You browse the job postings in search of the perfect job.
You see a job that catches your eye. You think you’re perfect for the position. The job description says he pays $40,000 a year.
That sounds like a pretty good salary. But how do you know how much $40,000 a year is how much an hour?
Is that a lot you can live off comfortably, or will you be broke?
Before you accept that job offer, it’s important to understand how much $40,000 a year really is.
Let’s break down how much $40,000 a year equals
40,000 per year = 19.23 per hour (40 hours per week)
40,000 per year = 153.84 per day (8-hour day)
40,000 per year = 769.23 per week (52 weeks per year)
40,000 per year = 3,333.33 per month (12 months per year)
Those numbers look pretty good, don’t they?!
Well, there’s a catch: That’s what you’d make before taxes, and we all know Uncle Sam needs to get his share of our paychecks, so you need to deduct taxes from your paycheck to get to your “real” paycheck come house money.
I always calculate that 25% of the gross salary goes to taxes. This amount is an estimate and may be higher or lower depending on the state you live in and the number of exemptions you select.
So if you take out 25% for taxes, at 40,000 per year you get NET:
19.23 x 25% tax = 4.80 for tax. 19.23 -4.80 = 14.43 net per hour.
152.84 x 25% tax = 38.21 for tax. 152.84 – 38.21 = 114.63 net per day.
769.23 x 25% tax = 192.30 tax. 769.23-192.30 = 576.93 net per week.
3333.33 x 25% taxes = 833.33 for taxes. 3333.33-833.33 = 2500.00 net per month
Remember that you will always have to pay federal taxes, but if you live in one of the states that don’t tax wages, you don’t have to worry about losing some of your hard-earned money to the state tax officials.
Here are the states that don’t tax wages. If you don’t currently live in one of these states and plan to relocate, you may want to check into one of these states that do not tax wages: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee.
Is $40,000 a good salary?
Well, the answer is, it depends. It depends on a few factors.
The most important thing to consider when considering whether 40,000 is a good salary is the number of people in your household who support you.
Supporting a couple obviously costs less than supporting a family. Another thing to consider that might not be so obvious is where do you live?
Another important factor to consider when evaluating a salary is your location.
You may not have considered that some cities are more expensive to live in than others.
The cost of living in Florida will be much lower than what you would have to pay to live in a big city like New York City.
For my husband and I, $40,000 is less than what we are spending today, but if we had to make it with $40,000 we could cut spending and it would be good.
Here is what our budget would look like at $40,000 per year or $2,500.00 per month. Remember, the most important thing I think a person can do is save money!
Whether you’re saving for retirement, saving to build your emergency fund, or saving for the bad times, just save money every month.
Because of this, I list savings at the top of my budget. And I always try to save at least 15% of my salary.
This budget shows how you can save 15% and still pay for everyday life
Here’s the same $2500.00, this time budgeted for a family of 4:
Accommodation: $800 Savings: $225 Auto Pymt: $200 Utilities $200 Insurance: $200 Phone: $50 Food: $400 In person: $250 Entertainment: $175
The biggest difference here in the family budget is a slightly lower savings rate, a slightly lower entertainment budget, and a higher food budget.
So you can see that $40,000 a year is a livable wage for a couple or family.
That means you have to be in control of your money game for it to work. I would recommend setting up a simple budget so you can track your spending each month to make sure you aren’t overspending.
Also, you should definitely make sure you’re saving money every month.
Putting money aside on a regular basis is the single most important thing you can do for your financial future.
Why is saving so important?
Simply put, there is absolutely nothing better than the power of compound interest.
You should start saving as early as possible and as much as possible to multiply your money through the magic of compound interest.
According to US News and World Reports, they have some nice studies that show how much energy it takes to save just $5 a day and in 40 years you’ll have $400,000.00.
Increase the amount to $15 a day and after 40 years you have a whopping $1 million. I know some people will be reading this and thinking, “but it’s going to take so long!
And that’s true, 40 years is a long time, but the way I see it, those 40 years will pass anyway.
No matter if you save in those years, in the end 40 years have still passed. So you can also use this time to your advantage and save!! And you should always increase your savings rate.
How to increase savings?
Create a budget and stick to it
When you have a monthly budget, you are in control of your money and your money is working for you.
If you get a raise, the budgeted savings amount will increase. When you pay a bill, these costs are eliminated and you can decide where to put the money in the future.
It’s so great to see exactly where your money is going each month and there’s no better feeling than knowing that this is YOUR budget and YOU are in control. And since you’re in control, you can change your budget at any time!
Try a side hustle
There are a million ways to make extra money. With the plethora of online jobs these days, you often don’t even have to leave your home to earn extra money.
I’ve had a lot of different side jobs over the years and while I haven’t loved every one of them, I’ve learned something from each one and met some really nice people. And I get paid! So even if I don’t really love the job, as long as I’m learning and getting paid, it’s a win for me.
Salary increases or Every time you get a salary increase or a bonus, put that amount in your savings. You’ve never had that extra money, so pretend you don’t have it now. You will never miss it! The same applies to gifts of money for birthdays or at Christmas time.
So now you can rest assured that you know exactly how much 40,000 a year is and if that’s a good salary for you and your family.
If you don’t think you’ll be happy with an annual salary of 40,000, you can always take a part-time job to increase your income. With my sample budgets
I think you’ll see that with careful planning and sticking to a budget, it’s possible to support a couple or family with $40,000 a year.
A financial services professional with over 20 years experience, SJ writes about money and budget for US travel at theprosperousblonde.com. Her passion is exploring the USA and she specializes in easy ways to save money so you can travel to the USA more often. And she shows you how to do it without breaking the bank! Follow her on Twitter at @theprosperousb1. When she’s not writing, she’s planning her next trip. Her current favorite travel destinations are Sedona, New Orleans, NYC (always!!) and anywhere that has a music festival.