# \$40000 A Year Is How Much An Hour? And Is It A Good Salary?

## How much money do you make per hour earning a \$40,000 a year salary?

Depending on where you’re at in your life, \$40,000 per year can sound like a pretty attractive income. If you’re looking for a new career opportunity that pays a \$40k salary, you might be wondering how this compares to the jobs you’ve had in the past that paid an hourly wage.

Or, perhaps you’ve got a few side hustles going that bring in \$40k/year, and you want to know how much your average hourly income is.

In this post, I’ll go over:

• Breaking down \$40,000 into hourly, daily, weekly, and monthly wages
• The lifestyle you can afford with a \$40,000 salary
• What \$40,000 looks like after taxes
• Where you can retire on a \$40,000 income
• What jobs make \$40k per year
• How to budget a \$40,000 salary
• How you can successfully build retirement savings making \$40k/year
• Plus much more!

First, let’s answer the question \$40,000 a year is how much an hour?

With a \$40,000 annual salary, your hourly wage would be \$19.23/hour.

This calculation assumes that you are paid 52 weeks out of the year and you have a 40-hour work week:

\$40,000 ÷ 52 weeks = \$769.23/week
\$769.23/week ÷ 40 hours/week = \$19.23/hour

This might sound more than acceptable to you, considering the average hourly earnings for all U.S. employees in October 2021 was \$11.19. It’s also 26% more than the highest U.S. minimum wage (\$15.20, Washington D.C.).

Of course, if you’re actually working more hours, your hourly salary would be less. And, if you happen to be working fewer hours, your hourly salary would be more.

For example, if you work 60 hours a week between 2 jobs that generate \$40,000 a year, your average hourly rate would be:

\$769.23 ÷ 60 hours = \$12.82/hour

Or, if you only work 30 hours a week but still pull in \$40k a year, your average hourly rate would be:

\$769.23 ÷ 30 hours = \$25.64/hour

Later, I’ll explain how you can increase your hourly rate, as well as other important factors to consider besides your hourly wage. Such as, what does earning \$40,000 per year mean for you and your lifestyle?

Let’s take a look at a few other common questions in regards to earning a \$40,000/year salary.

## \$40,000 per year is how much income per day? Per week? Per month?

Now that you know how much \$40,000 a year is an hour, let’s look at a quick breakdown of this annual salary.

Assuming that you maintain a standard work week (40 hours), this equates to:

• \$19.23/hour × 8 hours/day = \$153.84 daily
• \$153.84/day × 5 days/week = \$769.20 weekly
• (\$769.20/week × 52 weeks/year) ÷ 12 months = \$3,333.20/month

If your job issues paychecks as a biweekly salary, then you could expect your average paycheck to be about \$1,538.

However, this number might fluctuate slightly depending on things like days off, holidays, any overtime that you work, longer vs. shorter months, etc.

And, of course, these numbers are calculated before taxes are taken out. Let’s look at how income tax and other deductions can affect your gross income.

## A \$40,000 annual salary is how much after taxes?

Federal and state taxes will significantly reduce your \$40k salary. But, by how much? That depends on a number of factors, including your tax bracket, filing status, and where you live.

Here are a few calculations based on filing as a single individual to give you a ballpark:

 As of 2022, a \$40,000 salary would put you in the 12% tax bracket. For the first \$10,275 of your income, you would pay 10% federal income tax: 10,275 x 10% = \$1,027 For income over \$10,275 and under \$41,775, you would pay 12% federal income tax: [(\$40,000 – \$10,275) x 12%] = \$3,567 So, your total federal income taxes owed for 2023 would be: \$1,027 + \$3,567 = \$4,594

But what about deductions, Medicare, Social Security, and other tax-favored contributions?

Here is one scenario that applies the standard deduction, FICA, and a 10% contribution to a 401(k):

But what about state taxes? Of course, this depends on what state you live in.

For those states that tax income, you could pay anywhere from 1.10% (North Dakota) to 7.9% (Hawaii) for a \$40,000 income.

If you want to cut your tax bill, consider living in one of the nine states that don’t collect income tax. This includes Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, Tennessee, and New Hampshire.

If you normally file under a different status, check other current tax brackets here.

## Can most people live off of \$40k per year?

As long as you have a handle on your budget and are good at controlling your spending, then \$40,000 should be plenty to live on.

Of course, your lifestyle on a \$40,000 salary greatly depends on how many expenses you have.

For example, if you have a family of four and a mortgage, then \$40,000 will need to stretch much further than if you’re a single person and only need to take care of yourself.

The same is true for which part of the country that you live in. A \$40,000 salary in the midwest will go much further than in expensive cities like San Diego or San Francisco, where the cost of living is much higher.

Considering that your personal finance choices are entirely up to you, having financial freedom and stability is definitely attainable earning \$40k a year. You just may have to make some major lifestyle adjustments or sacrifices to get by.

Although most people can live on a \$40k salary, you may be wondering how it compares to other salaries. Let’s visit that next.

## Is \$40,000 a year a good income?

According to Policy Advice, the average annual salary for 2019 in the United States was \$51,000 and the median total household income was \$68,000.

According to this figure, \$40,000 is significantly less. However, keep in mind that averages can be skewed by outliers on either end of the spectrum (e.g., top executives who earn millions of dollars will pull the entire average up significantly).

Regardless of your annual income, it’s important to remember that your salary is completely relative. Whether or not you consider \$40,000 a decent salary depends a lot on your circumstances.

If you’ve just graduated from college or you’re re-entering the workforce after taking care of the kids for a few years, \$40,000 is definitely a good starting point. Also, if you’ve never worked a corporate job before and got offered a \$40,000 salary for your first job then you’re doing pretty good!

On the other hand, if you’ve been working in the same position for years, have tons of experience, and work 80 hours per week then you should probably try to negotiate something a little higher.

It’s also important to note that, at the end of the day, your salary is just a number and you shouldn’t make any decisions based solely on a monetary figure.

Before accepting a job, you should consider what your work/life balance will be, who you’re working with, and if you find the type of work fulfilling. These are all much more important questions than how high is the salary.

## What lifestyle can you afford making \$40k a year?

After you’ve secured a job that will pay you \$40,000 per year, you may wonder what kind of lifestyle you can expect.

For most people, a \$40,000 per year salary is not going to be life-changing money. Earning this type of income will probably not be enough to buy the house of your dreams or put you in a position to never worry about money again.

That being said, \$40,000 is definitely enough to have some extra cash and provide you with a comfortable life – if you’re willing to be flexible.  You can definitely meet all of your financial obligations if you choose a low-cost area to live in, stay out of debt, and minimize your expenses.

If this is something you’re struggling to do with a lower income, then earning a \$40,000 annual salary might provide some much-welcome financial relief.  When you have a job with an income that allows you to live below your means, you’ll feel more secure about your finances.

## What mortgage can you afford on \$40,000 a year?

Determining how much house you can afford with a \$40,000 salary depends on several factors, such as:

• interest rate
• credit score
• cost of property taxes and insurance
• location
• amount of your down payment

However, there are 2 basic ratios that most banks will use to determine your ability to make mortgage payments. Both ratios combine to create what’s called the 28/36 rule. Let me explain what these numbers mean.

First, banks will consider what’s known as the front-end ratio, which is the total of your monthly housing expenses (mortgage payment, PMI, property taxes, and insurance) divided by your gross monthly income.

Most banks consider 28% to be the ideal maximum threshold for the front-end ratio. So, with a \$40k salary, this would equal (40,000 / 12) x 28%, which calculates to \$933/month. Again, this amount should cover your total monthly mortgage payment.

Secondly, there is also the back-end ratio, also known as debt-to-income (DTI), that is used to determine how much house you can afford. This calculation adds your minimum monthly debt payments (credit card debt, student loan debt, medical bills, etc.) and divides that total by your gross monthly income.

Most banks prefer your debt-to-income not to exceed 36%. The max DTI for a \$40k salary would then be (\$40k/12) x 36% = \$1200/mo.

So, if your mortgage payment was \$933/month, the remainder of your total monthly minimum debt payments could not exceed \$267 (1,200 – 933).

You can use this information, together with your unique circumstances based on the factors listed above, to get a good idea how much house you could afford with a \$40k salary.

Of course, the higher your credit score, lower your annual interest rate, and greater your down payment, the more money you’ll qualify for with a mortgage.

## What’s a good monthly budget for a \$40,000 salary?

A simple way to set a solid budget is to focus on your monthly spending. Creating a 30-day spending plan will give you a better view of trends over time.

Here is a budget breakdown (using the zero-sum method ) that you can use to stay on top of your own income and expenses with a \$40,000 salary. (Of course, there are other budgeting methods you could use, such as the 50-30-20 budget model, or the envelope system.)

Let’s use the net income we calculated previously after income taxes and retirement contributions (\$30,380). This would come out to approximately \$2,532 a month.

This is just a general template to budget your income.  You may need to make adjustments by adding and subtracting expenses that are more relevant for you or that aren’t included above.

The main idea is to figure out exactly how much money you’re making (listed at the top) for the month. Then, go through and allocate a realistic amount you can spend in each budget category.

If you get your balance to zero after all expenses are accounted for, then you’re maximizing your income by giving every dollar a place to go and minimizing wasted spending.

Once you have everything written down, you’ll find that you’ll have a more accurate idea of how much money is coming in and out each month. It will also show you where you need to cut expenses or boost income.

Remember that lowering your cost of living is just one way to save money. The other is to increase your income. If you’re able to add more money under the green income line then you can also increase spending under the two expense lines.

As long as you maintain a cost of living that is less than your total income and also includes a savings category then you’re doing well!

If it doesn’t then that means you’re spending more than you earn each month, which you should try to resolve as soon as possible. The best way to do that is by either cutting living expenses or finding another source of income.

This brings us to another very common question.

## How can I save money making \$40,000 a year?

If boosting your salary or adding a source of side income are not options for you, then the best way to save money and increase disposable income is to focus on minimizing your expenses, particularly your variable expenses.

When it comes to your budgeted expenses there are two main types you must account for on a monthly basis:

1. Fixed expenses:  These are things that you need to spend money on each month and the amount rarely changes. The rent, your cell phone bill, insurance, and taxes are all good examples of a fixed expense because it’s rare that these expenses fluctuate on a monthly basis.
2. Variable expenses:  The majority of your expenses are variable expenses. This means that they fluctuate month to month. A few examples of variable expenses are new clothes, food, or entertainment. These can change drastically on a daily or weekly basis depending on your decisions.

To improve at saving money, it’s important to track your spending. To do this, you can either download a good budgeting app or simply scroll through your bank statements to look at your spending over the last few months.

Also, most banking apps will automatically categorize your expenses and track your spending for you.  Easy peasy!

Your banking app will also give you a quick snapshot of what your biggest expenses are and the areas where you can limit your spending the most. Additionally, many of these apps will track your spending for several months so that you can compare them over time and see if you’re improving.

Tools like this are invaluable when it comes to properly managing your finances.

## How can I increase my hourly rate making \$40,000 a year?

So far, we’ve only considered what your hourly wage would be if you worked 52 weeks a year and 40 hours every standard work week.

However, if you get a job that pays for 2 weeks of vacation time and gives you 10 paid holidays, your hourly rate would be higher.  Here’s how:

52 weeks x 5 days per week = 260 working days in a year

260 days – 14 paid vacation days – 10 paid holidays = 236 total working days

\$40,000 ÷ 236 working days = \$169.49 a day

\$169.49 ÷ 8 hours = \$21.19/hour

These benefits will increase your hourly rate by \$1.96/hour (\$21.19 – \$19.23).

Another scenario is having an online business that generates a \$40,000 annual income from only 20 hours of invested time each week:

\$40,000 ÷ 52 weeks = \$769.23/week

\$769.23 ÷ 20 hrs = \$38.46/hour

So, you see, calculating your cost of time depends on how much time you’re actually spending on your job. If you can spend less time and maintain the same income, you increase your hourly rate.

But, why is this important to know?

## Why it’s important to convert \$40,000 into an hourly wage (time value)

As the saying goes, time is money. But, do you know how much yours is worth?

Calculating your average hourly wage will give you the “opportunity cost” of your time – a benchmark to help you make decisions when it comes to financial opportunities.

For example, if you decide to start a consulting business on the side, you don’t know in the beginning how much income it will generate over the next year. But, if you know how much an hour of your time is worth, then you can easily determine what to charge for your services.

On the flipside, if you decide to start a business completely unrelated to your regular job (like, you’re an accountant but want to start a dog walking service), you may initially charge less than your normal hourly rate. So, if you charge \$15 per hour for your side gig, but your career wage is \$20 an hour, then the opportunity cost you’re taking on is \$5/hour.

Let me give you one more example that hits close to home for me.

I am a substitute teacher for a couple of high schools in a local district. A full day is 7.5 hours, but I get at least one 1.5 hour planning period plus a 30-minute lunch. This means that out of 7.5 hours, I’m only working 5.5 hours (as a substitute, I have nothing to plan!). Each day I make \$180, which comes out to \$32.73 per working hour.

If I were a full-time teacher, I would start at \$40,000 a year (because I have a Master’s). However, I would be required to work 1,080 hours in one school year. But, I’d probably spend an average of two more hours at home after school grading papers, making lesson plans, communicating with parents, etc. Adding 10 more hours a week to my working hours, this would equal 1,480 hours over one school year.

If I divide \$40,000 by 1,480 hours, I would realize I’m only making about \$27/hour.

So, even though my paycheck would be more as a teacher, I’m actually making less than I do as a substitute when I consider the opportunity cost of my time.

## What careers make \$40k a year?

If a \$40,000 salary is a goal that you’re hoping to achieve, then you might be interested in knowing what available career options there might be. Luckily, there are plenty of jobs that will pay you \$40k a year that have fairly low barriers to entry (meaning you don’t need an advanced degree).

The following options for some of the best jobs that pay \$40,000 per year come from the U.S. Bureau of Labor Statistics. None of these listed require extensive education:

Your best strategy for securing a \$40,000 per year salary would be to work backward.

First, go on a job search for a position you’d be interested in that offers a \$40,000 yearly salary. Then, learn what the requirements are and start doing the work to fulfill them. Once you have most of the requirements, you can start applying.

If you aren’t feeling immediate financial pressure to earn more money, then I would suggest pursuing something that you’re passionate about. It may take more time, but putting your efforts toward earning money with something you greatly enjoy doing will bring more personal fulfillment in the end.

## Where can you retire on \$40k per year?

For the late savers who are concerned about retiring on time, you might be wondering where you can retire on \$40,000 a year.

You’ll be glad to know that plenty of people enjoy a comfortable retirement with this level of income, even with getting a late start to their savings. Thankfully, there are several viable options where you can comfortably support yourself with this income.

AARP Magazine published a 2018 article listing 10 cities to retire in for under \$40,000:

• San Marcos, Texas
• Alton, Illinois
• Canandaigua, New York
• Munhall, Pennsylvania
• Gulfport, Florida
• Guthrie, Oklahoma
• Coralville, Iowa

These locations offer median home values between \$80,000 and \$300,000, as well as a variety of retiree-friendly activities.

If you’re retiring with a partner or spouse then you might have two incomes to work with. Even increasing your income by \$20k a year would open up a lot more choices for you.

Also, if your retirement investments can support a \$40,000 annual withdrawal, your social security benefits may add a considerable amount to your monthly budget. This additional income will give you more location options to choose from.

Lastly, keeping an easy part-time job after you retire from your career will only help strengthen your financial security.

The bright light for the late saver is that there are plenty of good possibilities that allow for a comfortable retirement with only a modest income.  The priority now is to save as much as you can, as quickly as you can, so you can support yourself throughout your retired years.

But, how much would you need to save?  That’s the next topic we’ll cover.

## Savings you’ll need for a \$40k/year retirement

If you think you’d be happy living on \$40,000 a year in retirement, then you’ll need to set a savings goal that will generate this income by the time you retire.

Although figuring out how much you need to save for retirement depends on many personal circumstances, there are a few specifics that everyone should consider:

1. Expenses in retirement
2. Earnings on investments
3. Annual withdrawal rate
4. Estimated life span

You can control #1 and #3, but #2 and #4 depend on external factors. This is why it’s important to revisit your retirement plan at least once a year as you get closer to your retirement date to make any necessary adjustments.

A \$1 million dollar nest egg will give you \$40k/year for 30 years if your savings never grows or diminishes.

However, this is not a realistic scenario.  More than likely your savings will earn an average return between 5% – 10% over 30 years, depending on your investment mix and risk tolerance.

As an example, let’s assume your savings will earn an 8% average rate of return throughout your 30-year retirement.  If you can limit your annual expenses to \$40,000 and maintain a withdrawal rate of 4%, then you’ll only need to build a nest egg of \$656,000 by the time you retire.  (This assumes a 3% rate of annual inflation.)

Here is a screenshot of this calculation from MyCalculators.com.

This calculation doesn’t even consider social security benefits, so if you expect to receive this additional income then your nest egg will need to be even smaller.

Let’s say your social security benefits will be \$2,000 a month.  This means you only need to withdraw \$16,000 a year from your retirement fund to generate a \$40k/year income.  With this reduced withdrawal and using the same previous assumptions, your savings only need to total \$393,000 at the time of retirement.

All of these scenarios assume that you want to live on 100% of your pre-retirement income of \$40,000 a year.  However, many personal finance advisors suggest a target retirement income that replaces approximately 80% of your current income.

If you were able to cover all of your pre-retirement expenses on a \$40k salary, then you’ll likely only need \$32,000 a year (80% of \$40k) in retirement.

This, of course, makes your nest egg requirement even less.  To generate a \$32k/year retirement income over 30 years, with an 8% rate of return, 3% inflation, and a \$2,000 monthly social security benefit, you only need to save \$131,118!

For the late saver, this should be an attainable goal.  All you have to do is save \$313 monthly for 15 years and get an average rate of return of 10%.

## In conclusion

In the end, it’s up to you to decide if a \$40k salary will meet your financial needs.  The good news is, making a \$40,000 annual income can provide you with a comfortable life before and during retirement.  You just need to determine if you’re willing to make the choices that allow you to live within the lifestyle it can support.

Whether you’re a late saver or not, the safest strategy is to save as much as you can, as quickly as you can, for as long as you can.  The more you have in savings earning compound interest, the stronger your financial stability will be throughout retirement.

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