The key to comfortable living is making sure that your income considerably outweighs your expenses every month. Could that happen if you earn $40,000 per year? In other words, is 40k a year good?
It’s hard to say, as there are a number of different factors at play. So, let’s take a look at this in more detail to help you determine whether 40k will be enough for you.
Is 40k a Year Good Enough for Living?
In 2020, the average yearly wage in the United States was $56,310, which means $40,000 is well below what the majority of people receive in this country.
However, this doesn’t necessarily mean that you won’t be able to make a decent living if you earn that salary. That will depend on different factors. For instance, whether or not this will be your household’s only income. Do you have a partner who will be contributing? How much and for how long will you get money from other sources?
But, let’s say that 40k is the only income you’ll have, is it enough?
Can I Live Comfortably Making 40k a Year?
Another factor that comes into play is the cost of living in your area. For example, the average monthly rent in California is $2,518 whereas in Alabama, the number goes down to only $998 on average. Therefore, it’s more likely that you can live comfortably with a 40k salary in Alabama rather than in California, where you would have to boost your total annual income with extra work.
To understand what the costs of living in your local area are, start by running a simple budget. List and add up all your usual expenses — e.g., groceries, rent, utilities, transport, clothing, etc. — and see if $40,000 a year (or $3,333 per month) is enough to cover everything.
If you’re planning on moving to a new location, or if you’re a young adult who has only just started working, you probably don’t have much data to go off of, but you still can do some quick research online to figure out the typical costs in the area that you’re interested in.
If it helps, the most affordable states in the country are Arkansas, Indiana, Kansas, Oklahoma, and Tennessee. Furthermore, the best cities where you can live on a 40k salary are probably San Marcos (TX), Alton (IL), and Canandaigua (NY).
Is $40,000 a Year Middle Class?
That’s a tricky question — especially since there’s no consensus on what exactly middle class entails — but let’s break it down.
Some sources say a middle-class salary is one that’s above the median household income by at least two-thirds yet doesn’t double it. Under that definition, and considering the median household income in the US was $79,274 in 2021, then $40,000 a year is definitely not middle class.
However, other sources point out that a middle-class salary varies depending on the number of people who rely upon that income. For instance, a middle-class wage can be anything between $26,100 and $78,200 for a single person, but a household of four would need a $52,200–$156,500 annual income to be considered middle class. Therefore, for someone who has no dependents, $40,000 a year is probably enough — but is 40k a year good for a family? Not so much.
Finally, additional sources claim that anyone who is financially stable in the place where they live can be considered middle class. So, if you live in Alabama, you could live comfortably with a 40k salary, but you’d need to earn more than $100,000 a year to enjoy middle-class perks in Hawaii.
Can You Buy a House Making 40k a Year?
It depends on how you intend to purchase it. Nowadays, there are down-payment assistance programs and low-down-payment loans, which have made homeownership more accessible. So, purchasing a property with a $40,000 annual income is possible. However, mortgages can be tricky. Whether or not you are approved for one will depend on multiple factors — namely, the front-end ratio.
Whenever a financial institution checks out your loan application, they will project the housing costs associated with the property that you want to purchase. Then, they’ll divide this amount by your total monthly income (that’s the front-end ratio) and make sure that the resulting figure is below 28%.
So, how likely is it that you get approved if you earn $40,000 per year? In other words, is 40k a year a good salary if you intend to get a mortgage?
Following that 28% rule, your total housing costs — e.g., homeowner’s insurance, PMI, property taxes, and mortgage payments — should not go over $933 per month.
This is easier to achieve in the Midwest. For one, the median home price in that area is around $203,700, whereas the average sales price of new homes in the country in 2021 was around $408,000. Furthermore, states like Mississippi and Florida have the highest mortgage denial rate (more than 25%), whereas North Dakota’s rate is just slightly above 10%.
As you see, the Midwest is probably your best bet with a 40k salary.
So, is 40k a year a good salary for a single person?
It’s not the best, but it could be enough if you’re just starting out and don’t have any serious financial commitments. Ultimately, it depends on the expenses you face on a monthly basis and your level of experience in the job.
Of course, we also recommend that you do some digging within the industry to make sure the salary they offered you is fair.
Is 40k a year good pay?
Generally speaking, a salary of $40,000 per year is considered below average in the US. However, whether or not this is good pay depends on the cost of living, your chosen career, and your level of experience. For instance, $40,000 may be sufficient for a young adult, but is 40k a year good for someone who has plenty of years of experience in their field and a family to support? Probably not.