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Search Results for: 1/10th rule for car buying

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

Published: 07/11/2020 | Updated: 01/14/2021 by Financial Samurai 1,142 Comments

Old Car In Estonia - The 1/10th Rule For Car Buying Everyone Must Follow

If you’re looking for a car buying rule, let me introduce you to the 1/10th rule for car buying. The 1/10th rule will help you spend responsibly, reduce your car ownership stress, and boost your net worth over time.

In 2009, I watched in horror as a total of 690,000 new vehicles averaging $24,000 each were sold under the Cash For Clunkers program.

The government’s $4,000 rebate for trading in your car ended up hurting hundred of thousands of people’s finances instead. With a median household income of only around $50,221 at the time, spending $24,000 on a new car was clearly too much.

Instead of buying a $24,000 car in 2009, if you had invested the $24,000 in the S&P 500, you would now have over $70,000 in 2021. That’s quite an opportunity cost for buying a new car!

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 hurl.



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Is Owning Two Cars Worth It? The Pros And Cons

Are you wondering whether it’s worth it owning two cars? I used to have two cars as a car fanatic. Now, I only have one car for a family of four. Let me share whether owning two cars is worth it or not before you make your decision.

I’m a one car type of guy because I live in San Francisco, have access to cheap ridesharing options by Uber and Lyft, and know that cars are expensive.

Just recently, I had to pay $750 to fix a fan on my Range Rover Sport that kept on making a funny ticking noise. Then I had to pay another $1,200 to change the brake pads, perform the 3-year service, and flush the brakes. $1,950 is a lot of money!

Owning a car is a necessity for many, but it is also one of the things that keeps us from achieving our financial independence goals. Everybody should follow the 1/10th rule for car buying, which states that you should spend no more than 10% of your gross annual income on one car.

Once you own that one car, drive it for 10+ years or until it no longer is cost effective to own.

But if you insist on owning two cars, then at least own the two cars under my 1/10th car buying rule as well. In other words, if you make $150,000 a year, you can buy a $10,000 car and a $5,000 car.

Let’s look at whether it’s worth owning two cars.

Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.



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Own One Car For Show And Another Car For Dough

Published: 11/08/2020 | Updated: 01/14/2021 by Financial Samurai 83 Comments

There’s an old saying in golf, “drive for show, putt for dough.” Hitting a massive 300-yard bomb looks beautiful, but what really counts is accurate putting. Well let me introduce you to a new saying, “Own one car for show and another car for dough.”

I can’t tell you how many times I’ve lost money on the golf course because I three-putted instead of two-putted. I’ve also occasionally won money squeezing in an eight-footer. Those knee-knockers, when all is on the line during an Aloha bet, are intense!

Give me a regular 250-yard drive and incredible putting accuracy over a 300-yard drive and putting yips all day long. The same goes for cars.

I’m a one car type of guy. Owning a car is expensive, especially if you don’t follow my 1/10th rule. With the proliferation of cheap ridesharing options that have emerged since 2009, not owning a car is making more and more sense.

But over the years, I’ve had a tremendous number of complaints that my 1/10th rule is too restrictive. Instead of limiting the median American household to only spending $6,200 on a car, many people feel the typical American should be able to spend much more.

If you want to spend more, it’s totally up to you. Don’t let me tell you what to do. I’m just offering a simple rule to follow to help you achieve financial independence sooner, rather than later.

For those of you who love cars and want to own two or more cars, I suggest owning at least a Dough Car. If you do, you might build your net worth quicker than the rest. You might even better keep yourself out of trouble.



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The New Rule For Engagement Ring Buying

Published: 08/31/2020 | Updated: 01/03/2021 by Financial Samurai 254 Comments

The new rule for engagement ring buying

To all the ladies in the house, you’re in for a real treat! To all the fellas thinking about proposing, maybe not! It all depends on how materialistic you are in the first place. Even if you are already married ladies, point your hubby to this article about the new rule for engagement ring buying and you might just get a ring upgrade!

So what’s the new rule for engagement ring buying you ask?

Well before we get into the most obvious new engagement buying rule all of society should follow, let’s discuss some of the current ridiculous rules that must be thrown out the window!



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Safety First: Finally Bought A Family Car And It’s Not A Minivan

Published: 08/21/2020 | Updated: 01/14/2021 by Financial Samurai 127 Comments

My new mid-life crisis car: a Range Rover Sport HSE

After deep deliberation, I decided to pass on buying the $550,000 Mercedes G650 Maybach. It just felt like too much to spend on a family car when I could invest the money and earn $20,000 a year in passive income forever! Instead, I bought a family car for safety first.

What type of family car did I buy? I bought a late model 2015 Range Rover Sport V6 HSE with 11,200 miles in Santorini black with black leather interior.

It’s in perfect condition with a warranty until July 2019. The original sticker was $76,000 before tax or roughly $83,000 out the door. Such good value compared to the G650 Maybach right?



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A Car Fanatic’s Drive Down Memory Lane: Lessons Following The 1/10th Rule

Published: 08/02/2020 | Updated: 01/14/2021 by Financial Samurai 86 Comments

I’m a car fanatic and maybe you are one too. This post is my drive down memory lane. I go over all the cars I’ve owned in the past.

One of my most financially helpful, but polarizing articles is The 1/10th Rule For Car Buying Everyone Must Follow. I wrote this post to help mostly younger folks not blow their money on the most common financial destroyer. We all know that almost all cars are guaranteed to lose value.

As a young man, I used to view my Toyota Corolla Hatchback as an asset because I didn’t know better. How could a car be a liability when I could take girls out on dates, drive to William & Mary from the DC-area to get a solid education, and take a nice midnight jaunt along the Jamestown river during final exams?

Now I view my vehicle as a liability. All I see in my garage is a large heap of metal necessary to transport my family safely. I’ve got to keep feeding it money in order for it to run – gas, new tires, maintenance, tax, tickets, accidents, and insurance. I’d much rather have the money sunk in my car producing passive income for financial freedom.

For those of you curious about what it’s like to follow the 1/10th Rule For Car Buying for the past 15 years, let me give you an honest assessment as an ex-car fanatic who has owned a dozen cars in his lifetime. The journey just might save you a lot of money and bring you more happiness in the process.



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The Best Time Of The Year To Buy A Car

Published: 07/08/2020 | Updated: 01/14/2021 by Financial Samurai 44 Comments

Black Audi R8 V8 - The Best Time Of The Year To Buy A Car

Since the global pandemic began, used car prices have gone way up. Everybody is buying a car instead of taking transportation. This post looks into the best time of the year to buy a car.

My 13 year old SUV named Moose feels like it’s on its last legs. There’s a loud whiny noise every time I turn the steering wheel, which likely means the power steering box is cracked. Moose drips engine oil everywhere he goes and now he leaks coolant!

With a Blue Book value of only around $3,000, spending ~$1,000 to fix doesn’t seem prudent. It costs around $100 to fill up his 24 gallon tank and he only gets roughly 16 miles per gallon. Luckily I only drive about 6,500 miles a year.

The other reason why I’m looking to buy a new car is due to the advancement in safety features. Better brakes, better traction control, and more airbags would be nice. I’m not even sure my airbags work after 13 years!

One of my all time favorite things to do is spend time at a car dealer. There’s nothing like inhaling that new car smell and taking the latest models for a spin for free. All told I’ve probably visited a car dealership 30 times in the last 12 months and probably over 100 times in the last five years.

Call me thorough, crazy, an enthusiast, or simply a consumer who shows great constraint for not spending any money on one of his favorite things. Whatever you say there’s nothing better than finding something you love to do that’s free.

Best Time Of Year To Buy A Car

Car salespeople probably hate me, but that’s good for those of you who are looking to get some insights into exactly when is the best time to buy a car. You see, I LOVE to negotiate.

Finding sales people’s breaking points is a scintillating experience. It’s a respectful battle based on gamesmanship and false compliments e.g. “Have you lost some weight Sam? You deserve to buy this new car!”

If you ever want to work on your negotiation skills, practice at a car dealership. They are consistently some of the most aggressive sales people in any industry. This post will focus mainly on the best times to buy a car and not so much on negotiating tactics.

Here are the best times of the year to buy a car.

1) Tax Season

The best time of the year to buy a car is during tax season (January through April). Ask any small business owner who is not in the tax business and they will tell you that business always sees a cyclical slowdown in April. The reason being that plenty of people owe taxes by April 15.

I personally owed a surprising five figure tax bill due to a retroactive law that raised taxes by 3% for those who make more than a certain amount in California. As a result, I didn’t spend money on anything other than necessities in March and April.

(See: What Happens If I Don’t Pay My Taxes?)

From my position as an online publisher, I see an increase in search traffic related to saving money and reducing taxes as opposed to search results relating to making more money, buying stuff, and going on vacations.

2) Memorial Day Weekend. 

The second best time of the year to buy a car is during Memorial Day weekend. Memorial Day is the traditional start of Summer.

One of the key reasons is that auto dealerships need to clear inventory for next year’s models which come out in the Fall. For example, the 2022 BMW 335i Coupe will come out in August 2021. This launch cycle is consistent with practically every major auto manufacture in existence.

Memorial Day Weekend will also have brand new left over inventory from the previous year. These are often the best deals because you not only get a new car, you get a huge discount, and a warranty that starts at the time of purchase and not the time of manufacture.

Time period: End of May and the month of June.

3) Labor Day Weekend

The third best time of year to buy a car is during Labor Day Weekend. Labor Day Weekend marks the end of Summer and the beginning of Fall. Vacation is over and its back to the salt mines baby! A lot of people blow plenty of money during the Summer and the last thing on their mind is to spend tens of thousands of dollars on a new vehicle.

Besides, folks who were looking for a new vehicle probably bought one just three to four months earlier during Memorial Day Weekend. However, because the following year’s models are now out in the Fall, current year models start looking very dated.

Any left over current year models will be heavily discounted. Unfortunately, you will also be tempted by the new models!

Time period: End of August, early September.

4) End Of Year.

The fourth best time of the year to buy a car is at the end of the year. There are always going to be end of year holiday sales. The best day of the year is probably the day before and the day after New Years where one day makes a car one year older or one year newer.

Blue Book values plunge the first day of the New Year for example. Your new 2021 car come January 1, 2022 just doesn’t sound as new as on December 31, 2013.

Time period: End of December.

If you just can’t wait for any of these four time periods, then at least wait until the end of the month. Car salespeople have quotas, and those who are lagging are the most motivated to sell you a car at the lowest of margins.

It’s up to you to find the hungriest or greenest car salesperson at the dealership! The best time to refinance a mortgage very closely mimics the best time to buy a car due to similar sales incentives.

A Car Negotiation Tip To Remember

If there’s one negotiation tip I’ve come away with after speaking to hundreds of car salespeople is that you must always be willing to walk away to get the best price.

Even after you’ve spent an hour negotiating, walk away for a bit and go through the pros and cons. Get some lunch or literally go for a nice long walk. During this time period of wait, your salesperson will be wondering if you’ll ever come back. He’ll start doing the math on how much lower he’ll be willing to go if you do come back.

Finally, I’d just like to say that the best time of the year to buy a car is when you can afford to buy and need a car. Follow The 1/10th Rule For Car Buying to determine if you can truly afford buying the car you’re eyeing.

So long as you follow my 1/10th rule for car buying, you should be good to go!

Auto Insurance Recommendation

Lower Your Auto Insurance Costs: Check out AllState online. They have some of the best plans with the lowest rates around due to their lower overhead costs. It’s worth spending a moment filling out a quote to see if you can save some money. Car insurance is one of the largest ongoing expenses for car owners. Allstate has good driver discounts, and multi-product discounts as well.

Updated for 2021 and beyond.

Multiple Options For Terminating A Car Lease Early

Published: 05/28/2020 | Updated: 01/14/2021 by Financial Samurai 38 Comments

Are you looking options for terminating a car lease early? Since the pandemic began, there’s been an increase in people looking to terminate a car lease early to save money. In difficult times, it’s important to cut costs and boost savings. Terminating a car lease early is a logical solution, however, there are costs associated with doing so.

During my latest car hunting process, one of the questions I had was what to do with my three-year lease agreement with 12 months remaining.

I decided to lease a Honda Fit for my business for only $235/month after tax. About 80% of the cost is deductible since I primarily use Rhino for going to conferences, visiting consulting clients, and giving the occasional Uber ride when they are going my way.

When I was in my 20s, I’d always just pay cash for a vehicle and flip it a year or two later for even money or a small profit. I loved the hunt and the negotiation process. As I got wealthier, I put more value on time and simplicity. I wanted minimal maintenance headaches. I also wanted the option of just handing the keys in when my lease term was up.

But due to the desire of owning a mid-life crisis car and only having one indoor parking spot, I wanted to learn what my options were for an early lease termination.

Here are your options for terminating a car lease early after speaking at length with a couple vehicle leasing department personnel.



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Biggest Cost Of Owning A Car: Opportunity Cost

Back in 2018, I decided to join a local softball league in San Francisco. I was one year into being a stay at home father and I was determined to expand my social network. Tennis had always been my sport, but I thought it would be nice to mix things up.

The softball league turned out to be a great outlet. I met people from various parts of the Bay Area from different socioeconomic backgrounds. The person I developed the best relationship with was the organizer named Steven.

Steven was a preschool teacher who helped manage some of his parents’ properties. As a property fanatic myself we talked about various investment opportunities, such as buying up ocean view properties in the city and investing in the heartland of America due to the heartland’s lower valuations, higher cap rates, and stronger migration trends.



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How Much Should I Pay For Healthcare? Introducing The Health Affordability Ratio

Published: 04/25/2020 | Updated: 01/14/2021 by Financial Samurai 129 Comments

Healthcare affordability continues to be a concern for millions of Americans. When the Affordable Care Act (Obamacare) was enacted in 2010 I was happy. A universal healthcare system would insure the ~47 million Americans who were previously not insured.

After all, disease doesn’t discriminate between rich and poor. Also, being rejected for healthcare coverage due to a pre-existing condition is discriminatory. Healthcare affordability shouldn’t be a national crisis. However, things have changed.

Millions Still Can’t Afford Healthcare

Fast forward to today. Millions of people are still uninsured, even though there are subsidies provided by those who make more. (Mostly me and you). What’s going on? Healthcare affordability is an important issue for all Americans.

Nearly 65 percent of uninsured adults who were aware of Obamacare marketplaces said they had not visited one to seek coverage because they didn’t think they would be able to afford it according to The Commonwealth Fund, a private organization aimed to promote a high performing healthcare system.

Further, 85 percent of uninsured adults who actually shopped for coverage said they didn’t enroll in the end because they couldn’t find an affordable plan.

Check out this chart explaining why there are still ~25+ million uninsured people in America.

Reasons for why there are still millions of uninsured Americans for healthcare

Nobody really believed that all 47 million uninsured people would suddenly get health insurance under Obamacare, despite the subsidies and penalties. But the fact that five years has gone by and 60% of those who were uninsured are still uninsured seems like another example of incredible government inefficiency.

Yes, 20 million more people now have  health insurance is progress. But what has been the cost?



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