We’re living in very uncertain financial times. Prices for everything seem to be going up and down like yo-yos, making it difficult to know what kind of salary we should strive for and what salaries we can actually live off! Is £40k a good salary in the UK, for example?
£40,000 is considered a good salary in the UK at the time of writing, as it’s more than the measured average per person.
However, there’s a few ways of looking at this question, and there are factors that come into play along the way! Let’s take a closer look at the current salary situation in the UK and what might be considered a comfortable wage.
How much in taxes on a £40k salary?
When earning £40k as an individual, your take-home salary after paying income taxes and national insurance is around £31,000 per year, which is equivalent to roughly £2,600 per month.
The table below outlines the big line items in relation to the typical taxes and deductions.
What is considered to be a good salary in the UK?
As ‘good’ is a fairly subjective term, there is no one universal figure that would be applicable for all. It is important to have some context, so let’s look at a couple of statistics first:
- At the time of publication, the average salary across the UK is £33,000 before income tax. However, it is not necessarily considered a decent salary! Due to the cost of living crisis and constant inflation sending prices rising, £33k can still prove to be a little tight, especially for families.
- The cost of living per UK household at the time of writing sits at around £3,000+ per month, which totals to £36,000+ per year, and that’s to be considered after you already paid income taxes!
- The cost of living for a single person varies between £2,100 to £3,000 per month, depending on where you live. This works out to £25,000 to £36,000 per year.
The question to ask is what is the size of your household, where do you live, and how many breadwinners there are. Your level of expenses beyond the basic areas also dictates what would be a good salary.
Let’s put these numbers together then: For a 4-person household that has two income earners and has a minimum annual expenses of around £36,000, a good salary would be anywhere north of £40,000 per earner. A total household income of £80,000 puts you in a great position to cover your expenses, save some money for a rainy day and retirement, and have a little left over for some leisure expenses!
Do also remember that a salary of £40k in London isn’t the same as a salary of £40k in the North of England. Given the increased cost of living and services close to the capital, £40k is likely to travel shorter than it might in, for example, Sheffield or Leeds.
And of course here we’re not considering the context on which profession these salaries are for! A good salary for a doctor, would be different than a good salary for an engineer, and much different than a good salary for a sales clerk!
Is £40k enough to live on?
The slightly frustrating answer to this question is, as always, ‘it depends’. £40k sounds like a lot as a lump sum – but it’s before taxation, and you’ll receive your salary split across the year. If you look at £40k annual salary on a per-hour basis, it works out to £20.51 per hour.
Sometimes, you can still live in a ‘poorer’ area of the UK and still struggle to live on £40k per year. Your individual circumstances will dictate how far this money travels.
Consider your work expenses, household needs, and lifestyle demands. Here are a few factors that can influence whether or not £40k is enough to live on.
Do you have any dependents?
This is simple maths – the more people you have to support, the more money you’ll need. £40k for a single person is likely to offer fairly comfortable living. However, in a single-income household with children and/or pets, you will find it’s a stretch.
Where do you live?
I don’t just mean location, but the type of home you occupy, too. Do you pay a mortgage on a house or pay rent on a flat? If it’s the latter, £40k is likely to stretch a little further.
Housing prices closer to London are infamously higher than those you’d pay for further north, too. It’s not just commuting costs and congestion charges you have to keep in mind!
What taxes do you pay?
When earning £40k as an individual, you’ll be subject to various taxes before you can take any money home. At the least, you’ll need to pay 20% income tax.
Beyond this, a wage of £40k will typically push you into the threshold for Class 4 National Insurance if you are self-employed. These payments towards your state pension are higher than what you’d expect to pay on a profit of £11,000+.
Are you carrying any debt?
Aside from a mortgage on your home, do you have any debt? As interest rates rise, carrying consumer debt is like having to pay a constantly increasing tax. Interest rates on credit card debt or car loans can quickly pinch!
Student loan payments must also be considered. A wage of £40k is also likely to see payments made to student loans companies if you have a university debt to pay off. While many people expect to clear their debts by the time they retire, in many cases, you’ll start paying money back off tuition fees and loans when you breach a specific threshold.
At the time of writing, £40k is enough to start paying back student loans. You’ll either see these payments coming off your monthly wage slips, or you’ll need to account for them in your tax returns.
What’s the average cost of living in the UK – and is £40k enough to pay for it?
The cost of living per UK household at the time of writing sits at around £3,000+ per month. The gross income you can expect from a wage of £40,000 alone is likely to dip below this after tax.
Statisticians calculate the UK’s cost of living on a handful of different factors. They consider how much people spend on mortgage and rent, debt, the cost of food and groceries, clothing, travel, energy and utilities, and any entertainment costs.
However, let’s consider £40k as a wage for a single person, not necessarily a household. The average cost of living per person in the UK at present is just above £2,000. That means on a single income of £40k per year, you have some breathing room to fund everyday needs.
To fund an average household for the same comfort, both partners don’t necessarily need to earn £40k each. One may earn £40k per year and the other £20k, and the figures still show your household beating the average expenditure.
Of course, it’s difficult to measure these factors on averages when we all have different demands, needs, and lifestyles! It’s why one of the first things people consider when measuring salary value is to look how far they intend to live away from London.
Where is £40k a good wage in the UK?
Let’s come back to the idea of location changing the value of money. Statistics show that the average wage in London as of the time of writing is £41,000. In the North East, it’s much lower, at £29,500.
Therefore, £40k is a below-average wage in London, but you’re earning 25% more than most people if you live in areas such as Newcastle, Sunderland, or Middlesbrough. In fact, if you earn more than £34,000, you’re above average compared to the rest of the UK outside of London.
Living in some of the cheapest areas in the UK will help your wages go much further as the cost of living in those areas tends to be much lower.
Are wages in the UK shrinking?
Sadly, as a result of skyrocketing inflation, wages in the UK appear to be shrinking – mainly because they are not rising at the same rate as inflation.
Statistics from October 2022 show that inflation rose to a rate of 11.1%. UK wages, meanwhile, were growing at a rate of 6.1%. This is much lower than the growth rate of 7.3% experienced just 15 months prior!
The only way this will change is if inflation starts to shrink again, or if wages rise to compete – at the time of publication, there’s no clear indication when either may occur!
How Do I Make My £40,000 Go Further?
It’s not easy to make ends meet these days and even though a salary of £40k is higher than the average salary, it might still feel like it’s tough to make ends meet. We’ve covered a number of different topics to help you save money and make it go further. Here are a few quick wins that might help you make an immediate impact:
- Save money on your grocery shopping bill.
- Reduce costs on your television bill by consider cheaper alternatives to Sky TV, Virgin, and BT.
- Try some cashback apps or join Nectar and make a little money on your normal spending.
- Try out some ideas to make an extra 100 quid online each week to help free some extra cash!
If you really want to take a leap, you can also try to reduce your rental costs or mortgage expenses by sharing your home with roommates or flatmates, or by moving to a cheaper location.
Before You Go…
Whether £40k is a good salary in the UK depends on various factors, as we have seen. However, no matter how much one earns, it is crucial to plan for the long term to ensure financial stability and security. Investing wisely can help grow one’s net worth and provide a safety net for unexpected events.
By investing in stocks, bonds, or real estate, individuals can generate passive income and secure their financial future. Compound interest can turn small investments into significant wealth over time, making it an essential tool for those looking to grow their net worth.
Our whole blog is dedicated to help you get on the path of financial freedom. Feel free to browse around and read through the articles. There are plenty of investment books and podcasts that you can use as a learning resource along the way to help you reach your goal faster.
What is a middle class income in the UK?
Based on current projections, a salary considered ‘middle class’ would start at £40,000 for an individual earner. Therefore, a £40k salary, as it’s £7k above the average, would make you part of the middle class.
Where is now the cheapest place in the UK to live?
£40k will likely go far in areas such as Bradford, Durham, Aberdeen, Sunderland and Middlesbrough. Take a look at our guide to the cheapest places to live in the UK for a further breakdown on why this is the case.