Inflation has been spiraling out of control for the past few years, and wages have been relatively stagnant. This and people’s reluctance to talk about money in the UK make it hard to know whether your £40k per year salary is good.
Figuring out if a £40k per year salary is good or not will depend on multiple factors such as where you live, your age, and your current living situation. Let’s jump in and see whether or not your £40,000 salary is good.
£40k per year is considered a good salary in most parts of the UK. It’s £6,720 higher than the Median average salary of £33,280. The only place in the UK where £40k is considered below average is London. You are an above-average earner if you live anywhere else in the UK.
How Does £40k Compare To The Median UK Salary?
In the UK the current average salary is £33,280 for full-time workers. Making £40,000 per year put’s you £6,720 ahead of the median average.
These averages also take into consideration salaries in higher-income areas such as London. If you live outside of major cities in the UK, your £40k salary starts to look even better.
A £40k salary is more than enough to live comfortably in the UK. Even in a high-cost-of-living area such as London, you should be able to cover your bills and have some money left over for saving and investing.
Is £40k A Good Salary For Your Age?
Earning £40k per year makes you an above-average earner in all age categories. Well done, you’re ahead of the curve.
|Median Average Yearly
If you’re in your 20s or 30s and earning £40k+ per year, you are on track for a great career, especially if you have further opportunities for promotion. It may be tempting to blow this money in your early years, I’ve been there. Personally, if I could go back, I would have invested a lot more in my early 20s and spent less money on cars.
Earning £40k in your 40s likely means that you are hitting your peak when it comes to your earnings. In some fields, there may be more room to get a promotion or make a switch to another job in your field to earn more money.
Overall, earning £40k likely means that you have gathered a good range of skills throughout your career allowing you to become an expert in your field. This gives you leverage to field job offers from other companies and negotiate a higher salary.
Is £40k A Good Salary Where You Live?
£40k is a great salary in most regions of the UK. The only place where it is below the median average is London. Even here, you are close to the average of £41,866 for full-time London salaries.
If you live in a region such as the North East or Northern Ireland where average salaries are close to £30k, you are doing really well on a £40k salary. A £40k salary will go a lot further in the North East than it would in London.
Below you can see the data for each of the regions in the UK to see how you stack up against the average in your area.
If you live in a dual-income household where both people are working full time, you should be able to live comfortably anywhere in the UK. Even a single person living alone should get by without any problems.
Can You Live In London With £40k A Year?
A £40k salary in London is slightly below the average salary of £41,866 for that region. While it is slightly lower, it is definitely possible to live in London with that salary.
Rent may eat into your budget slightly more than it would in other regions around the UK but it’s manageable. If your work requires you to be in London and the earning potential is higher by being there, then it’s worth doing.
If you plan to save and invest 20% of your income to achieve financial freedom, you may have to cut back on your entertainment budget for a year or two. Also, consider living with a partner or housemate to cut down those extortionate London rent bills.
What Is £40k After Tax In The UK?
Earning £40,000 per year in the UK does not mean you will be bringing all that home. You will receive a net amount each month after Tax and National Insurance contributions.
On a £40,000 salary, you will be in the 20% Tax bracket. We also get a tax-free allowance of £12,570 per year currently. This means you will be paying 20% tax on the remaining £27,430 plus your national insurance contributions.
This means you will pay £5,486 in Tax and £3,991 in National Insurance.
Your Net take-home pay after tax and national insurance payments is £30,523 per year or £2,544 per month.
You may also have student loan payments which would be paid back from your salary decreasing these amounts even more.
Budget Template For £40k Salary
While £40k is an above-average salary, it does not mean you can just go spending money on whatever you want. Ensuring you follow a budget every month will help you to keep your spending on track and will help you hit your financial goals.
Maintaining a well-defined budget provides clarity on the allocation of your funds at the onset of every month. Demonstrating discipline and adhering to this budget empowers you to make significant strides in life. By limiting your expenses to necessities and directing the surplus towards investments, you establish a dependable path toward achieving financial security.
If you are making £2,544 per month after tax you can follow the rough budget template below. Here we will follow the 50/30/20 rule. This means roughly 50% goes towards needs, 30% to living life, and 20% to savings/investing.
|Monthly Net Income
|Saving & Investing
In most regions outside of London, £800 should be more than enough to cover your rent. Especially, if you are living with a partner or a housemate. If you are living with someone else this figure should be considerably less. If you have that luxury put the excess money towards investing rather than opting for a nicer house/apartment.
If you want to be aggressive with your savings and investing goals like I am, then I would recommend cutting the entertainment budget even more and contributing as much as you can towards your investments. If you do this in your 20s, the difference in how much money you compound throughout your lifetime will be significant.
If you want to get into more detail with your own personal budget, I would recommend checking out our Monthly Budgeting Google sheet.
Housing On A £40k Salary
Housing is most people’s biggest expense over their lifetime. On a £40k salary, you should be able to comfortably buy a house after you have saved up a deposit. However, you need to be careful not to overextend yourself.
When I first started renting I got a much bigger house than I needed. When I ended up purchasing a house, I went for something slightly smaller. Having more rooms that I didn’t use, didn’t make me any happier. Having less stress is worth a lot more than having a big house. Currently, I spend less than 10% of my take-home earnings on my mortgage.
This gives me so much room to invest heavily while still being able to enjoy my life. I take regular trips and holidays while still investing and saving around 40% of my earnings.
Let’s take a look at how much rent you can afford on a £40,000 salary.
How Much To Spend On Rent With A £40k Salary
When it comes to renting, the general rule is to spend no more than 30% of your net take-home income. This means on a £40,000 salary you should be spending approximately £750 on your rent.
You may need to increase this slightly depending on where you live, but if you are outside of London I would recommend sticking close to £750. If you have a partner you may have the luxury of spending slightly more but don’t overextend.
I would recommend trying to keep your rent between £700 and £850 at this income level. If possible the ideal situation would be living with a housemate or partner to cut this significantly. This will allow you to contribute more towards savings and investments.
Can I Buy A House On A £40k Salary?
Yes, a £40k per year salary is more than enough to purchase a house, especially if you are buying with a partner. First things first, you will need to save up a minimum of 5% deposit but I would recommend aiming for 10% if you can.
In most cases you will be able to get 3.5x – 5x your annual salary before tax.
On a £40,000 per year salary, you will be able to borrow approximately £160,000. With interest rates currently around 6% this would give you a monthly payment of £959 per month on a 30-year mortgage.
This is slightly above our recommended £700 to £850 for housing. Personally, I would take on a smaller mortgage if I was purchasing alone. When you consider maintenance, council tax, and utilities your housing costs alone can start to cost a lot.
This will massively eat into your budget and if interest rates continue to climb like they have been, you could end up in a bad situation.
If you are purchasing with a partner who also works full time, a £160,000 mortgage should be more than manageable for your household. Just because you may be able to get more mortgages with a partner, it doesn’t mean you should. Be conservative with how much you borrow and don’t overextend yourself.
How To Make £40k Go Further?
Audit Your Finances
It’s crazy how many people just avoid looking at their finances. At a minimum, you should be auditing your bank accounts every quarter but ideally once a month.
- Look for any recurring subscriptions which can be canceled
- Analyze your spending to see if you have any bad spending habits (eating out too much etc)
- Can your savings be moved to a higher-interest savings account?
- Can you get a cheaper price on bills such as electric, insurance, TV subscriptions etc
Cook For Yourself
Eating out is getting more and more expensive by the day. Packing a lunch each day and cooking a homemade meal at night is a much cheaper option. Not to mention it’s much healthier.
“I don’t know how to cook” is not an excuse. Anyone can search for some easy recipes on Youtube and put a good meal together. Not to mention they will be much healthier than eating takeout.
Keep Savings In A High-Interest Savings Account
Now that interest rates are rising, savings interest rates in banks are also rising. Ensure you are shopping the market and getting the highest return on your money.
Invest In An ISA
If you have an emergency fund with 6 months of essential expenses saved up, you should be starting to think about investing.
One of the best ways to do this in the UK is through a Stocks and Shares ISA. It allows you to invest up to £20,000 each year tax-free. By investing in basic Index funds each month through an ISA you can benefit massively from compound interest over your lifetime.
Personally, I like to keep my investment strategy very simple. 80% of my portfolio is invested in index funds and 20% I invest in companies I think I have some insight on through my work. For example, I built my first business on Shopify and invested in the stock because I saw how good the software was.
£40k per year is a good salary for most people in the UK. If you have a partner who also works full-time, you should be very financially comfortable with this salary. The only people who may struggle on a £40k salary are Londoners who face a much higher cost of living, however, even in London, you should be able to live reasonably well.
Check out other salaries: