Can You Actually Live on $40K?

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SPEAKER_00 0:07

Welcome to Money Talk for Real, a podcast where we talk about making money, spending money, and everything in between. I'm Nick, and in this episode, I want to talk about can you actually live on $40,000 a year? Plain and simple. Not survive for a month, not barely just scrape by kind of temporarily. I mean, can you actually live? Can you actually pay your bills? Can you actually eat? Can you drive? Can you maybe save a little bit? Can you maybe even enjoy life occasionally? Because depending on where you live and your situation and kind of how you grew up, $40,000 a year either sounds completely impossible to you, or it sounds honestly pretty decent. And that's what I'm going to talk about today. I'm going to break down what $40,000 actually looks like after taxes. I'm going to talk about where the money realistically goes, why so many people feel trapped at this income level, and whether or not it's actually possible to make it work. I also have a new segment that I'm going to try to start introducing to each episode called Broke Math. And then I also have a listener-submitted financial situation that I'm going to walk through later on as well. The first thing is $40,000, as we all know, is not actually $40,000. And I know I say this a lot on the show, but people really underestimate how much taxes change the picture. You know, you're looking at your annual income, but we all know you're not bringing home your annual income at the end of the year after everything comes out of your check. Because when someone says I make $40,000 a year, they're just not bringing it home. After taxes, after Social Security, probably, after Medicare, maybe even insurance. If you're working for an employer and you have insurance elections that come out, you're probably looking at something that's closer to, I would say, maybe $2,600 to $2,900, $2,600 to $2,900 per month take home, depending on your state, your situation, you know, how you have it set up, et cetera. So for the sake of this conversation, let's just call it $2,750 a month, $2,750 a month. That's the real number that we're working with. Now, immediately, some people are listening or and thinking to themselves, that's impossible, right? I mean, that you you can't live off of that. And other people might be thinking, well, honestly, I make less than that. And that, the the example that I'm giving between those two different people is what makes this conversation interesting and why I wanted to talk about it. Let's build out a realistic month, not a fake internet budget, but a real one. Here's the biggest factor immediately is going to be housing. That's the biggest factor for everybody. That's where most of your money gets spent in for the average person, because housing alone can determine whether or not $40,000 a year is is manageable or if it's absolutely freaking brutal. So let's say a small apartment, maybe not luxury, maybe not even in a huge city, you're still probably paying, I don't know, $900 between $900 maybe and $1,300 a month. And in some places, obviously you're paying way, way more than that. And so with that, already half your income is basically gone. That's the reality on that income. Transportation. Do you have a car payment? Do you have insurance? Do you have gas? Even a modest, I don't want to say frugal, but a modest setup could easily be, I don't know, 300 to $350 to $650 a month. And if you have a newer vehicle, if you have a long commute to work, if you have high insurance, uh, you know, good luck. I mean, I'm not trying to make light of it, but that's the reality. And with groceries, the next thing, you can keep, you know, you can keep groceries reasonable, absolutely, but they still cost money. So let's say 300, I don't know, 300 to 450 bucks a month, especially nowadays. The next thing would be your utilities. This is things like your bills, your your internet, um, you know, phone electricity, internet subscriptions. Even being very conservative, I would say between $250 and $400 a month. Now, the fun part to talk about, the lifestyle spending. And this is where people get in trouble. Because even if you're trying to be careful, life is still going to happen. You're still going to run into things like eating out, going to birthdays, or being involved in birthdays, random purchases, um uh maybe like convenience spending. That stuff adds up fast. And suddenly you realize why people making $40,000 a year often feel like that they're, you know, surviving but just barely progressing. And some of them maybe don't even feel like they're surviving surviving. Um here here's what I would consider the biggest issue with $40,000 a year. There's very little margin for error. Meaning one problem that you encounter, one problem in your life, changes everything. If you have a car repair, it's a problem. If you have one medical bill, problem. If your hours get cut at work, problem. Any unexpected expense, huge problem. Because when your money is already mostly assigned at that income level, there's nowhere for that extra expense to go. And this creates a constant kind of low-level stress, not necessarily panic, just pressure. You're always feeling like you, you know, you might say to yourself, I can't I really can't mess up financially. You know, that's exhausting. And honestly, a lot of people are living like this right now. New segment, broke math. Broke math. Broke math. Okay, this is a segment where I'm gonna do some broke math, the segment where your wallet loses, but your excuses win. Here it is. Uh broke math is making $40,000 a year in my example, while financing a $58,000 truck because the payment is, quote, only $740 a month.

unknown 6:31

Right?

SPEAKER_00 6:32

That's broke math. Listen, I'm not saying that people can't buy nice things, but at some point, the math has got to match reality. Because if half of your paycheck goes to your vehicle, you don't own the truck. The truck owns you at that point. And the internet, in my opinion, makes all of this worse. Because online, everyone seems rich. Everybody's traveling, everybody's buying houses, upgrading cars, eating at expensive places. And when you're making $40,000 a year, that comparison can make you feel like you're failing. It can really, be honest with you, make it feel like you're less than what you are. But here's what people don't see: a lot of people are financing their lifestyle. And another word for financing is going in debt, spending someone else's money that you pay back later with interest added on top. People are financing their lifestyle. A lot of people are doing this. They have debt, they have payments, they have credit cards, they have stress, is the biggest thing that that comes with that. So don't compare your real life to someone else's highlight reel that is financed over 72 months. So let's answer the question can you actually live on $40,000 a year? Um yes. But there are conditions here. Your housing has got to make sense. This is the biggest one. Again, this is your biggest expense. Maybe you need roommates. Maybe you need a smaller apartment. Maybe you need to be in a lower cost area. That can change everything. Your car situation matters massively at that income. People underestimate this one as well. A huge car payment can completely destroy this income level. You also need some sort of structure. At $40,000 a year, you cannot fully freestyle your finances. You just can't. You need to have some awareness, you need to have some level of budgeting, and you need to be very intentional with your spending. You need to control your finances. Convenience spending becomes expensive fast. I'm talking about delivery apps, um, eating out constantly, impulse purchases. At this income level, those smaller habits are going to matter more. And then I would say at $40,000 a year, and this is important, you probably need to increase your income eventually. I'm not saying, I'm not being one of these people who's like, well, just work harder, bro. You know, just hustle. Like, I hate that advice. But realistically, most people eventually need raises. They need their skills to grow, they need maybe a side income, just better opportunities. I mean, $40,000 can work, but it's going to be difficult to build long-term wealth at that level. If you're around this income level right now and you're listening, here's what I would focus on: stability first. Don't look to get rich, don't look to impress people. Just be stable. Lower your stress. A small emergency fund, and again, it can be very small. I'm not even going to say a number because it can be small. Just something is going to matter way more again at this level. Avoid the lifestyle inflation. When you do start to make more, don't immediately upgrade everything. Try to keep living like you're still making $40,000 a year. Build your skills. Your biggest financial advantage early on is usually increasing income. And that can generally, I'm being vague here, but generally that can happen when you increase your skills. The last thing, don't let your shame take over. This matters. A lot of people feel embarrassed about where they're at financially, and don't. You're not behind because you're making $40,000 a year. You're behind if you stop trying to improve your um financial situation. You are listening to money talk for real. All right. I have a listener uh submitted question here, and she did not unfortunately put all of the details to really go into depth. But um, Kathy is 51 years old, she's from Effingham, South Carolina. Her household income, she says $987. And I'm a s I'm I'm going to assume here that that means it's $987 per month. Um again, I don't have much detail into that, but she did not list out any debt, but she did list out her living expenses. Um, she's saying her light bill, in other words, power bill, is uh $1,000 a month. And I don't know if that's uh maybe um a typo or or what's going on here, or maybe she's in debt a little bit on that light bill, and so the balance has accrued or compounded to be a thousand dollars, and then rent seven hundred and fifty dollars a month. Um, she also says that you know, just the the stuff she lives on, light bill, rent, and food is the biggest thing. Um, the details that she has to elaborate on is just the rent and the light bill. And she says, please help me. Kathy, I would love to help you. I do need some more details to truly be able to walk through this with you. If you're listening, please email me or contact me through the website and give me some more details so that we can um break this down. I the biggest thing I would say that if your household income, if it if it's just you, I'm gonna assume that Kathy is single or at least lives by herself. If it is just you and your household income is $987 a month at 51 years old, I would ask a few questions, not to judge or pick on you, but just kind of wondering where that's coming from, if it's coming from a job, if it's maybe a disability or a social security or some sort of pension. Um, the light bill, $1,000 a month, I don't again, I can't really financially make sense of that in my mind. That seems very high for something that is rented at $750 a month. I would also talk about that rent. $750 a month is very reasonable. However, at $987 a month, $750 rent has got to go. And it might involve some sacrifice. It might mean that you need to live with some roommates. Um, again, I I'm making a lot of assumptions here because I don't have a whole lot of details from your submission. But um, if if your income per month is less than $1,000, I would recommend we need to figure out a way to get that up. And if you're not able to work full time, maybe you're able to work part-time. If you're, and it doesn't have to be physical labor, maybe you can do some administrative work, some gig type work, some side hustle type work, maybe you can work for one of the delivery apps or the ride share apps. Um, just something to try to get some of that income up. And then I would also work on getting that rent down. $750 a month is well, you know, that's over 75% of your bring-home income. And I would not recommend that just on rent. Um, and if the light bill truly is $1,000 a month, we have a huge problem. Something is not right. You're overpaying. Um, again, I just I don't have the details. So, Kathy from South Carolina, if you're listening, please reach back out to me and uh provide me some more details so that we can talk about this more in depth. And if you don't want me to talk about it on the show, we can talk about it in private. I'd like to help you out. If you're listening and you have a financial situation that you'd like to talk about, please send it in. You can do so at money talkforreal.com slash debt help. That's money talkforreal.com slash D E B T H E L P. You can submit um a voice recording. That's ideal where I can play it on the show and we can talk about it from there. You can submit that voice recording directly on the website. And if you'd rather not do that, you can just type it all out. I have a form that you can put your information in and we can go from there. Uh, you can completely ren remain anonymous, but I'd love to walk through it and kind of talk through it and hopefully try to help you out if you're struggling financially. Again, that's money talkforreal.com. You can click on the link that says debt help. Thank you for listening. Please leave a five star review on your podcast player, and I will catch you on the next episode. This is Money Talk for Real.