Can You Live on $40,000 a Year? – Dollarsanity

You’re scouring the job postings, searching for that perfect job. 

You see a job that catches your eye. You think you’d be perfect for the position. The job description says it pays $40,000 per year. 

That sounds like a pretty good salary.  But how do you know how much $40,000 per year is how much an hour? 

Is that an amount you can live well on or are you going to be broke? 

Before you accept that job offer, it’s important to understand just how much $40,000 per year really is.

MORE: 10 High Paying Jobs with No Experience Required

Let’s break down how much $40,000 per year equates to

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)

These numbers look pretty good, right?! 

Well, there’s one catch:  these are what you’d make before taxes, and we all know that Uncle Sam has to get his share of our pay, so you have to take taxes out of your paycheck to get to your “real” take-home pay. 

I always figure on 25% of gross pay will go towards taxes.  This amount is an estimate and it could be higher or lower depending on what state you live in and the number of exemptions you selected. 

So with taking out 25% for taxes, here’s what you’ll NET on 40,000 per year:

19.23 x 25% taxes = 4.80 for taxes.  19.23 -4.80 = 14.43 Net Per Hour.

152.84 x 25% taxes = 38.21 for taxes.  152.84 – 38.21 = 114.63 Net Per Day.

769.23 x 25% taxes = 192.30 for taxes.  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

 Keep in mind you’ll always have to pay Federal taxes but if you live in one of the states that don’t tax wages, you won’t have to worry about losing some of your hard-earned money to the state tax man. 

Here are the states that don’t tax wages. If you don’t currently live in one of these states and you’re looking to move, you may want to check into one of these states that don’t tax wages:   Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee.

Is $40,000 A Good Salary?

Well, the answer is, that depends.  It depends on a few factors. 

The number one thing to take into consideration when considering if 40,000 is a good salary is the number of people in your household that you’re supporting. 

Supporting a couple obviously costs less than supporting a family.  Another thing to take into consideration that may not be so obvious is where do you live? 

Another important factor to take into account when evaluating a salary is your location.  

You may not have considered the fact that some cities are more expensive to live in than others.   

The cost of living in Florida is going to be a lot less than what you’d have to pay to live in a big city like New York City. 

For my husband and me, $40,000 is less than what we’re spending today, but if we had to make it on $40,000 we could cut back on expenses and be just fine.  

Here’s what our budget would look like on $40,000 per year or $2500.00 per month.  Keep in mind the most important thing I think a person can do is to save money! 

Whether you’re saving for retirement, saving to build up your emergency fund or saving for a rainy day, just stash money away every month. 

This is why I list savings at the top of my budget.  And, I always try to save a minimum of 15% of take home pay. 

 This budget shows how to save 15% and still be able to pay for day to day life

Here is the same $2500.00, this time budgeted for a family of 4:

• Housing:  $800
• Savings:  $225
• Car Pymt:  $200
• Utilities $200
• Insurance:  $200
• Phone:  $50
• Food:  $400
• Personal:  $250
• Entertainment:  $175

The biggest difference here in the family budget is a slightly lower savings rate, a slightly lower entertainment budge and a higher food budget.

So you can see that $40,000 per year is a livable wage for couples or families. 

That said, you’ll have to be on top of your money game to make it work.  I’d recommend setting up a simple budget so you can track your expenses every month to make sure you don’t overspend. 

Also, you’ll definitely want to make sure you save money each month. 

Putting money away regularly is the single most important thing you can do for your financial future. 

Why Is Saving So Important?

Simply put, there’s absolutely nothing like the power of compound interest. 

You’ll want to start saving as early as possible and as much as possible to let your money multiple via the magic of compound interest. 

According to US News and World Reports, they have some nice studies showing the power of saving only $5 per day and after 40 years, you’ll have $400,000.00. 

Increase the amount to $15 per day and you’ll have a cool 1 Million dollars after 40 years.  I know some people will read that and think “but it’s going to take so long!   

And that’s true, 40 years is a long time, but the way I look at it, those 40 years are going to go by one way or another. 

So, whether you choose to save over those years, in the end, 40 years will still have gone by.  So you may as well use that time to your advantage and save!!   And, you should bump up your savings rate anytime you can. 

How Do You Increase Savings?

Create A Budget And Stick To It

If you have a monthly budget, you have power over your money and your money is working for you.   

If you get a raise, the amount budgeted for savings goes up.  If you pay off a bill, that expense goes away and you can decide where you’ll put that money going forward. 

It’s so great to see exactly where your money goes each month and there’s no better feeling than knowing this is YOUR budget and YOU are in control.  And, since you’re in control, you can change your budget anytime!

Try a side hustle

There are a million ways to make extra money.  With the plethora of online jobs these days, many times you don’t even have to leave your house to pull down extra cash. 

I’ve had a lot of different side jobs over the years and while I haven’t loved every one of them, I have learned something from each of them and have met some really nice people.  And, I get paid!  So even if I don’t totally love the job, as long as I’m learning and getting paid, it’s a win in my book.

Raises or Anytime you get a raise or a bonus, put that amount into your savings.  You never had that extra money before so pretend you don’t have it now.  You’ll never miss it!  The same goes for cash gifts on your birthday or at Christmas time.

Wrap Up

So now you can feel confident that you know exactly how much 40,000 per year is and whether that’s a good salary for you and your family.  

If you don’t think you’ll be satisfied with earning 40,000 per year, you can always take on a side gig to help increase your income.  However,  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 a family on  $40,000 per year.