When you're working low-paid jobs, the excitement and hope that comes with the possibility of earning $20 an hour can be a huge boost.
So, is $20 an hour a good wage? How does it compare to $19 an hour or $21 an hour? Like so many of life's important financial questions, the devil is in the detail.
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$20 an hour is how much a year?
Let's start by breaking down what $20 an hour means regarding annual salary.
- Part-time work. If you work part-time at $20 an hour for around 20 hours per week, you will be making around $20,800 per year.
- Full-time work. If you work full-time at $20 an hour and work around 40 hours per week, you will make around $41,600 per year.
Of course, this is a rough estimate, as taxes and deductions will take a portion of your earnings.
How much is $20 an hour per day?
It's also important to think about how much you will be making daily based on your work schedule, especially if you are looking at working flexible hours.
- Part-time work. If you work around 4 hours per day at $20 an hour, you will make around $80 daily.
- Full-time work. If you work around 8 hours per day at $20 an hour, you will make around $160 daily.
How much is $20 an hour per week?
Here's how much you could make weekly based on a part-time or full-time work schedule.
- Part-time work. If you work around 20 hours per week at $20 an hour, you will make around $400 per week.
- Full-time work. If you work around 40 hours per week at $20 an hour, you will make around $800 per week.
How much is $20 an hour bi-weekly?
If you are paid bi-weekly, that means that you will be receiving a paycheck every two weeks. This means that your income will vary depending on how many days there are in the pay period. We're just going to assume you would be working 20 hours part-time or 40 hours full-time each week.
- Part-time work. If you work around 40 hours total in a bi-weekly pay period at $20 an hour, you will make around $800 bi-weekly.
- Full-time work. If you work around 80 hours total in a bi-weekly pay period at $20 an hour, you will make around $1,600 bi-weekly.
How much is $20 an hour per month?
Don't forget to consider how many working days are in the month, as this will affect your pay.
- Part-time work. If you work around 80 hours total in a month at $20 an hour, you will make around $1,600 per month.
- Full-time work. If you work around 160 hours total in a month at $20 an hour, you will bring in around $3,200.
How much is $20 an hour quarterly?
To calculate how much you will be making on a quarterly basis, you will need to look at how many working days are in the quarter.
- Part-time work. If you work around 240 hours total in a quarter at $20 an hour, you will make around $4,800 per quarter.
- Full-time work. If you work around 480 hours total in a quarter at $20 an hour, you will make around $9,600 per quarter.
Living on $20 an hour
Now, let's consider whether $20 an hour is enough to live on. This will depend on various factors, such as where you live, your expenses, and your lifestyle.
Is $20 an hour enough to live on?
For some people, $20 an hour may be enough to sustain their lifestyle. However, for others, it may not be enough. Here are some scenarios to help you decide if $20 an hour is livable.
- Young college graduate. A young college graduate who is single, with no dependents, and living in a low-cost-of-living area may be able to live comfortably on $20 an hour.
- A middle-aged person changing careers. This group typically has a family to support and may be unable to live comfortably on $20 an hour unless they're situated in a rural area where it's much cheaper.
- Someone living in a rural area. Rural areas are typically cheaper for most everyday things, making life on $20 an hour much more of a possibility, although life luxuries will most likely remain unattainable.
- Remote worker. A remote worker living in a low-cost-of-living area may be able to live comfortably on $20 an hour, especially if single or living the van life.
- Single parent. A single parent may struggle to live comfortably on $20 an hour, particularly if they have multiple children and live in a large city where life costs more.
$20 an hour vs the national average
According to the Bureau of Labor Statistics, the national average wage in the USA is $33. This means that $20 an hour is considerably lower than the national average, but can still be a decent wage depending on your personal financial circumstances.
$20 an hour vs the national median
According to the Bureau of Labor Statistics, the national median hourly pay in the USA is $27. $20 an hour is significantly lower than the national median hourly pay.
The impact of inflation on the value of $20 an hour
Inflation is essentially a tax that strips away buying power over time. It's important to consider this when thinking about your earnings over time.
To mitigate the impact of inflation, you can consider investing your money, saving for emergencies, and looking for ways to increase your earnings over time.
You may also want to plan a path from earning $20 per hour to earning more. For example, you may need to upskill, consider working for a different company, or change careers to something completely different that pays more on average.
Who is $20 an hour a good salary for?
It's impossible to list all the conceivable scenario, so here are two at the opposite ends.
- Good: A single person living in a rural area where it's possible to live relatively cheaply, mostly because of lower housing costs.
- Bad: A family of four living in a high-cost-of-living area with credit card debts and a mortgage.
Housing on $20 an hour
Let's now look at housing on $20 an hour. This will depend on whether you are renting or buying a house.
Is $20 an hour enough to move out?
If you are considering moving out of your parent's home for the first time, you may be wondering if $20 an hour is enough to sustain your lifestyle.
The answer to this question will depend on factors such as your area's cost of living, expenses, and lifestyle.
You will also need to consider the costs associated with renting, such as a security deposit, heating, electricity, etc.
If you plan to move from your family home to a large city, life on $20 an hour may be challenging unless you are happy to rent a small apartment or studio in a less-than-desirable part of town or a room in a shared house.
However, if you intend to move out of the city to a rural location, you are more likely to earn enough to cover rent and still have enough left over to fund fun activities.
How much should rent cost per month on $20 an hour?
If you are considering renting a house or apartment, you will need to consider how much you can afford to pay each month. As a general rule of thumb, your rent should not exceed 30% of your monthly income.
So, if you were to work full-time at $20 an hour, you could justify spending 30% of $3,200 (before taxes).
Is $20 an hour enough to buy a house?
There's no easy way of saying it: buying a house when earning $20 an hour is a challenge, but, again, it depends.
What's affordable?
Your salary will impact the affordability of a house. You will need to consider your loan-to-value ratio (LVR), how mortgage affordability is calculated using multiples of income, and your debt-to-income (DTI) ratio.
To increase the maximum amount you can borrow, get your finances into shape first. That means paying down your debts (because of the DTI ratio), building your credit score so you can get lower rates, saving for the deposit and fees, and building an emergency fund.
However, even with all your ducks in a row, at $20 an hour, you'll be extremely limited in terms of what you can buy on the market.
Where's affordable?
The affordability of houses will depend on the real estate market in the area you want to live. There are substantial differences in real estate values in large vs smaller cities, which you can use to your advantage if you're prepared to be flexible.
But you'll probably not have the buying power required if you want to live in a coastal city center when you're earning $20 an hour.
Down payment size
You will need a certain amount of money saved for a down payment. The amount needed depends on various factors, such as the house price, your credit score, and how much mortgage you can get.
For example, if you are buying a cheap apartment in a rural town, have very good credit, and have few outgoings, you may be approved for a bigger mortgage and therefore need a smaller down payment.
If you are determined to buy, start saving.
Fees
When buying a house, you will need to consider the various fees associated with the process. This can include mortgage application fees, moving fees, legal fees, etc.
It's best to have the funds set aside for these before initiating the purchase.
Buying a car on $20 an hour
Let's now look at whether you can afford to buy a car on $20 an hour. And if you can, does it have to be a beater?
Is earning $20 an hour enough to buy a new car?
Whether earning $20 an hour is enough to buy a new car largely depends on several factors, including:
- Your budget. Calculate your monthly income and subtract all your fixed expenses (rent/mortgage, utilities, groceries, insurance, etc.). The remaining amount is what you potentially have available for a car payment.
- Price of the car. The cost of new cars varies widely. Some new cars can be purchased for around $15,000, while others can cost $30,000 or more. The type of car you want will significantly impact your finances.
- Down payment. The more money you can put down upfront, the lower your monthly payments.
- Interest rate. Your credit score will heavily influence the interest rate you receive on a car loan. The better your credit, the lower your interest rate, and hence the lower your monthly payment.
- Term of loan. The length of the loan will also affect your monthly payment. A longer-term will result in lower monthly payments, but you'll pay more interest over time.
- Other costs. Don't forget about the costs of insurance, maintenance, and fuel. These will add to your monthly car expenses.
While $20 an hour could be sufficient to purchase a new car, it heavily depends on the abovementioned factors. It's always recommended to carefully consider your personal financial situation and potentially consult with a financial advisor before making a significant decision such as this.
$20 an hour is less than the national average, so buying a new car — even if it's cheap — will eat a chunk of your income and potentially start a debt cycle.
In short, you might want to consider buying a used car instead.
Is it better to lease a car on $20 an hour?
Leasing a car may be a more affordable option for someone earning $20 an hour, as it often requires lower monthly payments and less upfront costs than buying a new car. However, it's crucial to remember that leasing a car doesn't build equity, meaning you won't own anything at the end of the lease term.
Moreover, leases come with mileage limits, and exceeding these limits can lead to hefty charges. They also typically require you to maintain the car in very good condition, which could incur additional costs if the car gets damaged.
On the other hand, leasing allows you to drive a newer model car and switch to a new vehicle every few years. It can also include certain benefits, such as maintenance and repair coverage, depending on the terms of your lease agreement.
Whether it's better to lease a car when you're making $20 an hour depends on your financial situation, lifestyle, and personal preferences. If you're trying to keep monthly costs down, don't drive excessively, and prefer to have a newer model car, leasing could be a good option for you. But if you're looking to build equity and have no mileage constraints, buying a used car may be a better choice.
That said, a growing number of companies offer car subscriptions, a form of leasing that you could use for the short term until you earn more.
$20 an hour and money management
Managing your money properly is important for everyone, but even more so when earning $20 an hour.
Can you do the 50/30/20 budget on $20 an hour?
The 50/30/20 budget is a budgeting strategy popularized by Elizabeth Warren. It involves allocating 50% of your income towards necessities, 30% towards wants, and 20% towards savings.
While this may be difficult to maintain on $20 an hour, it is still possible with some careful planning.
The main way you can make the 50/30/20 budget work is to avoid getting into debt in the first place, i.e. be disciplined with your money from day one. As the saying goes, mind the cents and the dollars will take care of themselves.
Is earning $20 an hour enough to get a credit card?
Earning $20 an hour may be enough to get a credit card, but the question is whether it's a good idea.
Since your hourly earnings are lower than average, spending on a credit card can get you into debt you can't get out of if you don't pay off the balance every month.
Furthermore, most of the best credit cards — those that earn points per dollar spent — will not be an option due to their minimum income criteria. That still leaves you plenty of options, such as credit builder credit cards and low income credit cards, but they will typically lack the bells and whistles of rewards credit cards.
Is it possible to invest on $20 an hour?
Investing your money can help you grow your wealth over time. While it will be more difficult to invest on $20 an hour, it is still possible with some careful planning and research.
Everyone has to start somewhere. Warren Buffett built his massive fortune with astute investments, and you can too.
The difference between most of us and the likes of Buffett, Munger, and Dalio is time. Start small, but stay consistent.
Improving your credit score on a $20 hourly wage
Improving your credit score is important when earning $20 an hour. You'll thank yourself in years to come if you nail the basics at this stage. Here are some tips:
- Pay your bills on time. Late payments can negatively impact your credit score.
- Reduce your debt. Lowering your debt can improve your credit score.
- Check your credit report. Ensure that there are no errors on your credit report that may negatively impact your score.
Building an emergency fund with a $20 hourly wage
Most Americans don't have a penny set aside for a rainy day. Don't be one of them!
Building an emergency fund is important for us all. It's especially important when earning less than the national average since even the slightest unforeseen problem can force you to borrow when you've got nothing to fall back on.
- Start small. Even setting aside a small amount each week can add up over time.
- Automate your savings. Set up automatic transfers to your savings account.
- Keep your emergency fund in a separate account. This will help you avoid the temptation to spend the money on non-emergencies.
Taxes on $20 an hour
If you work full-time (40 hours per week) at this wage, your annual income before taxes is approximately $41,600. You may fall into a mid-level income tax bracket, so exploring strategies that can help reduce your tax liability is crucial.
Tax deductions
Tax deductions are specific expenses you've incurred throughout the tax year that can be subtracted from your taxable income, reducing the amount of income tax you owe. Some tax deductions you may qualify for include:
- Standard Deduction. A fixed dollar amount reduces the income you're taxed on. The amount varies based on your filing status.
- Home Office Deduction. If you're self-employed and work from home, you can deduct some of your home expenses, including rent, utilities, and maintenance.
- Student Loan Interest Deduction. You can deduct the amount paid toward interest on student loans, which can be beneficial for recent graduates.
- Health Savings Account (HSA) Contributions. Contributions to an HSA are tax-deductible and can be used to pay for qualifying medical expenses.
- Retirement Contributions. Contributions to a traditional IRA or 401(k) can reduce your taxable income, encouraging long-term savings.
Tax credits
Unlike deductions that reduce taxable income, tax credits reduce the amount of tax you owe, dollar for dollar. Some common tax credits include:
- Earned Income Tax Credit (EITC). A refundable credit for low- to moderate-income working individuals and couples, particularly those with children.
- Child and Dependent Care Credit. This credit is available for costs related to the care of a child or dependent, allowing you to work or look for work.
- American Opportunity Tax Credit. This credit covers expenses related to the first four years of post-secondary education.
- Lifetime Learning Credit. A credit for qualified tuition and related expenses for students enrolled in eligible educational institutions.
