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A home is a place to live, but it is also a significant asset that often increases in value over time. Until a sale or an inheritance, this value typically remains unrealized. However, a Home Equity Conversion Mortgage (HECM) is a tool that can help unlock some of a home’s equity for those who are experiencing unforeseen expenses or want financial flexibility in retirement.

What are home equity conversion mortgages, and how do they operate? We’ll delve into the complexities of HECMs in this article, going over their advantages, requirements for qualifying, available repayment plans, and any drawbacks.

What Is an HECM?

Knowing how to safely utilize home equity can be a game-changer in an environment where traditional retirement funding may not be sufficient and the cost of living is rising. With the help of HECMs, homeowners 62 years of age and over have a way to turn a portion of their equity into cash without having to worry about making monthly mortgage payments or refinancing.

A Home Equity Conversion Mortgage is a specific kind of home loan that allows homeowners 62 years of age and over to access a portion of their home equity. The loan is insured by the Federal Housing Administration (FHA). With an HECM, the lender pays the borrower instead of the borrower making monthly payments to the lender as is the case with standard home loans. These funds may be obtained in the form of a line of credit, monthly installments, a lump sum, or in any combination of these. One of the key characteristics of a HECM is that repayment is usually postponed until the borrower either stops using the house as their principal residence or defaults on other loan responsibilities, like upkeep, property taxes, and insurance.

How HECMs Work

With HECMs, qualified homeowners 62 years of age and over can convert a part of their home equity into cash without having to sell their house or pay a monthly mortgage. A homeowner who obtains this type of home equity loan has the choice of receiving money in one of several ways: as a lump sum, as monthly installments, as a line of credit, or as a mix of these. A number of variables, including the borrower’s age, the home’s appraised value, and the current interest rate, affect how much money is available through a HECM.

Borrowers are still liable for upkeep, property taxes, homeowners insurance, and any relevant homeowners association dues, and they must continue residing in the home. Usually, the borrower must make loan repayments when they sell their house or move out permanently. If the owner dies, his or her heirs are responsible for repaying the remaining loan total, which includes all accumulated interest and fees. (The funds to repay the total might be recouped through the sale of the house.) With the help of this financial tool, retirees can access their home equity and keep ownership and occupation of their residence, giving them more financial stability and freedom in their later years.

Home Equity Conversion Mortgage Requirements

There are several requirements to quality for an HECM:

Age

To qualify for a Home Equity Conversion Mortgage, applicants must be aged 62 or older.

Homeownership

Homeownership is a prerequisite for obtaining an HECM, and the property must be the borrower’s primary residence.

Equity

Sufficient equity in the property is required for eligibility. Typically the borrower must have at least 50% ownership.

Financial Assessment

Lenders perform a rigorous financial review before approving a HECM to make sure borrowers can afford regular costs like property taxes and insurance. Although there are no stringent income or credit restrictions for HECMs, borrowers still need to show that they can afford their debts.

Property Type

The eligibility for a Home Equity Conversion Mortgage depends on the property type. It must be a single-family home, a two-to-four-unit dwelling with one unit occupied by the borrower, or a HUD-approved condominium or manufactured home meeting FHA requirements.

Repayment

Repayment of an HECM typically occurs when the borrower sells the home, moves out permanently, or passes away, at which point the loan balance, including accrued interest and fees, is repaid either through the sale of the home or by the borrower’s heirs.

Compliance

Compliance with all FHA guidelines and requirements throughout the life of the loan is essential for borrowers of a Home Equity Conversion Mortgage.

Pros and Cons of HECMs

While there are many benefits to an HECM, there are also some downsides to be aware of.

Pros of HECM

•   Financial flexibility: Retirees who qualify for HECMs can use their home equity as a source of additional income without having to pay a monthly mortgage.

•   Retain homeownership: During the loan period, borrowers may continue living in their house and retain ownership.

•   Delayed repayment: To provide borrowers and their family peace of mind, loan repayment is normally postponed until the borrower sells the house, moves out permanently, or passes away.

•   Flexible payment options: To accommodate different financial needs and preferences, HECMs offer a range of payment options, such as lump sum payments, monthly installments, a line of credit, or a mix of these.

•   FHA insurance: The FHA insures HECMs, providing lenders and borrowers with extra security against possible losses.

•   Non-recourse loan: Since HECMs are non-recourse loans, as long as the property is sold to pay off the debt, borrowers or their heirs are not liable for any shortfall in the event that the loan total exceeds the value of the home upon repayment.

Cons of HECM

•   Accrued interest: As interest is applied to the loan balance over time, it may decrease the amount of equity that is available to borrowers or their heirs when the loan is repaid.

•   Costs up front: The money obtained from the loan may be reduced by upfront expenses associated with HECMs, such as mortgage insurance premiums, origination, closing, and servicing fees.

•   Impact on inheritance: Using an HECM to access home equity may cause the borrower’s estate to lose value, which may have an impact on the inheritance that heirs get.

•   Strict property restrictions: Eligibility is restricted to specific types of properties, which may prevent some borrowers from using this financial instrument.

•   Effect on government benefits: One may not be able to obtain means-tested government benefits like Medicaid or Supplemental Security Income (SSI) if they get funds from an HECM.

•   Potential default: Should the borrower or their heirs neglect to fulfill the loan obligations — which include upkeep of the property, payment of taxes, and maintenance of insurance coverage — they run the risk of going into default and losing the house.

Home Equity Conversion Mortgage vs Reverse Mortgage

Although they are sometimes used interchangeably, reverse mortgages and home equity conversion mortgages differ in a few important ways. Both let homeowners 62 and older access their home equity without having to pay a monthly mortgage. A mortgage with particular standards and protections that is guaranteed by the Federal Housing Administration is known as an HECM. Conversely, private lenders may provide reverse mortgages, which may have different terms and qualifying requirements. Here’s a quick look at the differences:

Each type of mortgage has benefits and drawbacks. HECMs have upfront charges and property restrictions, but they also provide government insurance, more stringent qualifying requirements, and protection against default. Private lender reverse mortgages could be more flexible and have fewer initial expenses, but there might be risks and alternative terms for the borrower. Before making a choice, homeowners should carefully weigh their options and speak with a financial advisor.

Alternatives to HECMs

There are other options to take into consideration. One option is a cash-out refinance, in which homeowners can obtain cash for the difference when they refinance their current mortgage for a bigger sum than what they presently owe. Another choice is a home equity line of credit (HELOC) or a home equity loan; these enable homeowners to take out a loan with fixed or variable interest rates and repayment conditions based on the equity in their house.

A homeowner who wants financial freedom, without the hassles of an HECM or reverse mortgage, can look into alternative retirement income options like investments or annuities or downsize to a smaller, more inexpensive house. Before choosing one of these options, homeowners should carefully weigh their options, taking into account things like fees, payback terms, eligibility restrictions, and long-term financial objectives. Speaking with a financial advisor can also offer insightful advice on how to choose which course of action is appropriate for one’s particular circumstances.

Home Loan Rates

A number of economic factors, such as market demand, monetary policy decisions, and inflation, affect home loan rates. Mortgage lenders typically modify their rates in response to changes in the overall interest rate environment. With a fixed interest rate that stays the same for the duration of the loan, fixed-rate mortgages give borrowers stability and predictable monthly payments.

Adjustable-rate mortgages (ARMs), on the other hand, start off with lower rates and come with the ability to change them at any time depending on the state of the market. This could result in changes to the monthly payment amount. Individual mortgage rates are also influenced by loan terms, credit score, and size of down payment; consumers with higher credit scores typically obtain lower rates. It is possible for borrowers to obtain reasonable rates that are customized to their financial situation by staying up to date with market developments and looking into choices with various lenders.

The Takeaway

A homeowner age 62 or over who wishes to stay in their house but also wants to unlock some of the equity in the property to cover expenses may find a Home Equity Conversion Mortgage is worth a look. But an HECM isn’t the only option, so weigh the pros and cons and consider a home equity loan or line of credit as well.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 95% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

FAQ

What is the downside of an HECM loan?

The drawbacks of an HECM loan are the possibility of accumulated interest, upfront expenses such mortgage insurance premiums and taxes, and potential effects on the borrower’s eligibility for government benefits or on the value of their estate.

What is the difference between an HECM mortgage and a reverse mortgage?

An HECM mortgage is a subset of a reverse mortgage that is insured by the FHA, providing specific protections. Reverse mortgages can be offered by private lenders and may have different terms and eligibility criteria.

What is the homeowner requirement to qualify for a home equity conversion mortgage?

To qualify for a Home Equity Conversion Mortgage, the homeowner must be aged 62 or older and have sufficient equity in the property, which must serve as their primary residence.

Photo credit: iStock/monkeybusinessimages

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SOHL-Q224-1841898-V1

Thinking about job hunting in California? You may wonder how much you can expect to earn. While pay depends on a number of factors, the average annual salary in California is $73,220. That’s according to a 2024 analysis of Bureau of Labor Statistics (BLS) data conducted by Forbes. By comparison, the average annual salary in the U.S. is $63,795 — nearly $10,000 less.

Let’s take a closer look at how pay in California varies by age, location, and profession.

Average Salary in California by Age in 2024

Average income by age in California tends to increase as you get older and gain more experience. For instance, workers age 24 and younger earn an average of $44,205 a year, according to data from the U.S. Census Bureau. Pay jumps up to an average of $90,138 a year for workers aged 25 to 44, and $98,785 a year for those age 45 to 64. Employees who are 65 and older earn an average of $60,832 a year.

These numbers make sense, as many people reach their peak earning years in their late 40s to late 50s. And after turning 65, many Americans choose to either retire, work fewer hours, or switch to a less-demanding job. No matter where you are in your professional journey, a money tracker can help you monitor your spending and saving.

Recommended: Average U.S. Salary by State

Average Salary in California by City in 2024

Income varies from state to state and even city by city. A budget planner app is one way to stay on top of your finances and make progress toward your financial goals. Knowing which areas tend to pay more can help, too. Just keep in mind those same places may also have a higher cost of living.

Here are the 10 cities in California with the highest average salaries, according to ZipRecruiter.

Average Salary in California by County

Wages in California can change by county. Let’s see what an average salary is in 10 different counties in California, based on 2022 data from the BLS.

Examples of the Highest-Paying Jobs in California

Depending on your line of work and your living expenses, you may find you can earn a comfortable salary in California. According to Zippia.com, the top 10 highest-paying jobs in California pay on average between $199,736 and over $235,100 per year.

Some of the most lucrative positions in the state are in health care, including hospital physician, primary care pediatrician, orthodontist, psychiatrist, and medical director.

Recommended: What Is a Six-Figure Salary?

The Takeaway

When it comes to earning potential, you may find you can make more in California than you would in some other states. A typical worker in the Golden State makes an average of $73,220 a year, which is nearly $10,000 more than the national average salary. But income can change based on such factors as your age and level of experience, where you live, and the type of work you do.

Remember that salary is just one piece of your overall financial situation. To get a more complete picture of your overall financial well-being, it helps to calculate your net worth.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is a good average salary in California?

A “good” salary in California depends on several factors, including where you live and whether you’re supporting other people. For example, to live comfortably in any major city, including those in California, a single adult needs to earn $96,500 or more a year. Meanwhile, a family of four should earn at least $235,000 a year, according to SmartAsset.

What is the average gross salary in California?

The average yearly salary in California is $73,220. This is nearly $10,000 higher than the average salary for the entire country, which is $63,795.

What is the average income per person in California?

The average income per capita in California is $45,591, according to incomebyzipcode.com. This is based on the most recent 2022 Census data. The average income per person will be lower than the average income because per capita income accounts for every person, even ones who are not working full time.

What is a livable wage in California?

In order to earn a livable wage in California, a single adult will need to make at least $56,825 a year, according to MIT’s Living Wage Calculator. The livable wage for a family of four with two working adults and two children is $138,357. A livable wage is the income needed to cover necessities, including food, housing, taxes, transportation, childcare, and healthcare.

Photo credit: iStock/milan2099

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q224-1839814-V1

Have you just received a salary offer and now wonder, “Is $75K a good salary for a single person?”

In many cases, that salary can offer a comfortable lifestyle and plenty of opportunities to save. But if you live in an expensive area or have a lot of debt, you may find that living on $75,000 a year requires more careful planning and budgeting.

Let’s take a closer look.

Is $75K a Year a Good Salary?

If you make $75,000 a year, you’re earning more than half of all workers in the U.S. And in fact, many people would probably consider the salary as good pay.

After all, a $75,000 salary works out to around $6,250 per month, $1,442.31 per week, or $36.06 an hour. This may easily cover your expenses — depending on your situation. If you live in a high-cost area, you may find that you’d be more comfortable earning more.

Need help monitoring where your money is going each month? Online tools like a money tracker can help.

Median Household Income in the US by State

When we talk about median household income, we’re referring to an income level that half of households earn more than and half earn less. As of 2022 — the most recent data available from the U.S. Census Bureau — the median annual salary in the U.S. is $74,580. Individuals may make more or less depending on where they live, their age, the type of work they do, and other factors. Here’s a look at the median household annual income in every state:

Related: Average US Salary by State

Average Cost of Living in the US by State in 2024

The cost of living is the amount of money needed to cover basic living expenses, such as housing, food, taxes, and health care. Here’s what you need to know about the average cost of living in the U.S. by state:

Source: Bureau of Economic Analysis

Can You Live on $75K a Year?

While there’s an average pay in the U.S., there’s no one-size-fits-all salary needed for a single person to live comfortably. As the charts above show, $75,000 can go further in some areas than others. Regardless of what you make, it helps to understand how much money you’re taking home — and how much you’re spending — each month. Creating a budget and tracking all of your expenses can make it easier to keep tabs on your finances.

How Can You Budget for a $75K Salary?

There is no shortage of options when it comes to creating a budget. One of the most popular methods is the 50/30/20 budget. Essentially, this approach involves allocating:

•   50% of your after-tax dollars to necessities, including groceries, housing, utilities, transportation, insurance, child care expenses, minimum debt payments, and more.

•   30% to “wants,” such as going out to eat, gifts, travel, and entertainment.

•   20% on savings and additional debt payments (beyond the minimum payments).

Prefer something more straightforward? Consider a line-item budget, where you keep track of monthly expenditures so they don’t exceed spending targets. Another option: using an online budget planner to keep finances organized.

How Can You Maximize a $75K Salary?

Budgeting, putting every dollar you can into savings, and paying off debt can all help you get the most out of every paycheck. But those aren’t the only ways to maximize a $75,000 salary.

One strategy is to enroll in your company’s 401(k) plan. Some employers even offer matching contributions, meaning they’ll mirror your contribution to your retirement, often up to a certain percentage.

Another avenue to explore? Setting up autopay for recurring bills, which helps prevent missed payments and late fees. While you’re at it, you may also want to automate your savings so you don’t have to remember to move money between your accounts on payday.

What Kind of Quality of Life Can You Have With a $75K Salary?

Can you have a good quality of life with an annual salary of $75,000? For many people, the answer is yes. With that kind of income, you may find it easier to make ends meet and make progress toward your financial goals. But keep in mind that “quality of life” is subjective, and the amount needed to live comfortably can vary from person to person.

Recommended: 25 Highest-Paying Jobs in the U.S.

Is $75,000 a Year Considered Rich?

It depends on who you ask. A 2023 Bankrate survey showed that Americans do not feel rich with a salary of $75,000. Rather, respondents said they’d need to earn an average of $233,000 per year to feel financially secure and $483,000 per year to feel rich.

That said, a $75,000 salary can feel like a fortune to one person but not to the next. Whether you feel financially secure with that salary may also depend on your living expenses, whether you live within or below your means, and other factors.

Is $75K a Year Considered Middle Class?

There’s no single definition of “middle class.” According to the Pew Research Center, middle class households have an income that’s between two-thirds and twice the U.S. median household income of $70,784. (A $75,000 salary falls easily within this range.)

A 2023 Washington Post poll reported that Americans consider a $75,000 to $100,000 salary range as middle class. Respondents said being middle class involved such things as:

•   Having a secure job

•   Having health insurance

•   Ability to save money for the future

•   Affording an emergency $1,000 bill without incurring debt

•   Ability to pay all bills on time

•   Ability to retire comfortably

Recommended: What Is a Six-Figure Salary?

Examples of Jobs That Pay $75,000 a Year

There are plenty of jobs that pay $75,000 per year, and some don’t require a degree. Let’s take a look at examples of positions that typically pay $75,000 or more.

•   Network administrator: Network administrators manage technical systems and networks.

•   Broker: Brokers mediate sales processes, particularly in real estate.

•   Quality assurance manager: Quality assurance managers establish quality standards, resolve concerns, and identify system and procedural needs.

•   Junior software engineer: A junior software engineer assists in developing and deploying computer software.

•   Dental hygienist: Dental hygienists perform cleanings, inspect teeth and gums, and educate patients on oral health.

•   Radiation therapist: Radiation therapists run machinery, perform X-rays, counsel patients, and more.

•   Clinical nurse: Clinical nurses work with patients and medications, and manage medical records.

The Takeaway

Is $75,000 a year a good salary for an individual in 2024? How about as an entry-level salary? In general, yes. A $75k salary is more than what half of U.S. workers earn, and depending on where you live and your expenses, may be more than enough to live comfortably.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Can I live comfortably making $75k a year?

Depending on your expenses, you should be able to comfortably make a $75,000 salary work in many areas of the country.

What can I afford with a $75k salary?

Many lenders use the 28/36 rule to help borrowers understand how much to use to repay a mortgage and other debts. Experts suggest spending no more than 28% of your income on housing expenses and no more than 36% on total debt payments. Consider using this rule as you make decisions about how large of a house to purchase or how much debt you’re willing to take on.

How much is $75k a year hourly?

A salary of $75,000 works out to $36.06 hourly.

How much is $75k a year monthly?

A salary of $75,000 is $6,250 per month.

How much is $75k a year daily?

A salary of $75,000 works out to $288.46 daily.

Photo credit: iStock/fizkes

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q224-1841143-V1

Is $40,000 a year considered a “good” salary for an individual? The answer depends on a number of factors, including your lifestyle, location, and expenses. A single person living in a smaller town may be able to live more comfortably on $40k a year than, say, a family that calls a pricey city home.

External forces also play a role. For instance, inflation continues to steadily rise, and that can impact whether a single person is able to get by on their income.

Let’s put a $40,000 annual salary into perspective.

Is $40K a Good Salary?

Earning more than the average worker is one way to determine whether a salary is “good.” With that in mind, how does a $40,000 salary stack up? As of 2024, it falls below the average annual salary in the U.S., which, according to the Bureau of Labor Statistics (BLS), is $59,228.

But keep in mind financial needs differ from person to person. Earning $40,000 a year may be considered a good entry-level salary and could be more than enough for someone with low monthly expenses. Adding another income to the mix also makes a difference. For example, if your spouse or partner also earns $40,000, your household income would be $80,000. That’s higher than the national average household income of $74,755.

No matter what your income is, it’s a good idea to keep tabs on your spending and saving. Tools like a money tracker can help make the job easier and provide valuable insights on your finances.

Recommended: U.S. Average Income by Age

Median Income in the U.S. by State in 2024

The median income of a state can provide a snapshot into what it costs to live and work there, as the BLS data in the chart below shows. Interested in a more lucrative career? You may want to look into the highest-paying jobs by state.

Average Cost of Living in the U.S. by State in 2024

Generally speaking, half of your salary probably goes toward necessities like food, housing, healthcare, and taxes. If you want to see your money go farther, you may need to put down roots in an area with a lower cost of living. Let’s take a look at the average cost of living in each state.

How to Live on $40,000 a Year

While an annual salary of $40,000 is below the national average, there are ways that you can make the income work for you. One way to approach your spending is to follow the 50/30/20 rule, which recommends earmarking 50% of your money for needs, 30% for wants, and 20% for savings.

But depending on your monthly expenses and lifestyle, you may need to make some sacrifices to live comfortably on $40,000 a year. Fortunately, there are plenty of ways to lower expenses. Some examples include meal planning, looking for free or cheap entertainment, and sharing your housing costs with a roommate.

How to Budget for a $40K Salary

Tracking where your money goes can go a long way toward helping you stretch a $40,000 salary. Online tools like a budget planner app provide a high-level overview of your financial habits so you can identify areas where you can cut back, if needed.

While there’s no one-size-fits-all approach to budgeting, there are some things you’ll want to do at the outset. A good place to start? Setting your short- and long-term financial goals. Next, calculate how much money you’re bringing in each month — and where it’s going. (Reviewing recent financial statements can be useful at this stage.)

Once you have a good understanding of your financial picture, select a budgeting method — and then follow it. Remember, a budget isn’t written in stone, so plan on reviewing and adjusting yours regularly to ensure it still fits you.

How to Maximize a $40K Salary

If you’re making $40,000 a year, one question you may have is how to get the most out of every dollar you earn. There are different approaches to explore. A common one is to try living below your means, which is getting by on less money than you earn each month. Whatever is left over can be put in savings or invested.

Another strategy is to sock away as much as possible for your retirement savings. Find out if your employer offers a 401(k) matching program (many do), and consider contributing enough to get the match.

You may also want to explore ways to lower your tax bill, such as making charitable contributions, contributing to an HSA, or taking advantage of certain credits. A tax professional can help you decide which option makes sense for you.

Can You Have a Good Quality of Life on a $40,000 a Year Salary?

Recent research suggests there’s a link between income and happiness. But that doesn’t mean an individual earning $40,000 a year can’t have a good quality of life. In fact, a single person may find that such a salary can indeed provide a comfortable life. Affordable housing, reasonable living expenses, a low debt-to-income ratio, and a solid savings plan can all help lower financial stress and allow you to focus on the people and activities that matter to you.

Is $40,000 a Year Considered Rich?

A $40,000 annual salary may not be most people’s definition of rich. But there are situations where that can feel like a substantial sum.

For example, a young adult living at home might be able to make $40,000 go very far, so long as she doesn’t need to reimburse her family for things like housing, health insurance, food, or other major living expenses. In that scenario, earning $40,000 would be more than enough to cover meals out, occasional vacations, and maybe even a few luxury goods.

Is $40K a Year Considered Middle Class?

There are different ways to define “middle class”; income and net worth are two of them. According to Census Bureau data, a middle-class household in the U.S. makes between $58,201 and $94,000 a year. A $40,000 salary is classified as lower-middle class, which is defined as households that earn between $30,001 and $58,020 a year.

The numbers change when you consider class through the lens of net worth. Census Bureau data defines “middle class” as households with a net worth of $145,000. Curious about how much you’re “worth”? A net worth calculator by age table can show you how you compare to your peers.

Recommended: How to Calculate Your Net Worth and Wealth: The Ultimate Guide

Examples of Jobs that Make $40,000 a Year

Looking to make a career move? There are plenty of jobs — including ones for introverts — that pay around $40,000 a year. Here are 10 to consider, per Indeed.com:

•   Kindergarten teacher

•   Reporter

•   Junior copywriter

•   Firefighter

•   Events manager

•   Admissions counselor

•   Loan processor

•   Customer service representative

•   Project coordinator

•   Property manager

The Takeaway

Is $40K a good salary? Though not exactly a six-figure salary, earning $40,000 a year may provide a single person with enough to live, depending on their location, expenses, and lifestyle. It may also be a reasonable salary for young adults at the start of their careers. By carefully budgeting your income, you can stretch $40,000 a year farther than you might have thought.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Can I live comfortably making $40K a year?

It’s possible for a single person to make it on a $40,000 a year salary. Having an affordable place to live, reasonable monthly expenses, and a low debt-to-income ratio can help create a more comfortable life.

What can I afford with a $40K salary?

The amount of disposable income you have each month depends largely on your cost of living. You may find a $40,000 annual salary goes farther in an affordable area than it would in a pricey location.

How much is $40K a year hourly?

A $40,000 annual salary works out to an hourly rate of $19.23. This is higher than the federal minimum wage of $7.25 per hour.

How much is $40K a year monthly?

If you earn $40,000 a year, your monthly pay comes out to $3,333.

How much is $40K a year daily?

A $40K annual salary comes out to $153.85 per day, assuming you work 40 hours per week.

Photo credit: iStock/Lyndon Stratford

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Shares of GameStop, as well as other similarly meme-driven stocks such as AMC, Koss BlackBerry, and Koss Corp., spiked in mid-May after the reappearance of “Roaring Kitty” on social media.

A post on the X platform by Keith Gill (known as Roaring Kitty) of a popular gaming meme signifying “things are getting serious” is believed to have reignited the meme stock phenomenon that had boosted GameStop shares more than 1,000% back in 2021. At the time, online investors rallied together to create a massive short squeeze that befuddled traditional investors and made headlines across the globe.

Meme stocks are stocks that go viral on social media platforms and quickly increase in price. Meme stocks have gotten a lot of attention in recent years, especially since the pandemic.

What is a meme stock exactly? Read on to find out more about meme stock investing.

What Is a Meme Stock?

Meme stocks are company stocks that have gone viral due to popularity among retail investors on social-media platforms.

In a traditional buy-and-hold strategy, investors seek stocks whose shares appear undervalued relative to the company’s fundamental worth or growth potential. In contrast, prices of meme stocks are closely tied to sentiment and chatter among day traders on the Internet, rather than the value of the underlying business. Meme stocks can be extremely volatile and risky.

Common Meme Stock Terminology

Meme stocks have a specific terminology that those who invest in them use. These are a few of the common terms:

Apes: These are members of the meme stock community

Diamond hands: This refers to hanging onto a stock, even if it suffers losses, because the investor thinks the price will go back up.

Hold the line: This is about standing your ground with meme stocks and holding onto them, despite volatility.

Tendies: Profits made in meme stock. The word is a play on chicken tenders.

To the moon: The belief that the stock will rise sky high.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Background on Meme Stocks

In the past, before the pandemic, when it came to institutional investors vs. retail ones, the former were thought to hold clout in markets. After all, the top 10 largest institutional investors at that time made up 43% of the average public company’s ownership, according to data from the Organisation for Economic Cooperation and Development.

But in 2021, small investors showed they could be a force to be reckoned with, coordinating trades on Internet platforms like Reddit, Twitter, YouTube, or Discord to fuel big price swings. These investors also helped drive moves in different types of cryptocurrencies as well as SPACs, or special purpose acquisition companies.

In January 2021, Investors on the Reddit forum “r/wallstreetbets” banded together and triggered a short squeeze in GameStop Corp., a popular short among hedge funds. When an investor or trader is shorting a stock, it means they’re wagering that the price of the shares will fall. A short squeeze refers to rapid price gains in a stock, as traders exit their bearish positions at a loss en masse.

Retail investors succeeded in triggering a short squeeze and losses for hedge funds, who then turned to trying to monitor social-media forums in order to spot the next meme stock.

However, controversy ensued when some brokerage firms halted trading in some meme stocks, citing an inability to post collateral at clearinghouses. Such moves led to angry retail investors and day traders and congressional hearings that looked into brokerage practices such as payment for order flow.

Recommended: A Guide to Wallstreetbets Terminology

How Does a Stock Become a Meme?

A stock becomes a meme when it goes viral. It may become popular on online platforms like Reddit, Twitter, and YouTube. A meme stock can gain a following in discussion groups in these platforms, and the online communities can fuel price swings in the stock.

Examples of Meme Stocks

The first major meme stock example was GameStop Corp., as mentioned above. Investors on the Reddit forum “r/wallstreetbets” banded together. They triggered a short squeeze, which drove up the price of the stock. In January 2021, GameStop stock went as high as $120.75 at one point.

May 2024 saw a surge of interest in the stock once again, when Roaring Kitty (a key figure in the original short squeeze) returned to social media after a three year absence.

Other meme stocks have included AMC Entertainment Holdings, Inc., a movie theater chain; Blackberry Limited, the smartphone maker; and Bed, Bath and Beyond, Inc.

Pros and Cons of Trading Meme Stocks

Benefits of Trading Meme Stocks

1.    Rise of Retail Trader: Retail investors have shown they need to be taken more seriously by the rest of the market.

2.    Younger Investors: Given the hyper-online ways in which meme stocks come about, younger investors have learned more about investing and trading through these social-media fads. Still, it’s unclear whether meme stocks will help engender healthy long-term financial planning habits for beginner investors in their 20s.

Risks of Trading Meme Stocks

1.    Lack of Fundamentals: Meme stocks tend to go viral not because of the performance or potential of the underlying business, but because of the sometimes irrational enthusiasm of retail investors and day traders. That puts meme-stock investors at greater risk of downward share performance, if the fundamentals of the business disappoint when the economy or markets dip.

2.    High Volatility: Studies have shown that passive, diversified investments tend to outperform active trading over the long term. The volatility of meme stocks means that investors are at greater risk of locking in losses or seeing their portfolios underperform in the near term. Take for instance, when trading was halted on GameStop, investors potentially couldn’t execute sell orders.

3.    Potential Stock Dilution: In some cases, meme-stock companies have tried to take advantage of higher valuations by issuing new shares. In such examples, it’s important that investors understand stock dilution, which occurs when the number of outstanding shares increases and every shareholder ends up owning a less significant piece.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

How to Trade Meme Stocks

Single-name stocks are also not the only ways investors can get exposure to meme stocks. Options trading in meme stocks tend to be liquid, often allowing investors to buy and sell calls and puts easily.

If an investor doesn’t want to research or follow specific meme stocks, another way to get exposure to the phenomenon is by buying an exchange-traded fund (ETF) that holds companies popular on brokerage platforms.

In addition, here are some precautions that investors can take when trading meme stocks:

1.    Diversify Your Portfolio: Rather than just holding meme stocks in their portfolios, investors may benefit from also getting exposure to more broad-based ETFs, blue-chip stocks, or dividend-paying companies. Such stocks tend to post more muted price moves, which may help offset the volatility of meme stocks.

2.    Set Stop-Loss Orders: Investors can pre-set orders so that a meme stock automatically gets sold if it hits a certain price. A stop-loss order can be used to lock-in profits, so if the shares rise, or to limit losses, if the stock’s price falls.

The Takeaway

In 2021 during Covid-19, the proliferation of zero-commission brokerage accounts and stay-at-home orders led to an individual-investor surge.

Sometimes, individual traders target companies with high short interest to turn into meme stocks. Certain meme stocks like GameStop and AMC capture news headlines by posting rapid, colossal gains, but once the trading frenzy subsides, many meme stocks also plummet. Investors may want to consider other, less risky investments for their portfolio.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What is a meme stock rally?

A meme stock rally is when a meme stock that became popular through social media skyrockets in price.

What is a meme stock ETF?

Meme stock ETFs are exchange-traded funds based around meme stocks. ETF meme holdings are made up of primarily meme stocks.

What investment strategy should you use for meme stocks?

Investing in meme stocks can be extremely risky. If you do decide to invest in them, you may benefit from also having other assets, such as ETFs or blue-chip stocks, in your portfolio to help diversify it. That may help offset the volatility of meme stocks.

Photo credit: iStock/RgStudio

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