With the median household income in the US standing at $71,000 per year, budgeting with a $40,000 annual revenue may seem like a hard nut to crack. This can be more difficult given the median personal income across the country averages $45,000 per year. Financially speaking, any household earning $40,000 each year is right to feel hard done by the tough economic times. Without proper assistance, single-income families in this category will likely buckle under the pressure of the rising cost of basic commodities.

Luckily, we are here to show you how to achieve financial stability and independence while earning $40,000 annually. Managing money with our formula may require you to give up a few luxuries. However, such management will help you avoid the vicious cycle of living paycheck-to-paycheck and financing your daily expenses with debt. We will also enable you to go beyond bare survival with apt budgetary allocations that will reduce fixed costs and provide better wiggle room in the long term. If you are up for it, let’s dive in! 

Implement the 50/30/20 budget plan

Creating and sticking to a budget can be much more difficult than most think. Most people tend to abandon budgets after realizing their exclusion of one or two essential commodities. Without a contingency plan for such a situation, many of us put our trust in hope rather than concrete financial planning to get ahead in life. A fantastic way to start organizing your finances from scratch is by implementing the 50/30/20 rule. You can successfully budget $40,000 a month through this rule’s ingenious budgetary allocations.

What is the 50/30/20 budget plan?

The 50/30/20 budget plan is a budgeting technique that splits your monthly net earnings into needs, wants, and savings. Dividing your income into these three categories helps to budget salary wisely by putting a spending cap on each category. Using the 50/30/20 budget plan does not require any financial expertise because it is simple and straightforward. Let’s find out how we can apply this plan for a $40,000 annual income.

Allocate 50% to needs

The first step in applying the 50/30/20 rule is allocating half of your earnings to budgeting needs. Although 50% of your income may seem much for one category, you will find it logically viable when you do the monetary allocations. Budgeting needs are expenses that are necessary for human survival. These needs include housing, insurance, food, transportation, and healthcare.

Housing   

Experts recommend spending a maximum of 25% of your income on housing. For a $40,000 annual net salary, this percentage translates to an upper limit of $833 each month. You can get a one-bedroom apartment with such a limit in most states if you avoid luxurious housing options. For places where the average monthly rent for a single-bedroom apartment goes beyond $833, it would be wise to get roommates with whom you can split the bill.

Transportation

Minimizing transportation costs should be your second priority when managing money for needs. With car ownership commanding an average monthly expense of $775 across the USA, driving should be out of the question unless you have a secondary source of income. If you must drive, consider getting a used car for an average monthly cost of $525. Even with driving, you can halve your transportation costs by incorporating public transport, cycling, carpooling, and walking into your schedule.    

Others

If you spend wisely on housing and transportation, you will likely have $500 -$600 left to cater to other needs. You can divide this amount across your food, utilities, healthcare, and insurance expenses in your preferred proportions.

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Dedicate 30% to wants

Dedicating 30% of your income to wants is the second step in applying the 50/30/20 rule to successfully budget $40,000 a month. Wants are expenses that improve your standard of living without being necessary for human survival. Such expenses include clothing, entertainment, airtime, road trips, and gym subscriptions. A $40,000 annual salary permits you to spend a maximum of $1000 each month on your preferred wants. 

Set aside 20% of your income for savings

Regardless of your earning capacity, a fantastic way to budget salary wisely is to set aside at least 20% of your income into savings, investments, and debt repayment. This technique doubles in importance if you earn $40,000 annually because of the increased need to have a contingency fund for unexpected expenses. In an ideal situation, you should deposit $666 each month into your savings. Where this is not possible, experts recommend starting at a minimum of $333 monthly and growing gradually. Automating transfers into your savings is a wise way to keep the money from diverting to other expenses.  

Conclusion

When it comes to budgeting methods, few can match the simplicity and effectiveness of the 50/30/20 plan. This technique offers a clear structure with just three allocation categories, making it easy to implement without the complexities of many other spending brackets. All you need to do to get started with the 50/30/20 plan is to determine the monetary proportions for your needs, wants, and savings. By doing so, you can set yourself up for financial success and experience greater financial security in the near future.

Categorized in:

Budgeting