One of the biggest aspects of like that we have to balance is our income. Are you looking at a new job that pays an annual salary of $120k? Or are you wanting to find out how to best manage your $120k income?
$120,000 is a staggering six figure income to some, but it might seem low to others. There are so many things to consider when looking at income and lifestyle.
In this article we will have a look at what it means to earn a yearly salary of $120,000, and answer questions on what you can do with that level of income.
Looking at the numbers
$120,000 is a big number, so it helps to break it down to see the financial reality you would be living with.
An annual salary of $120,000 breaks down to $10,000 a month.
However, this is the gross income with a salary of $120,000. You need to consider taxes and other payments before you can look at using your money on rent, food, or other purchases.
What is $120k per year hourly?
If we take US labor statistics and assume you are working a 40 hour week, this means that a salary of $120 per year is roughly $60 per hour. This is far more than double the US median hourly wage, which is around $16.50.
Tax on a $120,000 salary
You need to consider the tax on your income before you figure out what you can do with your money. Your exact income may vary based on what state you live in, which state you work in, and any benefits you receive.
The current federal tax brackets relevant to a $120,000 salary are:
- Up to $9,950 – 10% of the taxable income
- Over $9,950 but $40,525 – $995 plus 12% of not over the excess over $9,950
- Over $40,525 but not over $86,375 – $4,664 plus 22% of the amount over $40,525
- Over $86,375 but not over $164,925 – $14,751 plus 24% of the amount over $86,375
This means that an income of $120,000 is not at all near the highest marginal tax bracket.
Will tax make me worse off than when I earned less?
No, earning more money will not mean that you are worse off than before. This is a common fear because of tax brackets, but you will not end up with less money in total.
It is important to note that tax payments are set in bands. For example, if you earn $120,000 your income covers multiple tax brackets – you only pay the tax for how much money you earn in the relevant tax bracket. This means that you would have to pay all the correct tax brackets that your income is within.
How much tax will I pay on $120,000?
This means that an annual salary of $120,000 means you will pay roughly $19,000 in federal taxes. This may vary, and you need to make sure you know exactly how much money you need to consider for taxes, social security, pension payments, etc.
What will I be left with after tax on $120k?
A salary of 120,000 would mean that you have a post-tax income of around $101,000, but you need to consider other expenses and payments you may have to make as well. If you consider this level of take-home pay you can often work out how much you will have left over.
How does $120k annual income compare to other incomes?
While some people consider it unhelpful to compare your salary level to what other people earn, it can be useful for making some calculations and figuring out what expenses you can safely make. Of course, it is hard to do a complete comparison without considering several factors. Some of thing things that can affect how your income compares are:
- Student loan payments
- Debts and other payments
- Where you live
- Work costs such as commuting
- Healthcare payments
- Field of work
Nonetheless, it is possible to get a rough idea of how your income compares. Let’s try to get an idea for what the average person earns and the average salary in the US.
What is an average household income in the US?
The median income for the US was $67,512 in 2020.
This means that a salary of $120,000 is around double the US median household income, and it is almost four times the average single person income – only very high earners earn significantly above this.
This makes $120k a good salary to earn, and you could expect that this salary may lead to you being able to live a good life.
Is a $120k salary middle class or upper-middle-class?
It can be hard to keep track of what is considered middle class. Typically a middle class income will provide people a certain standard of living. This means that what is considered upper middle class income levels will be different based on the costs of living in a certain area. Generally, anywhere over $100,000 a year could be an upper class income.
What about more expensive areas?
A $120k yearly salary may be considered middle class or even lower in areas that have a brutal cost of living – for example, in Silicon Valley where soaring rent costs have meant that people have to have higher and higher incomes to live comfortably. The income needed to be considered middle class will be different from Los Angeles county to Northern CA to rural Utah.
Will I have a comfortable lifestyle with a $120,000 salary?
One of the most common questions people ask is about the salary needed to have a comfortable lifestyle. Of course, every person’s idea of a comfortable lifestyle is different – for some people it will be rather modest, but for others it would be a lifestyle that is considered rich.
The best way to see is $120k is a livable salary for you is to work out how you want to live. You have to consider what amount of your income will go towards paying rent or mortgage payments, as well as any other bills and any debts you have. After this, you can work out what disposable income you will have, and what this will help you afford.
What if I don’t live alone?
Your lifestyle will directly relate to your income and your outgoings. Having other people who financially impact you will of course affect your lifestyle.
Living with a partner?
It is important to consider your whole household income – if you have a partner, you can work out what your total take-home pay will be, which often increases the disposable income available to your both. If you live with a partner, your expenses will likely be less than double your expenses as a single person. This means that you will have more of your income left over.
What about children, parents, or other people?
On the other hand, if you have multiple dependants, you may find that a good salary does not stretch as far. Anyone who you have to financially support, such as your children, parents, siblings or anyone else, will be an expense that has to come out of your income. This means that you will have fewer disposable funds to spend on things you want, such as holidays, cars, clothes, etc. However, unless you have a very large number of dependants, you should still find that a good salary like $120k per year will allow you to live comfortably.
Location differences
Costs of living vary wildly across the country. The costs can be vastly different in different states, counties, or even different regions within a city. The best way to check what standard of living you will have in different areas is to look up a living wage calculation. This will show the minimum that people can realistically live on in a certain area. It is important to make sure that you are looking at the most recent information navaible, as rising annual costs, soaring rent prices and fuel costs have meant that it is more expensive to live in certain areas.
Is $120k a good salary to afford housing?
For most people, housing is one of the biggest concerns. Being able to live comfortably includes having a suitable house – one that is big enough, in a nice location, and has the amenities you want. However, it is not a simple yes or no question. There are many factors that affect the cost of housing.
Generally, if you are asking whether you can afford housing on a salary of $120k, you will usually find that you can afford housing in most areas.
Should I rent or buy?
In the past year, average rental costs have been around $1124 for a two-bedroom apartment. These figures are higher for houses. However, this fails to take into account the difference in prices in different states and regions of the US. For example, rental costs will be much lower in rural Kansas than in Silicon Valley, where soaring rent prices have meant that a salary of $120,000 would not let you rent the same kind of home you would find in Kansas.
If you are earning $120k a year, you should also consider whether you want to rent or purchase your own home. Buying your home can help you live comfortably because rental prices are generally higher than mortgage repayments for a similar property.
If you are certain that you want to live in a specific area for at least a few years, buying a home can be advisable. If you are not yet decided on a property, you may want to rent for longer, as this allows you to have more flexibility on where you live.
Can I get a mortgage on $120k annual income?
Yes, you should usually be able to get a mortgage with a salary of $120,000. There may be exceptions if you have a poor credit history or do not have a deposit saved up.
Typically, mortgage providers will allow people to borron four or five times their annual income. This means that with an annual salary of $120,000 you may be able to find mortgages for a total of around $600,000.
This does not mean that you have to borrow that much, of course. $120,000 is above the US average salary, and you may find that some areas have housing to purchase for much less. The average cost of a property in the US was $374,900, meaning that you can find much cheaper properties in some regions. The local cost of living can change a lot, so it is worth researching before you move somewhere.
What deposit should I save up?
If you are looking into buying a home, you will most likely need to save up a deposit. Most banks offer mortgages with as little as a 5% deposit. This means that you pay 5% of the property cost up front as your deposit.
It is important to remember that the higher percentage your deposit is, the less you will end up paying in the long run. Higher deposit amounts usually give you a lower interest rate on your mortgage payments.
If you can save up a higher deposit, it may be better to do so. This may be harder if you are a single person, but if your annual household income includes multiple salaries, you may be able to save up more than 5%.
What if I want a bigger house?
If you want to make sure you can afford al larger house, you may want to move somewhere with a lower cost of living. With remote working becoming more common, you may be able to move while still working a high-skilled job that has far above the national average salary. For example, you will find that the city’s median house price is higher in San Francisco than in San Diego. If you want to have a larger house than you could afford in San Francisco or Northern CA, you may want to move somewhere like San Diego or a more rural area.
How do I make the most out of a $120k salary?
The average person may not know how to make the most out of their income, especially if they have recently had a pay rise to boost their annual income. $120k a year is far above average salary for the US, so it can be hard to get advice on how to use it. Let’s look at some of the options for how to use your income.
Save for a rainy day
Part of being able to live comfortably is having savings in case you have an unexpected hardship such as a medical bill or a car repair bill. Many people on minimum wage do not manage to have these savings, which often causes a lot of stress and additional worry. It is always advisable to have emergency savings if you can.
How much should I save?
Most financial experts suggest that you have three month’s worth of expenses saved up. This means having enough in savings to cover your rent, food and fuel costs, household bills, medical insurance and any debts, for three months. This is useful in case you fall ill or lose your job.
Beyond this, it is always sensible to have savings to cover other emergencies. For example, you may want to have a separate savings account for if your car breaks or if something breaks in your home.
Invest for the future
While a $120k salary is over double the median income of the US, people often still want to protect their futures. Investments often help you grow your net worth to ensure that you have emergency funds and can potentially retire early.
Is $120k a good salary for investments?
With a yearly salary of $120k it is absolutely possible to start investing. You should always make sure that your investments do not eat into the money you need for living expenses. You also need to have separate easy-access savings, since the brutal cost of car repair bills or home repair bills need to be protected against. You may want to consider real estate investments as well as stocks and shares investments.
Should I have someone manage my investments?
Yes. If you are unsure how best to start investing, it is absolutely advisable to contact a financial planning advisor or an investment advisor to help make sure your net worth grows as quickly as possible and with minimal risk. Some investments can have hidden costs, so professional advice can save you money. You also need to make sure that the financial planner you use is reliable and trustworthy.
Spending
With a salary of $120k a year putting someone into the middle class, based on average household income, most people understandably want to enjoy the perks that this type of good salary offers. Let’s look at some advice regarding disposable income and expenditure.
Should I buy a better car?
Lots of people want ot buy a flashy car, and with over double the national average salary this may be possible. You need to consider the amount you have after taxes and living expenses and see if you can easily afford a better car – as mentioned, in some areas the living costs are higher than others. If you are in San Francisco you may not have the disposable income, since the California poverty measure is so much higher than other states.
If you are looking at buying a better car, you should consider a few factors. If you buy a fuel-efficient car you may find that running costs are lower than your current vehicle, whereas if you buy a sports car you will find that running and repair costs are higher – if you are unsure how much it costs to own a sports car, you can get advice on running costs from a mechanic, and advice on insurance from an insurance agent.
It is also advisable to minimise debt. If you currently own a car outright, it may be preferable to wait until you can purchase a new car outright – this means you can avoid having to make payments with interest on the vehicle.
Should I monitor my spending when I earn $120k?
Yes, you should monitor your spending, whatever amount you earn. Even a good salary of $120k can easily vanish if you make too many impulse purchases. Planning your budget and having a set amount for discretionary spending is essential to make sure that you do not end up in financial difficulties.
What should I avoid buying?
Even though someone with a salary of $120k might be considered rich by some people, it is still important to be realistic with your income and outgoings. You should avoid buying too many items that are on payment plans. While it is common to buy a new car or a new home on finance plans, buying anything on finance means that you will end up paying more in the long run compared to buying the items outright. It is often better to save up for items and buy them outright if you can.
Ultimately, even with a good median household income, you should avoid buying things that you cannot afford. If you think you may struggle to limit your spending, you should make a budget and get help from a financial advisor.
Conclusion
Hopefully this article has all your questions about earning a good salary answered, as well as giving good advice.
It can be very exciting to reach a salary of $120k. For many people this is when they consider themselves upper middle class, with a household income that is much higher than the median household income of the US.
Being this far above the median household income means that in a lot of areas of the US you would be in the middle class income bracket. However, it is important to remember that a good income in one part of the country is not necessarily as good in other regions.
It is important to keep track of your income and living expenses. $120k per year is a good salary and should mean that most people could live a comfortable life with enough spare income for treats and enjoyment. However, your lifestyle could still surpass your income, so it is important to get financial guidance if you feel you are going to struggle.
