If you have a car addiction problem, you’ve come to the right place. Back in my 20s and early 30s, I bought eight cars over a 10-year time frame. It was clear I had a car buying problem that needed solving.
I originally wrote this post on July 11, 2009 when I first started Financial Samurai. Today, I no longer have a car addiction problem. I’m mainly focused on safety and reliability to transport my family. However, I also appreciate the benefits of driving a luxury automobile as I do drive a 2015 Range Rover Sport.
If you are a fellow car addict, you’ll appreciate this post. I went on a journey of discovery until I went full circle.
My Car Addiction Problem
When I got my first paycheck, I bought myself not only a nice 850GLT Volvo (yes, an old man car for a 22-year-old kid), but also a Honda CBR600 racing bike! I was working as a first-year analyst at Goldman Sachs. It felt great to finally be making some money to buy some goodies!
I had nowhere to park them in in NYC, so I actually had to park 20 blocks away, and take the subway back to my apartment! I dumped $18,000 in cash for the vehicles, and had to pay an additional $300/month for parking and transportation fees to my vehicles!
How ridiculous is that?
Most of us have some materialistic vice we go gaga over. One lady I know has $20,000 worth of purses, and another $10,000 worth of shoes. But if you think about it, her vice isn’t so bad since the average car a guy desires is probably in the $25-45,000 range.
Why we throw so much money discipline out the window when we stumble across our vices, I donno. What I will tell you after purchasing and selling eight different cars (new and old), is that I’ve figured out some fantastic tips to: 1) Getting the best deal, and 2) Satiating ones desires.
If you’re a car addict, you are at risk of blowing up your finances by spending too much money on a car. From the purchase price, to the car insurance, to the maintenance, to the payments, owning a car is expensive.
Follow My 1/10th Rule For Car Buying
Ideally, everyone should follow my 1/10th rule for car buying. It states to not spend no more than 10% of your annual gross income on the purchase price of a car. That’s right. If you make $40,000 a year, a good guide is to spend no more than $4,000 on a car.
If you live in a major city, you realize a car is a big fat waste of money given the added cost of parking, insurance, and maintenance. The bus I take rocks, except when it skips me b/c it’s so full in the mornings sometimes!
Don’t worry buddy, the ladies will love your frugality and common sense! If you make $750,000/yr, ok, maybe you can spend $75,000 on a nice M4. 1/10th your annual gross salary should actually be a floor minimum.
Many multi-millionaires out there drive cars worth much less than 1/10th. After all, if you make $2million/yr, there aren’t that many $200,000 cars one would buy, or be caught dead driving in these economic times!
If you can’t follow my 1/10th rule, then at least follow these five car buying rules to help you get the best deal possible.
Tips For Getting The Best Car Deal
1) Don’t ever buy new! We don’t live in the 1980’s anymore where cars would start falling apart about after 5-10 years. Cars are so well made now, they will last for 200,000 miles with regular maintenance. The depreciation curve is steepest after 3 years, so best to get a car between 3-5 years old.
You also don’t want to buy during the car’s first year after a redesign. Make sure all the bugs come out and get hammered first.
2) Always find cars on the internet. 8 cars in 10 years actually requires 15 transactions since I have to buy a new car, and sell the old car. All transactions have been done over Craigslist, Ebay, or Autotrader. Craigslist is my personal favorite, with 13 out of the 15 transactions being made here. If you have a car addiction, Craigslist is your best friend.
3) Find five different comparable cares. You should then cross check the price with KBB.com based on a “good” condition selection. Paying Kelley Blue Book is a RIP OFF. In normal economic conditions, you should always strive to pay at least a 10% discount to KBB. On the flip side, if you are selling, you should try and get 90-100% of KBB’s price. Buyers generally feel like they get a deal at a 5% discount to KBB price, but you know better!
4) If the seller is playing hard ball, play even harder ball! There are ALWAYS more of the same models to choose from. You just need to be patient enough to wait for the right deal. When do these great deals occur? They occur during economic depressions for sure, but most often, it’s when the seller just has to sell due to a business relocation, divorce, or financial emergency.
Getting a good price may actually come second to just getting a quick and smooth sale. Hence, be responsive, show a lot of interest, and be prepared to pay cash or prove you have your loan documents ready to go.
Related: How To Buy Any Car You Want Guilt-Free
Know Your BATNA When Buying A Car
Remember the acronym BATNA, which stands for Best Alternative Negotiated Agreement. In other words, the seller’s best case alternative is to take a big loss by selling it back to the dealer. Sellers do this simple for convenience.
As a buyer, you should find out what that trade in value will be, and if you can offer $100-$1000 over the dealer after proving you are a trustworthy candidate, you are getting a STEAL. Remember, a dealer needs to purchase at this price to pay for overhead and salaries.
5) Spend money to get your car inspected. Make sure to also have a clean Carfax. Don’t be a penny wise and a pound foolish by skimping on a thorough check up. I’ve done that a couple times before with old old cars, and that cost me. The $60 you spend can help you negotiate HUNDREDS of dollars off the asking price since an automechanic will always be able to find something that needs replacing.
Related: Is Owning Two Cars Worth It?
Satiating My Car Addiction
Before I purchased my 2000 SUV in November of 2006, I literally bought a different car every 1-1.5 years. I realize this is an addiction, and does nothing to help my finances. Every time I purchase a car, I have to sell my old one. I also have to spend a couple hours at the DMV to register the darn thing, not to mention additional taxes I have to pay.
I also realize that I am a thrill junky, and a deal seeker. It was just too hard for me to resist a great deal until the economy started unravelling in 2008. Some might be going car crazy during the global pandemic. But the uncertainty is keep people from wasting their money.
I ended up driving my 2000 SUV for the next eight years. I then bought a modest Honda Fit that I leased for three years until 2017. Then I bought my favorite car, a Range Rover Sport (new body style) 1.5 years old with only 10,000 miles on it. I wanted to get a larger and safer car given we were expecting a baby in 2017.
I plan to own the Range Rover Sport until 2025 and then reassess if there are better cars with more safety features. I’m sure there will be.
Test Driving Will Cure Your Car Addiction
If you have a car addiction, I highly recommend you face the addiction straight on and go to the car dealership!
Isn’t that like an alcoholic going to a bar you ask? Not so I say, as if you leave all your credit cards and checks at home, you will hopefully have a very difficult time buying a car.
Instead, what you need to do is get in that car, sit in it, inhale that new car smell and ask the salesman to let you take that car out for a test drive!
While you are test driving, feel free to have fun! Rev the engine, test out its 0-60 mph time and more.
Afterwards, say thanks and simply walk away saying you have to think about it. If you do this, you will satiate that car buying desire for at least a month, all at zero cost to you except for a thrilling experience.
You’ll also realize the car you have is just fine, and that to spend XXX amount of money on another car is just plain dumb.
Tried Out A Tesla
Recently I test drove a Tesla Model S coupe. What a beauty. And what a beast! 0-60mph in 4 seconds is nuts, as is the person who buys one new for $90,000! Ah, the plush leather and supple ride is so nice. Thank goodness I own Tesla stock.
When the test drive was done, I was smiling and happy. It is the same feeling you get after riding that amusement park roller coaster.
Away I rumbled in Moose, my 9-year-old Land Rover Discovery II. I couldn’t be happier. Getting from point A to point B for 1/10th the vehicle cost felt great!
I no longer have a car addiction because I can now afford almost any car for sale. Once you can buy something, you no longer crave it! Instead, I’m just focused on reliability and safety. As a middle-aged man now, I’ve got no use for a flashy car to impress other people.
For more insights on achieving financial independence, driving nice cars, investing, buying real estate, and boosting your career prospect, pick up a hard copy of my new book, Buy This, Not That. It’ll be the best personal finance book you’ll ever read.
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Related: The Ideal Length Of Time To Own A Car
Collins Dane says
Great advice on the 1/10th rule but first would want to work on getting a better salary to apply this rule. I enjoyed reading your post though. Thank you so much for this.
The 1/10th rule is great advice. The boss wants to buy a new minivan, but to me that’s a lot of money to sit in the garage. I’m with you where I’m ready and willing to buy used.
I was reviewing our car replacement fund and came back to this post for reference. It still holds up very well and we’re keeping it in mind when we purchase our next car in 2012.
Financial Samurai says
Sounds good Elle! The new Maserati Coupes are sweet! :)
Have fun car shopping!
Money Green Life says
I think your 1/10 rule is pretty legit for wealthy people who make a lit of money. but for some of us who are less fortunate and don’t make that much money, the rule doesn’t stick very well. for instance, I believe the avg mean income is somewhere between 30-35k in the us (not household). that means they can only afford 3-3500 car. i think a $3500 used car is more often than not a crappy car.
.-= Money Green Life´s last blog ..Save 15% At Any Restaurant All The Time =-.
Credit Card Chaser says
Just in case anyone is too fatigued to divide their gross annual income by 10 here is a quick calculator that I made (since the formula is so complex lol): https://www.calculatorpro.com/car-purchase-calculator
.-= Credit Card Chaser´s last blog ..Getting a Job with Bad Credit is Tough! =-.
The Simple Machine says
I agree with the car rule above! When I first bought my car I didn’t know the rule! I did not have much money to I used the following rule:
Buy a car not more than 3 pay cheques, so about 1/12 of annual net income (not gross)! Which means you get to buy a 9 to 10 year old american car with my salary.
From experience – I have added a few conditions around the 1/10 rule on your blog. You can read these conditions at
So out of curiosity, Samurai, do you still ride motorcycles? =) You must have a Ducati now.
I agree with “don’t ever buy new”. Once you drive or ride it off the lot, there goes 35% of the purchase price!
.-= youngandthrifty´s last blog ..My TFSA Portfolio =-.
Robert Espe says
Thanks, I’m going to play with numbers and work this into my vehicle planning. 20% is actually a step up for me, I’ve always been a $1000 car man (course until this year I never made more than $10k, so it was inline then).
Rob – Gotcha, and congrats on breaking the $10K income barrier! Whatever you do, don’t ever buy new, and buy with payments. The first 6 months you’ll be giddy, the last 18-54 months you’ll be in pain!
Robert Espe says
so, how does this 1/10th rule apply to multiple vehicles? If I make $50k, but have 2 vehicles, is that $2500/each? Or does it not matter if I replace them in different years? and do you include the cost of any repairs the mechanic finds when checking out your prospective vehicle?
Rob – Basically one vehicle is attached to one income. So, if you are asking about the 2nd vehicle, then it’s based off the income of whoever is buying it. If you are the sole income earner of your family and need two vehicles, then yes, it’s 1/20th of your gross income salary per vehicle unfortunately! It’s the cost of marriage, family, and so forth.
It’s just a guide, and doesn’t have to be taken literally. I strongly believe though that if everybody followed this 1/10th rule, nobody would ever get into vehicle financial trouble!
I donno Steve, I just LOVE to go to the dealerships, take in the cars, and go for a test drive. I’ve probably gone 65 times without buying a car. The sales people LOVE me! :)
I don’t love to “negotiate, test drive, and get a deal.” For me, I would rather spend 1/N of my income, as infrequently as I can get away with. N has ranged from 3 (back when I was in college and needed a car to get to my summer job) to 6 (this year).
I think a better strategy is to stay out of the darn dealerships and stop thinking about it so much. Just enjoy driving the car you already own! But, different strokes for different folks.
I’m actually hoping to stretch the Mazda to 8 years, as recent stats suggest most cars after 2000, if properly maintained, can go up to 200,000 miles and 13 years. Apparently 13 years is now the average life expectancy of a car, with 4-5 owners on average, whereas it used to be 9 years and 2-3 owners back in the ’80’s.
We did make trade in our luxury car (good) for the most fuel-efficient SUV out there (safer for bad weather, and better on gas than the luxury car). But we unfortunately bought the SUV new, and are stuck with it for at least 2-3 years until our debt on it meets the price we could sell it for. By then, I think we might just keep it and try to run it for a decade or so. I certainly wouldn’t do that again.
It’s frustrating, because all the advertising, even the banks, etc. tell you it is “normal” and “OK” to be in this kind of debt over a vehicle. But it really isn’t. I thought it was just about controlling cash flow – “look at the price of a lease, this is the basic cost of operating a car, so with X amount we can own it and long term we are ahead” – but the reality is that is money that is not getting spent elsewhere, put to better use.
More people need to hear your message!
Hey JT – I hear you. It’s definitely NOT just about cash flow. Cash flow is illusory if you don’t have the cash backing.
Marketers and banks are NOT our financial friends. They are geniuses in getting people to spend more than they can afford.
Stand strong with the urges! And feel free to distribute the post to all your friends who are also looking to commit financial short term suicide! Best, FS
Very interesting post. I’m curious, where did you get the 1/10th gross annual salary number? I’m considering a 4-5 year old $10k Mazda 3, mainly because we can pay it down in two years or less. Reality is we haven’t saved the money for it, and even if I had it in cash I’d invest it in the business and still pay it off in a short monthly stretch.
Hi JT – Thnx for stopping by. I was talking to one of my mentor’s 10 years ago when I first started, and we got to talking about how to prudently spend income. People making $10 million a year aren’t buying $1million cars for example, why should we be spending more than 10%? An extreme example, but just trying to make a point.
The 1/10th rule is just a guideline. If you don’t qualify, but plan to keep your 10K Mazda 3 for at least 5 years, it’s not that bad. But still, i would use the lack of income or savings as a motivation to save and make more before you buy. Cars are the #1 personal finance killer for younger folks in my opinion.
Strive to make $100k/yr, or at least have $10k in cash before you buy the car. You don’t have to pay cash I agree. So long as you have the 10K as a buffer, feel free to finance.
Andy – Thnx for your post. The savings that I posted actually is net of taxes and costs actually, but not net of time. Part of the reason why I've bought so many is because i LOVE to negotiate, test drive, and get a deal. So, this process is actually a thrill for me, and a reward. Out of the 8 cars, I've sold 3 for more than I bought them for.
Car buying in it of itself is extravagance. So my "savings" is about how I am spending less, not so much saving money in the bank. I've only had one electrical gremlin with my LR in 3 years that cost $350 to fix. Other than that, it's been really good. The reputation exceeds to reality, hence the cheap 2ndary market.
Buy and hold is the best strategy indeed. I just get bored and more bored. I could afford these cars in my 20's as I paid cash for all, including the 2003 car, however, it was still a waste of money. I love my LR now though. It's everything I need.
everyone should buy a new car once. best to wait until you can afford to do it and not when you are in your 20's. RB, your car buying habit is a nightmare situation. you should post not only the purchase price, but also the sale price, and include tax, tags, time wasted. I bet you there is 8-10k in lost value here that could have been applied to a nicer car. Buying a land rover is asking for maitenance trouble. I always recomend buying the 2nd year of the previous body style just after a new body style is released. Bank for the buck. The single best car strategy is to buy and hold.
Foxie – Have you taken a look at the 2002-2003 M3's? They can be had for in the high-teens to max 20-21K now with about 60K miles on them. I've been looking at these cars too as a compromise.
You'll get a sickening feeling if you ever try to trade in your car at the dealership. The price will probably make you so mad that you won't even want to buy a new car from them – hence, a great correcting mechanism!
Unless you are just loaded with cash, it just doesn't make sense buying new b/c cars are so well made nowadays. Pick up a 3 year old car for 45% below new price, done!
I'm glad you have a passion for cars. Passions are what make life fun. Don't buy more cars than can fit in the garage ok? :)
Passion and obsession are real close, fuzzy lines for sure. Cars are the one thing my husband and I share for sure, so it's the one thing we refuse to compromise on! (So it's nice to know a PF blogger out there understands that some things are worth the cost! Even though it all goes against "traditional" PF "rules.")
The only M3 we seriously considered was an early 2000's model for around $20k, and only if our S2000 was totaled from the accident earlier this month. She wasn't, so instead we're rebuilding her and thinking of adding another car in a couple of years, when we've moved again (military) and I've graduated school and have a decently stable job.
I have a thing where I get super attached, so regretting purchases are hard for me. Instead of getting sick of a car and trading it in, I just want to add another! Doesn't help that all of ours aren't worth a whopping sum either, so there's really no point in getting rid of them.
Just irks me when people seem to think that BMW's or Mercedes are worth a ton when I've now seen that they aren't. If that one guy paid $80k for an M3, he got fleeced beyond belief! (That and I gladly plan to make up for our cars as far as other expenses go. We just want a tiny box of a place to call home, I plan on traveling and spending time with my cars and just need a place to keep my modest amount of stuff and sleep!)
Oh Foxie, what can I say, I'm an addict, I admit it. :) I have an addictive personality in anything I truly love to do… maybe some will call it a passion.
I will admit, the M3 is sweeeeet, but I just know I'll get sick of it after a year or two, and then I'll start missing the 70K after tax i plopped down!
I've got to stay disciplined, which is part of the reason why I started this blog. In the past, I would just go NUTS! I'm sticking by my 1/10th rule for car purchases. Until I make over 700K, I ain't buying no M3. But, perhaps in 3-5 years time, when that value drops to 40K, I may be so inclined. :)
M3 a waste of money?! Are you KIDDING me?!? Anyone who says that is obviously ignorant to what the car is. Period. It is NOT just a freaking bimmer… It is a work of art.
Hubby and I just kicked tires at the local BMW and Mercedes dealerships yesterday. My love: A red 2009 BMW M3, probably the only car on the lot with a real transmission. His love: A red 2009 AMG C63. Can we afford them? Yeah, pushing it hardcore though. We're in our early 20's yet and I'm still in school.
Cost of my beauty: $66k. Cost of his: $60k. $80k M3? No, but maybe an M5. They aren't as expensive as you think. And so, so, so totally worth it. (The M3 is an ITB V8, and the AMG's V8 is hand-built.)
C'mon now, RB, ya can't be a real car addict if you're not dreaming about something new. ;)
Thanks for the comments guys. Never be afraid to just walk away Anon 5:26pm. It's their job to snare you, and it's your job as a Financial Samurai reader to stand strong!
This is a great post and full of insite. I get intimidated by car salespeople, so it's easier to deal with the secondary private sellers. I'll never buy new either. According to ur method, i can only buy a $8,000 car. Darn. Maybe i'll just take the bus! haha
I know this guy who makes only $90,000 a year, but bought a $80,000, 2009 BMW M3. Total waste of money, and the guy has low self esteem.