.
RentHop Rent Calculator says you could afford $640 rent on a $40,000 annual salary. You can extend it to $1,000 per month, but you need to cut miscellaneous costs.
In calculating the rent, we’ve considered the average student loan, which is valued at $390. This can also change based on your plan.
If you’ve decided to own a house instead of renting, the maximum amount of property you can afford is $125,000. Again, this is only an estimate since the price changes are based on property taxes, location, and down payment.
Here’s a mortgage calculator you can use.
You can also follow the 28/36 rule.
It says that your mortgage payment shouldn’t be more than 28% of your monthly gross income and 36% of your total debt.
If you follow this rule, you can avoid buying a property you can't afford.
Otherwise, you'll have to spend a considerable amount maintaining the house you purchased. Then, you won't have funds for investment, savings, entertainment, and other miscellaneous expenses.
If 40k isn't a good salary, what is a good salary then?
Most people consider a six-figure salary to be the ideal salary.
For instance, a $100,000 annual salary and over will generally allow a single individual to have enough finances for essentials, mortgage, utilities. It also provides an opportunity to save and invest.
However, “If you're living paycheck-to-paycheck, then making $100k might just mean more bills, additional expenses, and less time to enjoy life,” says Brian Meiggs, an entrepreneur and the founder of Smarts.
“On the other hand, if you're financially stable enough to live off 50% of your income every month, then suddenly making more money doesn't change things as much as you'd think.”
How to make the most of a $40,000 salary?
Generally, a $40,000 annual salary can put you in the middle class in America. However, it mainly depends on the way you handle your finances.
If you have a $40,000 annual salary, be ready to create a budget, track your expenses, build your savings, stay out of debt, invest, and live within your means. Through these tips, you can make the most out of your income.
1. Create a budget
A budget allows you to manage your money better.
“You need to live on a budget. Every penny needs to be accounted for and given a job,” recommends Dr. Jay Zigmont, a certified financial planner at Live, Learn, Plan.
“Keep your housing costs low, and stay away from debt. If you live within your means you will be comfortable, but if you use credit cards you are stealing from your future and spending more than you make,” Zigmont added.
Here are some tips on how you can effectively create a budget that fits your lifestyle:
- Take note of your income.
- Write down your expenses.
- Set your goals.
- Make a personalized plan.
- Review your budget regularly.
Of course, it's also important to follow your budget to achieve your financial goals.
2. Track your expenses
Most people would settle with writing down their expenses. But, it’s more than that.
Here are some tips for tracking where you spend your money:
- Make an inventory of your accounts.
- Group your expenses into a variable and fixed costs.
- Decide which fees you can live without.
- Try budgeting apps like Mint, You Need a Budget (YNAB), and PocketGuard.
- Adjust your budget accordingly.
You may need to cut some expenses:
Cut housing costs
As mentioned, housing is one of the biggest expenses that affect whether $40k would be a good salary for you.
Here are some tips for cutting housing costs:
- Live with roommates.
- Choose a more affordable housing market.
- Look into smaller homes.
- Learn house maintenance and repair.
- Reduce electricity and water usage whenever possible.
Cut transportation costs
You might not realize it, but transportation also forms a considerable part of your expenses. Cut transportation costs by following our tips below.
- Look for a remote work setup.
- Use public transportation.
- Use a bicycle or go on a walk whenever possible.
- Compare car insurance costs.
“If you can find a place that is cheaper, it will help you save, but if it's a longer route to work you'd be wasting more time and money on fuel. However, if you choose to work remotely, there's a lot that you can save on, gas, meals at home, etc.,” Martin added.
3. Build your savings
Allocating a part of your salary to savings is essential since you will need it in times of emergency. It also allows you to purchase properties and build your wealth.
Choose the right bank
Choose a bank that can offer you more than the national average savings rate.
According to Bankrate’s survey, the national average savings rate is 0.06%. Avoid banks that offer less than this rate and choose one that has a better one.
- Bask Bank and SmartyPig by Sallie Mae offer the top rate annual percentage yield (APY) at 0.70%.
- Northpointe Bank offers a 0.65% APY. However, it requires a $25,000 minimum balance for APY.
- LendingClub also offers 0.60% but requires a minimum balance of $2,500.
If you’re still slowly building your savings, check these banks, which require smaller amounts to zero minimum balance but are still within the average rate.
Consider how much you can save at $40,000 a year
If you follow the 50-30-20 rule, you can save almost $530 monthly, which amounts to $6,360 annually.
What is the 50-30-20 rule?
- 50% for needs
- 30% for wants
- 20% for savings
You can always spend less on entertainment and other miscellaneous items to have more savings, but don’t forget to reward yourself from time to time.
4. Get out of debt
“Everyone has a different situation, however, the person/people who don’t have debt outside of a mortgage need less money than those who carry a heavy debt load,” Harps said.
It might be challenging to get out of debt, but there are various ways to do it.
- Pay more than the minimum monthly payment.
- Focus on paying the obligation with the lowest balance.
- Negotiate a debt settlement.
5. Invest your money
Many people are scared of the idea of investing their hard-earned money, but it presents an opportunity to build your wealth, pay your debt, and live a more comfortable life.
So what are the steps in investing your money?
- Identify your financial goals and assess how much you’re willing to risk.
- Decide whether you want to do it on your own or ask for help from a broker.
- Choose the investment account you’ll use.
- Open your preferred account.
- Decide the investment that matches your risk tolerance.
6. Live within your means
It might be challenging to live within your means when all you’ve wanted to do is buy the things you want, but remember that preparing for the future also offers great advantages.
Here are some suggestions to help you live within your means.
- Follow your budget plan.
- Effectively track your expenses.
- Pay your debt responsibly.
- Avoid using credit cards.
- Plan your purchases.
7. Get insurance
It also makes sense to get insurance for your health, car, and house.
“Most plans are not expensive, you will be spending around $100 for all three put together if you do some serious research and choose your plans accordingly,” said Martin.
“When you aren't making a lot of money, the best thing you can do for yourself is to make sure that all your expenses are planned. You don't want a huge hospital bill coming your way or liabilities that you have to pay if you get into an accident. It would offset your financial planning at once.”
How much will you receive from Social Security at a $40k salary?
It depends on your age, but making $40,000 per year will result in approximately $1,500 monthly benefit at full retirement age.
How to figure out what your salary should be?
If $40k doesn’t seem good for you based on your living conditions as discussed above, you can work out a way to increase your income.
Below are various ways to know what your salary should be.
1. Use online tools
Now, you can do almost anything with the help of the internet, including checking if you’re paid fairly. Visit these salary calculators to discover if a company pays you reasonably:
These online platforms usually ask about your job title and company location to find out your worth as a professional. They come in handy, especially if you’re applying for a new position or negotiating a raise.
2. Talk to co-workers
Before, employees felt uncomfortable with the idea of pay transparency. But, as states passed laws that promote equal pay, more people became empowered to advocate for pay transparency.
So, another strategy to know how much you should get paid is to have a chat with your colleagues. Since they work in the same company, you can get more accurate data. We recommend asking employees who have the same job title as you.
3. Talk to your manager
After using online tools and communicating with co-workers, you can also talk to your manager regarding salary issues. Discuss professionally and stay realistic based on factors, including the company’s current state and the skill you offer.
4. Evaluate if you need additional sources or a new job
If all is well with your work and you’re being paid equally, then you may need additional sources of income.
You can look for a better-paying job or find side hustles.
Verdict: Is $40K a Good Salary?
A $40,000 annual salary is good for some states. But, living in urban areas with a high cost of living will make it difficult to budget a $40k salary.
It also depends on your lifestyle, debt, expenses, and other responsibilities in life. In general, it’s a good salary that puts you in the middle class.
Follow our tips and suggestions above to live a comfortable life even with a $40k annual income. Remember to handle your finances well and treat yourself sometimes.