There is no standard definition of a good or bad salary. However, you are bound to ask questions when you get a job offer with a salary of around $200,000 per year. In particular, is a $200k salary good? Can it boost your net worth?
Is a $200K Salary Good?
$200K a year is generally a good salary. It is almost 2.5x the national average salary for individuals in the United States and is enough to afford a comfortable lifestyle in most areas. Outside of a few major cities, you can also afford to buy a home, save for retirement, and cover daily expenses without struggling to make ends meet.
However, the perceived value of a $200K salary may vary depending on your personal financial goals and living situation. If you live in expensive coastal cities, a $200K income might not be enough to maintain your lifestyle, while people living in lower-cost areas may feel it is more than sufficient.
How to Determine if $200K Is a Good Salary
Undoubtedly, a $200k annual salary is much higher than the national average salary and considered upper-middle-class income. In some areas, you might even be considered rich.
However, since everyone has different financial situations, its sufficiency can vary significantly.
So, to determine if this income level is right for you, you will need to factor in:
- The cost of living in your area
- Your personal financial goals
- Your tax burden
- Your debt obligations
- Family size and the number of dependents
The Cost of Living in Your Area
If you live and work in a big expensive city like San Francisco, you might need help with this salary. While you will not be in a financial crisis, you may have to consider other high-paying jobs (depending on your college degree) to afford a comfortable life and cover your living expenses.
According to CNBC Make It, you might need to earn more than $200,000 on average to afford a good house in cities like San Francisco, Seattle, Oakland, and Los Angeles.
However, if you avoid expensive coastal cities and settle in more affordable areas of the country, $200k might be a good salary. A $200k annual salary should afford you a good life in most U.S cities. However, you will still need to watch you spending and work with a budget.
Your Personal Financial Goals
$200k/year is a lot of money and is often considered an upper-middle-class income in most areas. It is much more than the U.S. national average salary of $97 962 (2021), according to the U.S. Bureau of Labor Statistics, and even way higher than the average person’s salary.
However, considering the lifestyle you want to live, the kids you want to put through college, and your retirement goals, more than $200k is needed. It all depends on your value of financial security and what milestones you want to hit.
For instance, if your dream is to retire early, purchase a decent second home in a more expensive city, or with this salary range, you might afford to buy nice cars, you may need more than $200k per year. On the other hand, if you’re willing to put off long-term goals and live more modestly, this income level might be right for you.
Your Tax Burden
Depending on where you live and how much other income you have, earning $200,000 a year might leave you with more or less money than you expect after paying Uncle Sam.
If you earn a taxable income of $200k per year and file taxes as a single person or the head of a household, you would be in the 32% federal tax bracket. This bracket covers incomes between $170,050 and $215,950.
On the other hand, if you are married and filing jointly with your partner, you will fall in the 24% tax bracket with $200k a year.
Your Debt Obligations
If you have debt obligations that need to be paid, such as student loans or credit cards, it’s important to factor those in when determining if $200k a year is a good salary.
For instance, according to Nerdwallet, the average student loan debt for dental school is around $292,169. If you fall in this category and haven’t paid much of your student loan, earning $200k may not be enough to cover the basic expenses and still make progress on your debt.
Citizens Bank recommends having a debt-to-income ratio of no more than 36% of your gross income. That is around $72,000 if you make $200k annually. If this goes above 43%, you will need help with a $200k income.
Family Size and Number of Dependents
According to the United States Census Bureau, the median household income in the U.S. was $70,784 in 2021. This is much lower than a $200k income; therefore, it should be more than enough compared to what most households earn.
However, if you have a bigger-than-average family to support or any dependents who rely on you financially, it’s essential to consider their needs to understand whether $200,000 a year is a good salary.
Married couples making $100k each may have plenty of money to get by. However, single-parent households with the same income could find themselves struggling.
How to Make the Most of a $200K Salary
While earning $200,000 a year should enable you to lead an upper-middle-class lifestyle, you must be careful how you spend your money. I recommend taking a few steps to ensure you don’t splurge and end up living paycheck to check.
In particular, you should start with the following:
The most important step you can take to make the most of your $200k salary is to budget. Creating a budget will help track your spending and ensure that you live within your means.
If you need help with how to do this, you can use the 50/30/20 budgeting rule to guide you. This popular budgeting strategy suggests dividing your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings.
For example, if you live in Connecticut and earn $200k every year, your monthly net income will be around $14,976 according to iCalculator. In this regard, here is what a sample budget would look like:
50% necessities: $7,488 per month
- Rent/mortgage: $1,500
- Groceries: $600
- Utilities: $200
- Transportation: $400
- Insurance: $200
- Cell phone: $100
- Other necessities: $3,688
30% wants: $4,492 per month
- Entertainment: $400
- Eating out: $200
- Hobbies: $100
- Gifts: $100
- Vacation: $500
- Other wants: $3,092
20% savings/debt: $2,996 per month
- Savings: $1,000
- Debt repayment: $1,996
The next step is to start saving money. Based on the 50/30/20 rule, you should save at least 20% of your gross income, which is around $40,000 per year for a $200k salary.
Put this money into an emergency fund, retirement account, or other investments to ensure that you build wealth over time and increase your net worth.
You can save more money by living in lower-cost areas instead of a big expensive city if your job allows it. Additionally, you should always shop around when looking for a nice house to buy and reduce your annual expenses as much as possible.
Invest Your Money
Investing can be a great way to grow wealth, become rich, boost your net worth, and prepare for retirement. Most experts recommend investing at least 15% of your pretax income. If you earn $200k per year, you should invest not less than $30,000 per year.
Consider consulting with a financial advisor to develop an investment plan that works best for your goals and risk tolerance.
Most high-net-worth individuals are investors. Lucky for you, this salary is enough to invest, increase your income, and become rich.
Is a $200K Income Considered Middle Class?
A $200k income may be considered middle class in a more expensive city, while in cheaper areas, it may be considered upper middle class or even upper class. It is important to consider factors such as the cost of housing and healthcare when determining if a salary falls within the middle-class range.
Can a $200K Average Income Make You Rich?
A $200k income can make you rich. However, it will depend on your lifestyle and other factors. While this income can help you lead an upper-middle-class lifestyle, it may not make you rich. To truly be considered rich and increase your net worth, you must save and invest wisely.
What Jobs Have an Average Salary of $200K a Year?
Many jobs can help you make an average of $200k per year and be considered rich. Some examples of high-paying jobs that can pay that much include general surgeons, associate dentists, lawyers, financial managers, business executives, sales managers, and IT professionals
In the grand scheme of things, a $200K salary is well above the median household income in the U.S., which is was around $68,700. Therefore, it is considered to be a high income on a national level.
When deciding whether or not $200k is a good salary, it’s important to consider your circumstances, such as tax obligations, debt, family size, and balanced financial goals. By taking steps to budget, save, and invest your money wisely, you can make the most out of a $200k salary, boost your net worth, or even become rich.