If you have just graduated from college, or you are on the hunt for a new job, you might be wondering what a good salary actually is. Most of us have to accept the salary that we are offered at most of our first jobs, and it is becoming increasingly difficult to negotiate your wage at any job that you end up getting. Gone are the days of being able to ask for a bit more pay when you are an entry-level hire!
How Much is $40,000 an hour
$40,000 a year is $19.23 an hour.
This is based on working 40 hours every week for all 52 weeks in a year (Which is about 2,080 hours)
A lot of us are told that a good job starts out at around $40,000, but there are some questions that we need to ask before we just assume that this is a good goal to have in mind for a salary that will take care of our needs long-term. The cost of everything from gas to food just keeps going up and these kinds of generic statements about income do not take into consideration your cost of living or other local factors that might be in play.
Let’s talk a little bit more about what a salary of $40,000 needs to cover.
Is $40,000 a Good Salary?
According to the Bureau of Labor, the median salary in the US at this time weekly is $894 for women and $1072 for men. While this might sound great on paper because these numbers work out to more than $40,000 a year, you need to consider that these numbers are talking about gross salary before taxes and health insurance, and a myriad of other fees are taken out of your paycheck.
There are many things that a paycheck needs to cover and many factors that might make this much less than an adequate income. Let’s take a look at some considerations that you will need to keep in mind.
1. Cost of Living
This is the biggest factor that you need to think about when you are considering whether a salary of $40,000 is a good salary or not. Places in the US like Alaska and Hawaii are often slightly more expensive to live in due to the cost of food, gas, and other necessities. Alaska price indexes are up by 1% this year already and could go up more as the cost of fuel continues to rise. Even places in the middle of the country are experiencing a steep rise in the cost of living, making them far more expensive to reside in than ever before.
As inflation and other regional factors shift and change, your salary can cover an increasingly small amount of your daily costs. It is easy to do some research into the cost of living in your current area, or the location that you might be moving to in order to start getting your $40,000 a year, and you should do that research before you take the job.
2. Cost of Rent
This is another major factor that people do not always factor into their considerations about the amount of their income that will have to be given away each month in bills. The cost of rent in some areas like cities, or towns that have high demand and low numbers of rental properties, can eat away at any good salary quite quickly.
If rents in your area are cheap, $40,000 a year might cover your living costs quite adequately. However, if you are trying to find an apartment in San Francisco or New York, that $40,000 will be spent mostly on your rent each year without leaving much room for food and other expenses.
While it might be tempting to take this job and just find a small and less desirable place to live, remember that you were probably planning to keep this job for longer than a year. You may not want to live in a tiny, cramped apartment for that long just to have a job that makes $40,000 a year.
3. Make a Budget and Compare
The key thing that you need to do when looking at whether or not $40,000 is a good income, is to make a budget of your current costs and then make a budget for the costs that you will need to plan for if you are relocating to take this job. Now that you have these numbers in front of you, you need to total up your monthly cost and see if the actual monthly salary of this job will cover them.
Remember to take out 25% of your income each month for taxes. Armed with the real take-home pay of your $40,000 each month, we can assess if you are actually going to have enough money left over to pay bills. And more than that, you need to consider if you will have any money left over to go into savings for emergencies.
Be sure to be realistic about your actual costs and budget high for each item. You should never budget low when you are comparing these numbers, or you could easily find that the job that you moved across the country for does not cover your needs for food, medical visits, or emergency car repairs.
4. Think About Debts You Need to Pay Off
This is another consideration that people do not always think about when they are considering whether $40,000 is a good annual salary. Any credit card debt, car loans, or other debts need to be figured into your monthly expenses and your budget. If you have forgotten to leave out these debts, you might find that suddenly your leftover monthly income is gone just to pay these bills.
It is a good rule of thumb before you consider a move or another major change like a job change, to attempt to pay off as much debt as you can first. Being able to keep more of your take-home pay to put it into savings is a good rule of thumb when you move to a new place or take a new job. You never know what will happen in your life and being able to have some money saved up will help cushion the blow if your new job does not work out or if you have unexpected moving costs to pay.
The Right Salary Needs to be Paired with the Right Budget
At the end of the day, while $40,000 is a great salary/living wage in many parts of the country, your own unique situation might mean that it is not enough money to live on. The only way to be sure that this is enough money for you to live on is to create a budget and then compare the realistic monthly income from $40,000 against your costs.
No matter what salary you are considering accepting from a job you apply for, you will need to be sure that you can cover your cost of living and your monthly bills before you take the job. A good annual salary can be very different to different people.