The Net Worth Rule For Car Buying Guideline

Fantastic Car Sale13 year old Moose is starting to give me fits. His cruise control just died and I’m starting to worry about safety. I just spent $800 this summer on a new steering pump, timing belt, and 125,000 mile tune up so it’s disappointing to see another issue come up.

Besides the cruise control not working, the brakes are mushy, the airbags haven’t been serviced at the 10 year mark, the traction control and ABS lights are on, and a couple $220 M+S tires are balding. Oh yeah, the CD player doesn’t work either and there’s no bluetooth of course! My trusty mechanic of 12 years said Moose is operationally fine. The dashboard lights are just on due to a broken fuse lodged deep inside the control panel that makes it not worth replacing. Still, I have my doubts.

Now that I no longer have a job, I’m having a more difficult time accepting my 1/10th rule for car buying. I introduced the rule to those who still had to work for a living in order to not have to work forever for a living. It seems only fair that someone who is retired should be able to spend more than 1/10th their income on a car since they were able to cross the finish line don’t you think?

Based on the 1/10th rule for car buying, I can buy a new compact car. The problem is, I want the latest Range Rover Sport that costs $90,000! I’m not pulling in anywhere close to $900,000 a year so I’m forced to strategize and change my car buying guidelines to fit my desires. See how easy it is to justify our spending choices?


The 1/10th rule only accounts for one’s annual income when deciding on how much to spend on a car. Perhaps a greater barometer to determine car spending is your overall net worth. After all, if you can live in a 100% paid off $5 million mansion and live off $150,000 a year in disposable income you’re much better off than somebody who earns $300,000 a year with no assets to speak of.

Based on my net worth by income post, a 30 year old should have roughly 2X their salary in savings or overall net worth e.g. $60,000 annual income = $120,000 net worth. Hence, to keep consistent with the 1/10th rule for car buying and my net worth by income calculations, I think spending 5% or less of one’s net worth on a vehicle works very well (5% X $120,000 = $6,000 = 10% X $60,000). The net worth rule for car buying covers those who’ve retired, are temporarily out of a job, are a stay at home spouse, have a medical condition and can’t work full time and so forth.

Let’s say you worked for 40 years and accumulated a $1 million net worth by the time you are 65 through diligent savings and investments. You’re now living off roughly $60,000 a year from social security, dividends, and a pension. The 1/10th rule says you can only buy a $6,000 car which seems much too onerous for a person of your stature. It’s time to live it up a little! My net worth rule provides a guideline for the retiree to buy up to a $50,000 car instead.

Below is the net worth guideline by income chart for your review. As you can see below, a 50 year old person who makes $200,000 a year and has a $2,400,000 net worth should feel comfortable spending up to $120,000 on a sweet Porsche 911 CS instead of just $20,000 on a Honda Civic. Whether he does or not is another matter. If I’m sporting a $2.4 million net worth and $200K income, I’m still driving a $20,000 car, but that’s just frugal me.



Cars are so much fun. I understand every single one of you who salivate over the latest model sports car or SUV. But cars are also the biggest money wasters. Nobody really needs a car that costs over $5,000. Cars built after 2000 are so much more reliable than those building in the 70s, 80s, and even 90s.

The money we spend on cars could be invested in real estate or stocks that will super charge our net worths. I’d like every car buyer to think in terms of opportunity cost when making a decision on which vehicle to get. Every time I think about plunking down $50,000 on a new BMW, I shudder to think how it could turn into $100,000 10 years later if it grows at 7.2% a year.

Basing a car buying decision on one’s net worth may actually be harder than basing a decision based on income. Our net worth is a lifetime achievement whereas income is only one year at a time. Are we really comfortable spending 1/20th of our lifetime’s work on a depreciating vehicle? Maybe, but that should certainly be the max.

Car Buying Guide Chart By Net Worth


Check for lower insurance rates. Auto insurance is the second biggest expense to owning your car. Esurance is the leading online market place to help you find the most affordable and reliable auto insurance. They get you comparison quotes to make sure you’re getting the best deal. You can easily purchase auto insurance straight from their website if you like what you see. It is very important that everyone gets at least basic liability car insurance. You can total your car and be fine. But if you total someone else’s car and injure them, they can go after you for ALL your assets and wipe you out! Check for a better auto insurance quote via Esurance today.

Sign up for Uber and get a free ride! Uber is one of the cheapest and most convenient ways to get around town. They are much cheaper than a taxi (~30% less) and much more reliable because you hail them through an app and can track their progress. There’s never any cash or tip to pay since everything is linked to your Uber account. No more auto accidents, parking tickets, or maintenance costs either. If you sign up for Uber, you get your first ride up to $30 for free!

Photo: $100 off. What a sale! FS



Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

You can sign up to receive his articles via email or by RSS. Sam also sends out a private quarterly newsletter with information on where he's investing his money and more sensitive information.

Subscribe To Private Newsletter


  1. Ed says

    Honestly, Sam, some people don’t care about having 5 million when they are 60 yrs old. You can either lead a mediocre life saving and investing all your young years, and then live extravagantly when your old and wrinkly, and only have 20 yrs or so until your dead.


    You can live a enjoyable life your WHOLE life, never becoming rich. I’m your age, drive a c63 amg, and only worth 200k. But thats ok. I don’t mind. I don’t care if I only have 1million vs 5 million when I’m old. I don’t care to leave my millions to my children. I’m a car lover, and it’s one of my few hobbies. Live is about enjoying reasonably your whole life, not trying to amass wealth when your old. Thanks for reading!

  2. Chaz says

    We found this very interesting as we have had a similar process for house and car for decades. Ours is a tad more conservative though: 5% NW for house and 1% for total of cars. This is , obviously, too restrictive for younger folks just starting out. We adopted this over the years as we observed a lot of “wanna-be” folks in our area ( big hat, no cattle). This approach is certainly not for everyone but we are quite content with the results. It allowed us to retire in our 50’s and do as we please. The money that would have gone to house and cars is used for travel- just depends on what folks find important to them.

  3. $iddhartha says

    I enjoy your car buying posts. I think they may be a tad too restrictive for some on the lower end of the spectrum, but these low percentages are the wake-up call that many people need from a financial health standpoint.

    To poster above, maybe I’m misunderstanding your particular brand of math, but the 5%/1% NW rule sounds downright miserly unless you are a multimillionaire.

    I think Ed makes an excellent point that some people have a preference towards spending money early in life rather than binge saving. He seems to be enjoying his AMG. I would only argue that I don’t think it is precisely an either/or proposition. Once you have a good retirement base going, you can continue to save and spend a little more.

    Also, I think it’s worth noting that there’s an abundance of enthusiast-approved vehicles that fall into $10k-$50k range… especially when considering used.

  4. lostboy says

    It depends on how you calculate networth. The majority of my networth is in my businesses and factoring their value I would have a networth that allows for a 100k car. If I were to factor just my cash and home equity it would only allow, by your standards, a 20k car.
    However, as one of the previous comments stated it sometimes doesn’t matter…

  5. RainMeister says

    How true the old adage: “Life is about Compromises”. Do we enjoy life now, or later? Will we have enough later, if we spend now? And then you toss in the “What is the meaning of happiness?” question.

    I am a car nut. Have been since I could walk and talk. I have over $3M in net worth, and pull in over $430K/year. I drive an 11 year old Infiniti with just over 100K miles, and I’m sure it will keep running for another 10 years as I’m meticulous with maintenance. Yet, the emotional tug of buying a new car constantly creeps up on me. So articles like this help me see clearly again.

    In response to the car enthusiasts out there, here is what I recommend. Get yourself a classic car. It doesn’t have to be expensive, or shiny, or even be considered a “classic”. I have a 1967 Alfa Romeo Duetto that I bought about 10 years ago for $11.5K from the original owner, who had had it restored to street quality.

    I greatly enjoy driving it on weekends. Registration is just $150/year. The only major repair has been an engine overhaul at $6K. My annual insurance is $200 for full coverage at an agreed value of $20K. I’ll have to bump that up now because these cars have appreciated, and are fetching $40K at auction! Not a bad investment for a car.

Leave a Reply

Your email address will not be published. Required fields are marked *