The 1/10th Rule For Car Buying Everyone Must Follow

Old Car In EstoniaAfter introducing the 1/10th rule for car buying in 2009, some people changed the way they went about purchasing a car. Meanwhile, many more complained my rule was too onerous for the typical income earner.

I watched in horror as a total of 690,000 new vehicles averaging $24,000 each were sold under the Cash For Clunkers program in 2009. The government’s $4,000 rebate for trading in your car ended up hurting hundred of thousands of people’s finances instead! Your $20,000 invested in 2009 in the S&P 500 index would now be worth over $45,000!

Buying too much car is one of the easiest and biggest financial mistakes someone can make. Besides the purchase price of a car, you’ve got to also pay car insurance, maintenance, parking tickets, and traffic tickets. When you add everything up, I’m pretty sure you’ll be shocked at how much it really costs to own a car and barf!

The 1/10th rule for car buying is simple. Spend no more than 1/10th your gross annual income on the purchase price of a car. If you make the median per capita income of ~$42,000 a year, limit your vehicle purchase price to $4,200 if you must buy one. Absolutely do not go and spend the median car price of $24,000!

A median income earner buying the median priced car is financially absurd. Who spends 60% of their gross salary on the purchase price of a car? Worse yet, who spends 75% of their net income after 20% taxes on a car?

WHY YOU SHOULDN’T SPEND MORE THAN 10% OF GROSS ON A CAR

1) Maintenance costs: We’ve got auto insurance, maintenance, parking tickets, and traffic tickets. Furthermore, the thrill of owning a new or new used car lasts for only several months, but the pain of paying the same car payment lasts for years.

2) Opportunity cost. When you buy a car you lose the opportunity of investing your money in assets that will likely grow and pay you dividends in the future. Everybody knows to save early and often to allow for the effects of compounding. Buying too much car is like negative compounding! Imagine how much money you would have accumulated if you invested $300-$500 a month in the stock market over the past three years instead of paying for a car? Probably around $15,000-$30,000!

3) Stress. When you pay more than 1/10th your income for a car, you will become more stressed. The stress you feel from not wanting to park your car in a crowded lot is completely because you cannot afford your car! If you are within 1/10th of your income, you drive and park stress free. You stop caring about door dings, bumper scrapes, even break ins. Stress kills folks.

4) Makes you want more. The nicer your car, the nicer your other things. You start thinking stupid thoughts like: I’ve got to buy a matching chronometer watch, driving shoes, and outfit. You start paying $20 for valet because you want people to see you come out of your car instead of park for free. Having nice things makes you want to have nice everything!

5) Makes you feel stupid. Deep down, you know that if you can’t pay cash for your car and have money left over, you can’t afford the car. Each payment you make is a reminder how foolish you are with your money. Why would you want to be reminded every single month of being dumb?

IF YOU’VE ALREADY MADE THE MISTAKE

Look, everybody makes dumb financial moves all the time. The important thing is to recognize your mistake, stop, and fix it! Here are some things you can do if you’ve bought too much car already.

1) Own your car until it becomes worth 10% of your income or less. This is the simplest solution if you’ve spent too much. Drive your car for as long as possible until the market value is worth less than 10% of your gross annual income.

2) Bite the bullet and sell your car. If you’ve spent anything more than 1/5th your gross annual income on a car, I’d sell it. It’s making you poor. Even if you have to take a little bit of a hit, I think it’s worth getting rid of your vehicle. Don’t trade it into the dealer because you’ll get railroaded. Instead, try negotiating via Craigslist.

3) Punish yourself. If you don’t punish yourself, then you will repeat your mistake and feel fine with what you have now. For the life of your car loan, take away a food you love to eat such as chocolate. If you are a coffee addict, swear never to drink that stuff again! Save more of your income after taxes and feel the squeeze so that you realize how ridiculous your car spending is.

RECOMMENDED CARS BY INCOME (TASTES MAY DIFFER) 

1/10th Rule For Car Buying Chart

Cars built in the 1990’s and beyond are so much more reliable than those built prior. If you are serious about improving your finances, consider buying a car with less options, and less electronics to deal with. The more you have loaded in your car, the more maintenance headaches you will have in the future.

Financial Status Based On Your Car Spending Habit Chart

THE CHOICE IS YOURS

Treat the 1/10th rule of car buying like a game. You will be surprised to find how many different type of cars you can buy with 1/10th your income if you make over $25,000 a year.

If you want a $30,000 car, get motivated by the 1/10th rule to figure out a way to make $300,000 a year. If you can’t get motivated, then fine. Just don’t think you can afford much more. Think about your future and the future of your family. A car is simply there to take you reliably from point A to point B. If you’re thinking about prestige and impressing others, don’t be silly. Owning a nice property is way more impressive because at least you can potentially make some money from the asset!

One of the worst combos is owning a car that you purchased for much more than 1/10th your gross income and renting. You now have two of your largest expenses sucking money away from you every single month. Think about all the wealthy people you know, or the millionaires next door. Chances are, the majority of them own their homes and drive used cars that don’t come close to 50% of their gross income.

If you want to achieve financial independence and not have to worry about material things stressing you out, follow my rule. If you want to detonate your finances and end up working longer than you want for the sake of a nicer ride, then go spend more than you can afford. One life to live right? All is good!

Recommendations To Protect And Grow Your Wealth

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. Furthermore, you won’t get any more parking and traffic tickets either. If you sign up for Uber, you get your first ride up to $30 for free!

Manage Your Finances In One Place: The best way to become financially independent is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month. An excellent feature is their 401k Fee Analyzer which highlighted $1,700 a year in fees I had no idea I was paying. There is no better financial tool online that has helped me more to achieve financial freedom.

Updated: 9/14/14

Best,

Sam

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.

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Comments

  1. Bains says

    I was about to buy a used BMW xdrive 535 for about 35k but i accidentally read your article(the night before going to the dealer) and followed your advice and instead bought a used accord for 16k and the remaining money is sitting pretty in my 401k.
    -Thanks

      • DemandSider says

        If you are in Minnesota, put a max price of $2000 to $5000 dollars in to “cars and trucks” search in Craigslist. Find a car below 70,000 miles with little to no rust and some kind of fuel injection. If you find something older that is carbureted but is almost mint (you will find one), make sure you know how to start it in all weather. Older people drive Crown Vics, Caprices, Continentals, Acclaims, Shadows, Spirits, etc., and they tend to put few miles on their cars and baby them. Do the math on your annual mileage and fuel use to see if a low mileage yet safe V6 or V8 is feasible. Foreign cars tend to be way too expensive for the mileage.

    • BEN says

      While I’m also glad you didn’t spend 35k on a used BMW… please tell me you did not take a loan out of your 401k. Your comment suggested that you were going to pull money out to buy a car which is not a great way to save for retirement.

      • Winston says

        That’s not how I read it at all. I think he means that the money he didn’t spend on the Bimmer ($35k – $16k = $19k) is going INTO his 401k.

  2. Shyam says

    While i think that many of FS’s nuggets of wisdom are right, I think this car rule thing, especially buying the used car suggestion is ‘soul deadening’. I have bought both new cars and used cars in my 25years of working and now that I am 50, I can say with a few years of wisdom under my grey hair that the joy of buying a new car is like falling in love. Yes it may last only for 3 months but those 3 months are worth it. Buy a new car I’d say even if you need to tighten up on other things for a few months BUT use it till it becomes 10% of your annual income as he says.

  3. Retireded says

    Buying awesome used cars is another art of being cheap. I drive a lexus LS, according to that chart I should make half to a million a year. But I bought a 12 year old one in great shape with reasonable miles for $5200 from a lexus dealership. That’s my second Lexus V8 and I’m in my mid 20’s. Blows the doors off buying a brand new piece of junk, and more reliable. You are taking a much greater risk with the German makes as they are much less reliable. Most people looking for a cheap reliable car buys civics, corollas hyundais etc, so there are no deals on them and in my opinion are excessively expensive used.
    Deals on larger luxury vehicles that burn a bit more fuel are a dime a dozen compared to small cars, and the gas difference between my car and a civic is negligible (IMO).
    Just like anything else, if you know the car market, you will always drive a great car as deals are ubiquitous.
    Other than ignorance, I’ve never understood why the average joe would want a new car, spend $18000 on a new kia rio or he could buy a 6 year old LS460 that cost like $80000+ just a few years before, and will outlast the newer car 9 times out of ten.

    • Drew says

      Because a 6 year old LS460 will have more expensive problems sooner “9 times out of 10″ than a brand new Kia Rio that will carry a warranty for at least the next few years.

      Buying used luxury cars is a great idea if you want the feeling of luxury without the price tag imo. But don’t try to make the argument that a 6-year old luxury car is more reliable than brand new car because that simply isn’t true.

      And also one thing that never changes is the cost of maintenance/repairs on luxury cars. It will always cost more to fix a car with an $80k MSRP than a car with an $18k MSRP.

      • says

        9/10 tims, Drew has no idea what he is talking about.

        Ask anyone familiar with Lexus, and they will tell you they, even though they are luxury vehicles with big V8 engines, are more reliable than alot, if not most cars out on the road.

        Mass produced, plastic junk like Kia Rio’s don’t hold up for nothing. You can scour the classifieds and find tons of high mileage Lexus LS’s and GS’s, but how many high mileage Kia Rio’s and the like will you find?

        That “warranty” also isn’t as reliable as it seems, as everyone who’s been to a dealership knows what to expect when they start going in there for the service work, and for serious problems that “should” be covered on the warranty. If you don’t mind playing phone tag with the service and dealership managers, mechanics, regional headquarters, all to just get what you thought the warranty would give you effortlessly, then go right ahead and play the games every dealership plays.

        They don’t make money on the sales of new cars. They make it by bleeding you every time you step into their service centers from then on out. The manufacturer already has your money they need once you pull it out the lot.

        Unless you are completely financially secure for years to come, there is NO reason to buy a brand new or within 2 year old car from the manufacturer’s dealership. It’s nothing but never ending hassles and games with them, and you automatically literally lose 10-25% of the value driving it off the lot.

    • German Driver says

      I for one did not follow the 1/10 rule, I never heard of it before and since I keep my cars forever how does this factor into the rule?

      I believe in spending a little more to get something nice and I know will last longer. In the long run you are saving money when you don’t have to replace or repair it as you do with cheap made items (this is my mindset with everything). Also never pay interest on anything, do without and save until you can buy what you want. Using this idea since a young age I was able to build a new home and be totally debt free in my mid 30’s. I see it all the time with people around me, my one expensive item outlast 3-4 of their budget items, after several year they are spending 2-3x more and still have a cheap item they will need to replace again.

      Back to the cars, Don’t be afraid of old German cars. I have been driving German cars for over 20 years and still have the first one I ever bought. They have all been problem free, you just have to take care of them and do all the maintenance as recommended. Also wash, wax and detail them often, inside and out, including the motor, trunk and wheel areas, all my cars look like they just came off the showroom floor. Also if you are a DIY type of person you will find they are some of the easiest cars to work on. Doing your own maintenance on any car or around the home will save you money. For parts only use OEM or brand name performance part, prices are less then most domestic cars.

      As for how long will they last. I currently own 5 German models, sport and luxury, I bought them all used and paid cash for all of them. I have a car from the mid 80’s that get over 40 mpg, 2 from the 70’s that start and run like new (yes they were fuel injected in the 70′) as for our daily drivers my wife has a 2001 VW with over 300k miles (said she is excited to be on the way to 500k) and I drive a 1999 Audi with over 200k miles.

      If you keep your car is in great shape you might not have that feeling of wanting something different. If you do you can upgrade the radio, get a new set of wheels or change the color with a vinyl wrap for very little cost.

      An added plus of keeping your cars and keeping them nice is that my 70’s and 80’s models are worth 2-3x what I paid for them. That’s an investment you can enjoy!

  4. Jay says

    Preach!!! Thanks! I absolutely needed to read this.

    All in all, wonderful site. I’m turning 24 next month, have just over $10,000 in the bank. I’m getting antsy as to what to do about my money/lack of money. Your blog is really helping. :)

    • Jake says

      $10k is a good start but I hope you’ve been investing it not just leaving it in a bank account losing value every year. You’re young enough that you can manage the risks of the market. Put it into an S&P 500 index fund, ideally Vanguard since they have the lowest load (fees). That $10k may very well become about $500k by 65 years old. I assume you are in the 10% or 15% tax brackets, if so a Roth IRA would be perfect.

  5. Jake says

    I don’t like this 1/10th rule. It does nothing to account for how long you hold the vehicle. If Chuck earns $50k/yr and buys a car for $5k every three years but Steve earns $40k/yr and buys a car for $10k and keeps it for 10 years, who is the winner here?

      • Jake says

        Please re-read the comment. I’m assuming you keep any car, be it $1k or $100k for 10 years. The point was that the amount you spend on a car should not be a percentage of your annual income but the best ROI. I drive my cars for 10 years. I spend a higher percentage than the article recommends yet over a 10 year span spend less than someone who could be following this guidance..

        • Bud Mor says

          Actually Jake, you should probably re-read your own comment. You did actually say that the $5K car would only be kept for 3-years while the $10K car would last 10-years; not both for 10-years.

          And I think you raise a very fair question, but I’m not sure how one can answer it. I’m sure there must be the information out there that can estimate the life of a good $5K car compared to a good $10K car.

          I did hear somewhere (maybe here) that the sweet spot in terms of age and depreciation is to buy a car that is 4-years old. Autotrader.com has over 500 cars for sale nationally that are 2010 or more recent, with fewer than 30K miles, costing $10K or less.

  6. Joe says

    Too many people think they have the right answer for how much car you buy, or how much house you buy, or how much you should spend on an engagement ring, or how much to spend on an annual family vacation and they are all wrong… It’s how much car AND house AND ring AND vacation you can afford. Let me explain…

    I created a promise to my wife and myself shortly after graduating college and getting my first job. I swore that I would never have a monthly mortgage payment greater than 15% of my gross income. If we need a bigger/more expensive house I will have to wait. Because my saary has increased since buying my home I still make payments equal to 15% of my income so that I’m paying off more of the principle.

    For a car I made the commitment to never buy a car unless I have the money in the bank to pay it off. We will probably be buying my wife a car late 2015 and plan to spend about $30k but I aready have that in the bank and Toyota and Honda usually have .9% interest rates, meaning I will still be making money off my money (my investments averaged 13.5% this year, so whil making car payments I anticipate about 12.5%)

    My final rule is around saving money. Between 401k, 401k employer match, IRA, general long term emergency savings, etc. I need to save a minimum of 25% of my gross income.

    Banks will tell you it’s okay to have debt to income ratios of 55%, but that will just buy you a poor life. My current DTI is about 14% and I couldn’t be happier!!

    • says

      I like the thought process of all that stuff! That’s thinking holistically. Good work.

      Holistic thinking is one of the key cornerstones of Personal Capital, where I manage my wealth for free. It’s all about looking at one’s worth from a top down perspective and then making decisions to optimize one’s finances. You should check it out. My net worth has really taken a turn for the better once I started tracking it online.

  7. futureheartdoc says

    Hi
    I came across your site randomly, but the advice seems very sound.
    currently i’m in my fellowship and training to become a cardiologist, and will be done in 2.5 years. as most people know, salary in fellowship is around 50-60K a year.
    I already have $150K saved up in an account ($150,000).
    I’m planning on buying a new car within the next 12 months or so. i was initially looking at a brand new lexus LS (~80K) or a lexus RX (~$60K). i would most likely pay half in cash using my savings and pay the rest in monthly installments. is that a sound decision to make or am i setting myself up for disaster? i’m asking because after reading your article i’m starting to have second thoughts. and yes, currently my salary is around 50-60K but when i’m done in 2.5 years my salary will be $250K at the absolute lowest (i believe median salary is around 300-400K and rising).
    thanks.

    • Joe says

      First off, I wouldn’t buy a car based off the salary I HOPE to receive. I’ve known several people who went to school to become doctors and either didn’t like it and had to quit or couldn’t find a job. Wait until you get a job to see what payments you can afford.

      Secondly, assuming you buy the car regardless, I think how much you put down depends on the interest rate you can get. It looks like Lexus offers a 0.9% interest on most of their vehicles. If you can get that rate I would put down AS LITTLE AS POSSIBLE and invest the rest of your money somewhere low risk where you can get a minimum of 5% return. That means you’ll be making 4% per year return on that money.

    • Winston says

      Forget projected future earnings. You don’t buy a $30k car just because you may be making $300k+ *someday*. You make $50-$60k *now*, you buy a $5k-$6k car *now*. And a $60k – $80k Lexus?! That’s 100%+ of your GROSS EARNINGS IN A YEAR. That is foolish.

      Do you have any debt (especially med school debt, which I know can be high)? If you have no debt, then congratulations! You now get to buy a car based on 5% of your net worth. 5% * $150k = $7,500.

  8. Chase says

    This rule does not take into account the entirety of someone’s circumstances. A single person making $50k living in a smaller town can afford alot more for a car than someone making $50k with two kids in a big city. The first person mostly likely has tons of disposable income, whereas the second most likely has none. The first person could save to buy a $30k car without even trying, whereas the second would have to pinch and save.

    In addition, some people have longer commutes than others. People living in large cities can take buses, trains, etc, but people living in small towns may commute 50+ miles a day. They may be forced to spend more than 10% of their income to get something reliable that gets good gas mileage.

    In addition, we all spend money on things that are personal luxuries to us. We east out at restaurants, invest in hobbies, go on vacations. For some people owning and driving is enjoyable. They may spend 20-30% of their salary on a car, but its because that car is more than just transportation. They’re willing to go out to eat less, to go on fewer vacations, because they find owning the car more enjoyable than those other things.

    Its all about balance and looking at the whole picture.

    • says

      I would say a single person making $50K in a smaller town should be even MORE disciplined in saving money. If s/he starts spending aggressively now, the bad habits will cary on and really weigh down his/her wealth accumulating abilities.

      But again, my 1/10th rule is just a guideline. It’s not the end all, be all rule. But it is something that I believe will help plenty of people build more wealth over time.

  9. LCOLLINSDC says

    My guess is that this rule is for the excessively frugal individual or someone with little to no savings. There is no return on investment when talking about a car unless you’re talking about the intangible return of gratification from owning a vehicle you thoroughly enjoy or the amount of convenience it provides. You’re not going to get any money back out of it that is equal to or greater than what you paid for it and put in to it.

    I bought a challenger hellcat after saving $150k while still investing in my 401k. My family was upset because I’m young (28), but the satisfaction of owning this vehicle has been well worth it. It is definitely a car I will have for the rest of my life. I only drive it about 6k miles a year and baby it.

    Could my money have gone elsewhere? Sure. But I’m not going to wait until I’m old to decide I want to enjoy life. Plus I’ll probably never have a job that pays $650k (the hellcat was $65k). I still have access to first time home buyer programs and probably will keep that until I’m in my early thirties. I live in an area where houses are very expensive so that wasn’t a viable option for me. I also have no debt so that was not a burden on my shoulders when I made the purchase.

    If you’re still paying loans or you don’t have much in savings then this rule is definitely something you should consider. If you have a decent amount of savings and a decent salary, maybe consider something a little less frugal. You shouldn’t spend more than you can afford even with credit. However, don’t be afraid to spend on yourself. You can plan all you want for the future, but what if the stock market crashes, what if you get sick and can’t do things you enjoy, or what if you die? Was never buying something nice that you would have enjoyed for those years worth it?

    Be smart with your money, know the consequences of your actions, don’t be afraid to enjoy the finer things in life, but don’t be a fool. I may have a job that pays well and a $65k car, but I also have 2 roommates, only eat out once a week, and buy everything on Craigslist or somewhere on sale. Spending once isn’t going to ruin your financial future, but doing it on a regular basis is guaranteed failure.

    • says

      Whatever makes you happy mate. What is your net worth currently?

      Check out my post: The Average Net Worth For The Above Average Person. This is the #1 article in Google when someone searches for average net worth.

      My only fear is like many of us who end up working for 10-15 years, we start burning out. And when we no longer want to work, we begin to regret the overconsumption we made when young that robs us of freedom and opportunity when we are tired.

  10. Carbuyer says

    Interesting article. I have a friend with a salary of $1 million a year, with a net worth of $10m. Do you think he could afford a lamborghini aventador (400-450k) or a bentley flying spur (250k) or a rolls royce (400-500k)? He has two kids and their college is paid for.

  11. GuessWho says

    Great read! I’ve been working as a dentist for three years, and I just bought a new Accord with a pretty nice down payment that I saved for two years. I plan to keep this car for years to come, hoping that I can drive it until it reaches 300k (like my last Honda did)!

    Glad that I’ve read this article, because lots of my dental school friends are riddled with loan debt, but are out purchasing BMWs and Audis. I just want to be happy doing what I do, minus the headache of paying 500+ a month for a car payment over six years…

  12. Eduardo Delgado-Mendoza says

    Interesting article, but honestly, this is ridiculous advice! I mean really?!
    A doctor making 250,000+ a year is going to be driving around a in a god-damn Honda Accord?!!
    you must be kidding!
    This is the worst advice I’ve ever heard. if you make 100k a year, save like 10-20% of the car’s cost for down payment, and paying the rest in monthly payments for 5 years, there is NO way you couldn’t afford a 60k-80k car, that is if you insist on buying new. Personally, I would let a 100k+ Audi RS7 depreciate 50k after 3-4 years, then i would buy it. The person who buys knew will always take the BIGGEST hit. Unless your paying mortage for like a 3,000,000 dollar house, which is stupid in it’s own way as well. Just my 2 cents.

    • says

      What’s wrong with a Honda Accord? It is SWEET!

      The doctor who joined medical school in 2000 thought she was going to make $400,000 upon graduation. Now they are starting work at $200,000 with lots of debt.

      You’re telling me they should now go ahead and buy a $60,000-$80,000 car, which requires $100,000 in GROSS income to earn?

      Perhaps you should read, “The Average Net Worth For The Above Average Person“. Do you mind sharing your age, income, and net worth so we have perspective on where you are coming from?

      thx

    • Jake says

      I don’t know.. I have a friend who is a partner in his law firm making around $200k. As far as I know, he still drives the same Toyota Scion xb he had in college 10 years ago. Would you rather look rich or be rich?

    • snegnr says

      Eduardo,

      Statistically, doctors are the second worst financial managers of any “highly paid” profession. (Athletes are #1). Your hypothetical doctor is probably not a good example for smart financial decisions.
      My wife and I are both engineers and together we make well over $250,000. We just splurged on a brand new Mazda SUV $28K. We paid cash for the car and our house is paid off. I drive an 11 year old truck. But we would not have the same financial strength if we took out huge car loans and drove Audi’s.
      I hope someday the average American figures out that car debt is the WORST type of debt. It completely wrecks your monthly cash flow and wealth building. I think it’s even worse than credit card debt! At least credit cards will limit an individual’s stupidity. You can walk into a dealership and go into $80K car debt in 15 minutes.

  13. D-Rock says

    I just started the best paying job I have ever had and I am currently driving a $685 full size v8 winter beater station wagon (anybody in in the Great Lakes region feels my pain right about now). 131k (maybe 231k) and it keeps on chugging 17mpg at a time. It is under 1/100th of my salary, I think I deserve a cookie.

    Of course, this doesn’t account for how much the rest of my cars “initial purchase price” have been over the years. I’ve never exceeded the 1/10 per year rule, but I wouldn’t recommend it to the faint of heart.

    Long live GM muscle!

  14. Raymond Tayse says

    Ok, let me get this straight…

    I make $130,000 a year and average a 3% cost of living pay raise per year for the last 11 years. I also have had promotions but my yearly cost of living increase is 3%. I’m not going to get into the fact that this barely accounts for inflation as in 10 years things will cost more, but hey you are buying the car at the beginning of this theoretical 10 year plan and the cost will not change for this 10 year span.

    So in 10 years, I will make $1.49 million, so this theoretical $13,000 car will be .872% of my 10 year gross income. Amortized out (even though paying cash up front) it would cost exactly $25 a week. So you are saying that my car should cost me less than going to the movies with my girlfriend each week?

    For you a car may just be a means of getting from point A to point B. For many of us that spend more than an hour (I am about 1.5 hours a day round trip) in our car every day for 48 weeks a year; our car is a second home. I like having a nice car with all the amenities available to me, and those features mean much more to me than what I would spend on a trip to the movies.

    Now, I do not own a $13,000 car. I own a $50,000 car (on purchase 5 years ago), and is currently worth ~20,000 today. At that rate of depreciation there will be approximately $8000 in equity at the 10 year mark. This puts me at ~$80 a week for my car over the 10 year span. and I think the additional $55 a wee was one of my best investments. By investment, I do not mean from a fiscal point of view, rather a quality of life point of view.

    Sorry mate, there is a difference between being fiscally responsible and just being a penny pincher. Quality of life matters to many of us. I will not go into details, but I had someone taken from me well before their time. I do not advocate spending like you are about to die, but if you are simply living so that you build a bank account, you are not really living.

    Not everyone gets enjoyment from a car, and those people should indeed buy the cheapest rust bucket they can find. For those of us who get a lot of enjoyment from our car, your 10% rule is not logical at all.

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