Living on $40,000 a Year, Can You Do It?

Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
This post may contain affiliate links, meaning I’ll receive commission at no extra cost to you for your purchase.*

If you are a low income professional like a newer teacher, an entry level government lawyer, a police officer (or most anyone employed by a local government), $40,000 a year is a pretty normal salary. The question is, is $40,000 a year enough?

Let’s break it down.

How Much Is $40,000 a Year?

There are a few things to remember when considering how much money you’re actually making. While $40,000 a year comes out to $3,333.33 a month, taxes reduce that number immediately. Depending on where you live that reduction can be quite large.

For now we’ll just go off of the base number of $3,333.33 a month.

How Much is $40,000 a Year Bi-Weekly?

While it may be tempting to answer this question by dividing $3,333.33 by 2 we need to remember that while there are 12 months in a year, there are 52 weeks in a year, so there are 2 extra two-week periods every year.

Instead of dividing $40,000 by 24 it should be divided by 26. that means that $40,000 a year is $1,538.46 bi-weekly.

How Much is $40,000 a Year an Hour?

On the other hand, a good way to keep track of how much your time is worth is to figure how much you are making per hour. So assuming 52 weeks a year at 40 hours a week (2080 hours total), that is roughly $19 an hour.

While $19 is high for an average hourly job, keep in mind that some hourly jobs can pay between $25 and $35 an hour with much less training.

Basically, $40,000 a year is below average. (Average being around $53,000 according to the Bureau of Labor Statistics).


Is 40K a Year Good Money?

There are many ways to decide if a $40,000 salary is good money. I just said that $40,000 a year is below average, but (not to get too math class on you) it is actually above the median income. Which is about $33,000.

What this means is that more people make less than $40,000 a year than people who make more than $40,000 a year. If you make $40,000 a year you are better off than most people.

In that way, 40K a year is good money.

On the other hand, there are many factors that influence if it is actually enough. Some of the biggest factors are family and cost of living.

Can You Support a Family on $40,000 a Year?

According to MIT, the answer to that question is no. The average living wage for a family of four is about $16 an hour for two working parents ($32 an hour total between the two). For those doing the math at home, that is $13 an hour over the $19 you would be making.

But there are other things to consider.

First, are you paying for childcare?

Childcare is extremely expensive. Paying for childcare alone can take most of the money the second partner will make. Having a second working adult can be a poor money choice if there isn’t school for them to attend or a relative that your children can stay with.

Second, have you built a budget to beat the average?

All of these numbers are based on averages. If you build a budget that reduces expenses intentionally you can get closer to covering all of your expenses on $40,000 a year.

Related: How To Budget When You’re Broke

Third, are you using government assistance programs?

I know that this doesn’t really count as supporting a family on your own, but the income thresholds for a family of 4 can be actually quite high. The maximum income for Medicaid in Texas for a family of four, for example, is $51,876 (in 2020). Removing that cost alone makes it easier.

While the averages say you can’t support a family of four on $40,000 a year, it is possible with some flexibility and creativity.

Related: Should I Take Help from the Government?

Where Can I Live on $40,000 a Year?

Where you live determines how much you have to spend in many ways. This is because of changes in cost of living. Some places are just more expensive than others. If you need proof, check out the difference between housing prices in Omaha and San Francisco.

The lower the cost of living, the easier it will be to live on $40,000 a year.

I won’t go over a list of the cheapest places to live in the United States or the world, but there are plenty of places that $40,000 would go a very long way.

Instead, I will show you how you can figure out if you can live somewhere on $40,000 a year salary.

Let’s look at an example.

Is 40K a Year Good in California?

The best way to determine if you can live somewhere for 40K a year is to see how far your money would go using real numbers.

In other words, create a mock budget.

To do that, follow these steps.

First, reduce your income by your tax rate.

(You can find each state’s tax rate here).

California’s tax rate will charge you $101.56 a month or $1,218.76 a year. So your $40,000 a year is now $38,781 ish. Please remember that cities can also have income taxes, so look into that before moving there. For example, San Francisco has a 1.5% income tax (in 2020).

So each month you have $3,231 ish to work with. Not $3,333.

If you forget to factor in taxes you will get into debt trouble very quickly.

Second, Calculate Your Housing Costs

You can figure housing costs by city, but for this we’ll just look by state. The average cost to rent in California is $1,420. If you paid the average rent you would only have $1,811 left for all other expenses.

It is possible to hunt for housing a get a good deal, but keep in mind there is a reason that rent prices are quite high in California.

Third, Calculate Your Food and Transportation Costs

Since housing, food and transportation are the three biggest expenses in most budgets, it is important to tackle these first.

The cost of these can vary drastically depending on where you live, but if we follow averages, you will spend 12.9% of your income on food ($372 ish) and 15.9% on transportation ($460 ish). That leaves you with $979.

Related: How Much Should I Budget For Food?

Fourth, Figure Out How Much You Will Spend on Everything Else.

All other aspects of your budget now need to fit into $979. That includes insurance, entertainment, clothing, personal hygiene, retirement savings, travel to visit family, and more.

Fifth, Ask Yourself If You Can Live The Life You Want With That Much Money

There are ways to get around it, but $979 is not very much money for all of the extras for a small family. Especially if you are buying diapers and formula.

While government assistance is available, if you want to build wealth you shouldn’t rely on it long term. Don’t get stuck in that trap.

That being said, $40,000 a year by itself is not good money in California.

But what about somewhere else?

Is 40K a Good Salary in Texas?

California and Texas are two very different places, so they make a good extreme view without going crazy (comparing Honolulu Hawaii to Yazoo City Mississippi for example).

But even with how different it is, can you get by on $40,000 a year in Texas?

First, reduce your income by your tax rate

Texas has no state income tax. That means that you keep the full $40,000. (Not really, there are federal taxes, but I didn’t include those in California either for simplicity).

So you get to keep $3,333 each month.

Second, Calculate Your Housing Costs

Average rent for an apartment in Texas is only $917. Assuming you don’t find anything cheaper, that leaves you with $2,416 each month.

Third, Calculate Your Food and Transportation Costs

Now to be fair, I will calculate food and transportation costs based on percentages of total income because, as we’ve seen, people tend to spend what they have.

So at a rate of 12.9% that is $429 spent on food, and at 15.9% that is $529 spent on transportation or $958 total.

That leaves $1,458 for all other expenses.

Fourth, Figure Out How Much You Will Spend on Everything Else

Everything else needs to be paid for with $1,458. For perspective that is $479 more than than you ended up with in California.

But that doesn’t include the fact that somethings will cost less in Texas (which has a lower cost of living in general).

Fifth, Ask Yourself If You Can Live The Life You Want With That Much Money

Could you pay for everything else on $1,458 a month? With a little imagination, shopping at thrift stores, and creative use of rice and chicken (both of which are pretty cheap), yes you could. Even with a family of four.

Since you can cover all of your expenses, I would say that $40,000 a year is good money in Texas.

That is the power of cost of living.

Real Example of a $40,000 Salary Budget

I have lived on $40,000 a year for a young family of four. As a teacher, that salary isn’t too surprising. So I want to share with you what a $40,000 a year salary budget could look like. Please note that these numbers are all close estimates.

Income per month of $3,333, minus taxes, health insurance, and basic retirement expenses left about $2,400 a month to live on. The cut was so large due to high tax and insurance costs.

Housing cost: $1050 a month mortgage. ($1,350 remaining)

Transportation cost: $550 a month. $350 car payment, $100 in gas, and $100 in insurance. ($800 remaining).

Food cost: $300 a month. We cooked low cost meals and did not eat out often. ($500 remaining).

Utilities (including water, electricity, and internet) cost: $200 a month. We worked very hard to turn lights off, unplug unused appliances, use cheaper types of heating and cooling, etc. ($300 remaining).

Related: How To Cut Your Electricity Bill

Other Costs: We used the $300 for additional items. For us this included donation. It also included buying household items like cleaners and paying our phone bill. There was very little left over each month.

Our entertainment budget was basically zero. We rented movies from our local library and played at local parks with our kids.

Besides that, our tax refund and a small Christmas bonus covered a few additional expenses.

The budget was tight, but it was livable.

Related: 50 Frugal Living Tips

What If I Don’t Make $40,000 a Year?

$40,000 a year is a convenient middle point to work with. But if you make $30,000 a year, is it good money? If you make $70,000 a year is it good money?

The easiest way to answer that is to take the numbers that I gave and just plug in your monthly income.

In the end the question you need to ask is, Can I live on this much money? If the answer is yes, then you’ll be fine. If the answer is no, then do something about it.

Related: 10 Easy Ways to Cut the Budget

Do you think that $40,000 a year is good money? How much do you need a month to cover your expenses? Tell me about it in the comments below.

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Find a list of all the definitions used on this blog here.

Medicaid: Health insurance offered to low income individuals and families through the United States Government at no or little cost.

Cost of Living: How much money it takes to buy basic needs in a certain area. This usually increases every year because of inflation. Meaning, that it takes more money to buy what you usually buy each year because money isn’t worth as much as the previous year.

Budget: Assigning each dollar of your income to a certain role or category. Categories include housing, car, food, utilities, entertainment, and so much more. This is meant to be a tool to stop you from overspending.

Income Tax: Money taken out of your directly paycheck to pay taxes. The amount owed depends on your income.

Tax Refund: Money that is returned to you after your total tax burden is calculated because you paid more than you owed. Most people get refunds.

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