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.

If you buy an overpriced car, it is guaranteed to depreciate. If you buy an affordable car based on my 1/10th car-buying rule, on the other hand, then you can invest more cash flow into stocks, real estate, and other investments.

Over time, these investments have the potential to appreciate in value, thereby buying you the most valuable asset of all: time! Having the time and freedom to do what you want is priceless.

The 1/10th rule for car buying is the most followed and most popular car buying rule today. For those of you who want to achieve financial independence soon (FIRE), the 1/10th rule will help you get there.

Americans Spend Way Too Much Money On A Car For Their Financial Health

Back 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, you could have invested the $24,000 in the S&P 500. If you did, you would now have over $150,000 today. 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. After more than 10 years, the 1/10th rule for car buying has become the standard car buying rule for financial freedom seekers everywhere.

The Car Buying Rule To Follow: The 1/10th Rule

The #1 car buying rule to follow is my 1/10th Rule for car buying. The rule states that you should spend no more than 1/10th your gross annual income on the purchase price of a car. The car can be new or old. It doesn't matter so long as the car costs 10% of your annual gross income or less.

If you make the median per capita income of ~$42,000 a year, limit your vehicle purchase price to $4,200. If your family earns the median household income of $75,000 a year, then limit your car purchase price to $7,500. Absolutely do not go and spend $49,388, the absurdly high average new car price today!

If you absolutely want to buy a car that costs $49,388, then shoot to make at least $493,880 a year in household income. $493,880 is about the top 1% income threshold today.

You might scoff at the necessity to make such a high amount. However, it takes at least $300,000 a year to live a middle class lifestyle with a family today. Inflation has really made making more money necessary just to run in place.

The last thing you want to do is waste money on a car you don't need.

Minimize Your Financial Stress With A Cheaper Car

If you actually want to save for college, save for retirement, take care of your parents, buy a home, and not stress out about money when you're old, please keep your car purchase to at most 10% of your annual gross income.

Once you buy a car following my 1/10th rule, own your car for at least five years. Better yet, shoot to own it fo 10 years. Don't go selling your car every 2-3 years like most Americans do. If you do, you don't experience the full value of the car. Further, you end up paying wasteful sales taxes each time you buy a new or new used car.

Buying a car you cannot afford is the #1 way to financial mediocrity. One of the biggest benefits of buying a used car is more mental relief. And when you have less stress in your life, you will enjoy it better.

Since Financial Samurai was founded in 2009, my goal is to help readers achieve financial freedom sooner, rather than later. Ideally, I'd like every reader to achieve an above average net worth for their age.

Financial independence is worth it. A car you cannot comfortably afford is a great headwind.

Why You Shouldn't Spend More Than 10% Gross On A Car

If you want to achieve financial freedom, let's go through specific reasons why you should follow my 1/10th rule for car buying.

1) Maintenance costs

The more you drive, the more you will pay to maintain your vehicle. With thousands of parts per car, something will inevitably break or need upgrading. After 10 years of car ownership, everything from your battery to your vacuum pump will need changing.

Not only do you have to pay for maintenance costs, you've also got to pay for insurance, parking tickets, and traffic tickets. Further, the thrill of owning a new or new used car lasts for only several months. However, the pain of paying the same car payment lasts for years.

You might think getting an extended warranty will save you lots of money. But extended warranties are offered because they are more profitable for the issuer, not the car owner. Otherwise, a business wouldn't offer them.

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 since 2009 instead of paying for a car? You'd have hundreds of thousands of dollars.

You can dollar-cost average and buy a S&P 500 ETF every month instead of spending money on a car payment. Even better, you could invest just $10 a month in Fundrise, my favorite private real estate investment platform to build more wealth.

Fundrise invests in residential and industrial real estate in the Sunbelt, where valuations are lower and yields are higher. Personally, I've invested $954,000 in a couple private real estate to take advantage of the demographic long-term trend towards lower cost areas of the country. Investing in long-term trends is one of the best ways to build wealth.


3) More Stress

When you pay more than 1/10th your income for a car, you will become more stressed. You'll feel stressed whenever you get a door ding after parking your car at the local grocery store. You'll get stressed whenever you incur wheel rash after parallel parking too close to the curb.

Sometimes when you're driving in traffic, you'll feel more on edge because you don't want anybody damaging 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.

In fact, the biggest benefit of driving a cheap old car is less stress. With less stress, your mental health will improve!

Now that my car is nine years old, I don’t care if it gets scratched, or Ding. The other day, I opened my trunk, edit, scraped along a rusty fence. No problem! The older, my car gets, the more I love it. I recommend owning cars for 10 years or more. Then change for better safety features.

4) Makes you want more

The nicer your car, the more you want to spend on 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.

If you think about it, only the rich or fools buy new cars today. With the average new car price at roughly $50,000, a middle-class household should buy used instead.

5) An expensive car can make you feel stupid

Deep down, you know that if you can't pay cash for your car, 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? The thrill of owning a nice car fades after about six months. But the payment stays the same for years.

Depreciation is intense with new luxury cars especially. I would avoid them at all cost. Instead of buying a $115,000 Range Rover Sport, buy a Toyota Highlander for 1/4th the price instead. Be responsible with your money if you are still on the path to financial freedom.

Car Depreciation Chart For Cars Average - Car buying rule
Depreciation Chart

If You've Already Bought Too Much Car

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.

Ideally, you want to get your House-To-Car Ratio up to at least 50 if you want to achieve financial freedom sooner. In other words, the house you own should be worth at least 50 times the value of your car. If you own a car and don't own your primary residence, then you are going to fall farther behind the general public with each passing year.

House-To-Car Guide for financial freedom

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.

If you have an expensive car lease, here are ways to get out of your car lease. Unfortunately, you will likely be “upside down” on your car lease where you have to pay money to get out of it. Hence, if you can afford the payments, I'd fulfill the lease agreement and swear never to lease another car again.

3) Punish yourself.

Like Silas does in The Da Vinci Code, whip yourself into submission! OK, maybe don't go to that extreme. However, 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. Feel the squeeze so that you realize how ridiculous your car spending is.

If the amount of money you're saving each month doesn't hurt, you're not saving enough!

The beauty of the 1/10th rule for car buying is that it is tethered to your income. If you want a nicer car, you must make more income! Here are some suggested cars you can buy based on my 1/10th rule.

The 1/10th Rule For Car Buying Model Suggestions By Income

Cars built in the 1990s 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. The less electronics, the less electrical gremlins too. The more you have loaded in your car, the more maintenance headaches you will have in the future.

Below is the chart highlighting you financial status based on your car spending as a percentage of household income. The closer you follow my 1/10th rule for car buying, the closer you will get to financial independence.

1/10th Rule For Car Buying Everyone Should Follow

Please note that there is NO SHAME in owning a car that's worth less than $10,000. I bought a second-hand Land Rover Discovery II for $8,000. Then I drove it for 10 years until it was worth less than $2,000.

The car was great and loads of fun. With the money saved from not buying a more expensive car, I diligently invested the money. A decade later, the money grew by over 160%. But it is important to pay attention to safety.

In fact, the best time to own the nicest car you can afford is when you have kids. This way, you amortize the cost of the car across more heartbeats. Further, you have more valuable cargo which means a safer car is even more important.

But once you've found a safe enough car, put your ego aside so you can have true wealth. All the freedom in the world. Your goal should be to generate enough passive income as possible so you don't have to work. Be a time millionaire or billionaire! Freedom is the true value of wealth.

The Choice For Great Wealth 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. One way is to start a side hustle to generate more income on the side. We're all spending way more time at home now. Might as well try to make some side income online.

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!

The Worst Combo For Your Finances

One of the worst financial 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 high the majority of them own their homes and drive used cars. Their cars likely don't come close to 50% of their gross income.

If you want to achieve financial independence, follow my 1/10th car buying rule. Letting material things stress you out is no way to live.

If you want to detonate your finances and end up working longer than you want for the sake of a nicer ride, then go ahead and spend more than you can comfortably afford. After all, we've only got one life to live.

Buy Real Estate Instead Of An Expensive Car

Keep your car expenses to a minimum and follow my 1/10th rule for car buying. If you do, you will increase your chances of achieving financial freedom given a car is almost guaranteed to lose value over time. Instead of buying a fancy new car, use the money to invest in real estate instead.

To invest in real estate without all the hassle and unexpected costs, check out Fundrise. Fundrise offers funds that mainly invest in residential and industrial properties in the Sunbelt, where valuations are lower and yields are higher. The firm manages over $3.5 billion in assets for over 500,000 investors looking to diversify and earn more passive income. The minimum investment amount is only $10. 

Another great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside due to higher growth rates. You can build your own select real estate portfolio with Fundrise. 

I've personally invested $954,000 in private real estate since 2016 to diversify my holdings, take advantage of demographic shifts toward lower-cost areas of the country, and earn more passive income. We're in a multi-decade trend of relocating to the Sunbelt region thanks to technology. 

Both platforms are sponsors of Financial Samurai and Financial Samurai is an investor in Fundrise funds. 

The 1/10th Rule For Car Buying is a Financial Samurai original post. I came up with the rule in 2009. If you want to build more wealth, join 65,000+ others and sign up for my free weekly newsletter.

1,237 thoughts on “The 1/10th Rule For Car Buying Everyone Must Follow”

  1. Pardon me if I may come across rather bluntly, but you are absolutely deluded… And I’m saying this after double checking whether there might have been a mistake and you are relating about how things were 5 or 10 years ago – yet it says clearly this was written 02/01/2024!!! Have you actually checked car prices in the past few years before saying one should only pay 10% of one’s yearly salary for car acquisition? I suppose you will also say people shouldn’t spend more than 25% of their income on housing? It begs the question: IN WHAT WORLD ARE YOU LIVING?

    I am a pensioner on $20,000 (Canadian) a year and $2,000 cars are simply impossible to find. I just got offered a 2005 Camry for $6,000… My present car is a 2004 at the end of its rope (250,000 km in the rust belt is an achievement by itself) and I should spend 30% of my yearly income on a car that may perhaps last another 5 years, if I’m lucky?

    I’m sorry, but advice like yours reeks of the famous “let them eat cake” remark attributed to Marie Antoinette of France before the French Revolution when people with money were like they are today, totally disconnected from the reality of the majority.

    1. No worries. I’ve heard much harsher language before. If you are a pensioner, hopefully you have amassed a large enough net worth over the past 30 or 40+ years working to retire comfortably.

      If that is the case, then you can follow my net worth rule for car buying, which used assets as a barometer.

      Not everybody is as privileged to have invested and lived through the greatest bull market in history, while having a pension. Something like 14% or less of American workers are eligible for a pension.

      For reference, this is the #1 car buying rule for financial freedom seekers. I introduced this rule over 10 years ago (this site started in 2009), and it has been followed by over 10 million people. I update this post every year.

  2. For those of us that make more average incomes you have to almost completely throw out this 10% rule of you want a good car in today’s environment.

    I make $66,000 a year and I’m probably going to buy a used 2022 Toyota Prius for around $23,000. Right now I own a 2007 Chevy Impala with 122,000 miles on it that’s burns oil. I live in a Rural area of the Midwest with no public transportation whatsoever, so I drive about 18,000 miles a year. Many of my coworkers drive 25-30,000 miles a year.

    I was planning on keeping my Chevy impala forever. Drive your car into the ground baby! Until my mechanic got my car underneath a lift and stabbed a screwdriver straight through a rusted out structural portion of the frame. My vehicles frame could snap on the highway at any time. He told me not to take it out for any interstate driving and he is right.

    Now if I follow this rule above, I’ll have to spend $6,600 on a car. You know what kind of car I can get for $6,600? Basically exactly the same car I have now (minus a bit of rust). So now I’m back to owning another late 2000s car with over 100K miles on it and probably the same engine and transmission issues my current car has. I might as well buy something newer and treat it better this time around.

    But Why a Toyota Prius? Because they consistently get 50MPG on both the highway and city driving. Why do you think whenever you go to an airport all the Ubers and taxi cabs are Priuses? Because they have the lowest total cost of ownership over their lifetime. The 2022 Prius uses a single speed planetary gear style transmission, dual port injected 4-cylinder Atkinsons cycle engine, and has no drive belt or alternator that can fail. The head gasket issues and EGR clogging problems have been solved in the 4th Gen Priuses. The toyota Prius also has a bunch of plastic panels on the bottom to protect the hybrid system, but has the added side effect of protecting the undercarriage from corrosion.

    I plan to drive this car into the ground as well, and I think this is the only sensible additude to have if you plan on buying a new car. If you plan to buy a newer car, plan ahead that you will own this car for the next 10+ years and purchase accordingly. This time I’ll use cosmoline on some areas known to rust.

    1. Excellent feedback and analysis. In your situation, a reliable car is vital given you drive so much. Hence, relaxing the 1/10th rule makes sense.

      I still wouldn’t pay 1/3rd of my income on a car, but that’s just be.

      I’m a big fan of driving a car for 10+ years. My car is a 2015, so it will complete 9 years come July 2024. But it only has 51,000 miles.

      Enjoy the Prius!

    2. I think your car spending is reasonable as long as you can pay cash for it. You obviously need a reliable car you could drive for the next 8-10 years. For example, Dave Ramsey recommends not to spend more than 50% on annual income on ALL vehicles owned by a household. You are well within this range. The sad truth is that majority of Americans buy cars they can’t afford and that is why 85% of them are bought on credit or leased. Sam’s 10% rule I think is mostly for people with high incomes who pursue the FIRE dream. I personally try not to spend on a car more than my monthly income, which is easy to do if you make $40-50K a month, and pay cash unless I get 0% financing for 36 months. Congrats on you car choice.

  3. The answer to everyone’s doubts/concerns below is a used Lexus ES350 or RX350. I bought my 2011 RX350 in 2015 for $20k cash and my 2014 ES350 this year for $17k cash. RX350 has been flawless and and has 138k miles on it now. The ES350 is flawless (same drivetrain as RX350) and has 66k miles. I make 160k per year and keep my cars till the tires fall off. Both cars will EASILY reach 250k miles (probably 7-8 years for RX350 and 10 years for ES350). A Lexus or Honda product will last the duration and have small maintenance bills. TBH, I would not have to think twice about buying a 2007 ES/RX350 for $5-10k as they are solid cars. I think this post is brilliant and should be followed.

  4. Greetings,

    In 2015 my wife and I bought a new Scion xB, 2015 model year, for $18,840. Our previous car had died and I really needed another one for commuting to work. True, we didn’t need a new car, but the price was acceptable considering it’s a reliable Toyota product. Our combined annual income at the time was $203,000. I still drive the same car today. It’s in very good condition, fun to drive, and we never regretted the purchase. And it has never had a mechanical failure. This 10 percent rule can be done successfully. Don’t waste your money on cars. Thank you for the good advice on this web site.

  5. While I understand and can fundamentally agree with the principals behind this rule, it’s laughable how out of touch this is to the reality of most. I’m sure it’s easy to preach one size fits all financial advice when your individual gross income VASTLY exceeds that of whole households across society.

    1. Why is me buying a $8,000 car when my income was over $80,000 out of touch with reality? The second hand car I bought served me well for over 10 years. Then I followed my 1/10th rule for car buying again and bought a $20,000 Honda Fit and traded in my old car for $1,500.

      Just because your reality is different from another person’s reality doesn’t make another person’s reality laughable. What’s laughable is the median household of only $75,000 in America buying an average priced car of $49,500. That’s a surefire way to never achieving financial independence.

      Being able to invest and watch the money compound over time for more freedom is way more valuable than buying an overpriced car that is guaranteed to depreciate in value. But, to each their own!

  6. I bought a brand new Mazda 3 about 12 years ago that I still drive. I was probably at about 20% car price / income at the time, but I had saved quite a bit of money the previous 2 years not having a car at all. Now with the car value falling and my higher income I’m under 5% in car value / income even with today’s inflated used car prices. A car has generally been more a convenience and luxury for me since I do live in an area with good public transportation.

  7. With current car prices, is the 1/10th salary rule a pipe dream? I think it’s impossible currently and possibly moving forward.

    I just sold my 10 year old Hyundai Economy car for $10k to Carvana. It needed atkeast $2500 in maintenance. New tires, brakes, suspension… but had pretty low mileage at 55k miles. Carvana will probably turn around and sell it for $15k. I bought it NEW for $16k in 2013.

    1/10th rule for someone making $50k a year is a $5k car. I would fear for my life driving a $5k car in this market.

      1. If you’re earning minimum wage you probably shouldn’t even have a car. You’re sore doing more on gas, insurance, parking and repairs than you can afford. Take the bus. Ride a bike. Walk. Fiscally speaking you probably should not own a car unless your household net is more than $80k, and even then you’re throwing away more money than you can really afford.

  8. Sulaiman Shah

    I agree that as income goes higher the ratio would change. Probably every $50k mark ratio lowers. Nobody is making $200k and then buying a camry. Also to ppl complaining about used cars Toyota is King and Honda is probably second. It’s funny how ppl will buy an American car (ford, Lincoln) complete crap and then blame it on that it’s used.

    My Goal is:
    making under 50k > buy no car or motorcycle
    100k > used Toyota Camry, 10 years old
    200k > used Luxury 5-10 years old (Mercedes’ Lexus etc)
    300k > buy any car I want: S class or Tesla P100 or rotate every year

    1. I’m making over $250 and still drive a Rav 4 hybrid. Maybe I should scale up for more comfort, but with current economy, it seems foolhardy.

      I wonder how this formula translates to EV, with the price premium associated with them (20-30% cost of equivalent class of cars). I guess 1.30/10 of salary, or do we all need to go down a class? We need to take into account the long-term fuel savings and maintenance costs. I hope this article gets updated.

  9. Mr. Just getting by

    I’d assume you mean 1/10 of your net sal not gross? Well that only leaves me with very high mileage car that would be more in my machanic’s garage then in mine. The cost of used cars have skyrocked due to high demand and inflation with your paycheck not keeping up.
    I had an old car for years but I had to junk it because they don’t stock the parts anymore; the fuel pump went (it was replaced six months before) the car would have kept going if I could find another one but that model car was long gone to the crusher in all the junk yards.

    So far I’m lucky that I can walk or bike to work but that’s gonna change too since my rent is going to skyrocket which will force me to move farther away from my job. So now I have to look for a car that is dependable/low miles/cheap to insure/good on gas for around 3,500 or less?? Not in this lifetime!

    1. Gross. Sorry if I was not clear in the post. But I will make it more clear now.

      For three years, my car was probably worth between $2000-$4000 until I finally traded it in for $1,500. It worked fine.

      As I made more money, I bought a nicer car. It’s a good motivator!

      1. does this include insurance or just the purchase price? As a new driver, my insurance premium is worth more than the cars I am looking at.

        1. Indeed. And if done well, it’s great because it feels so good to spend more money as you get wealthier. Otherwise, we end up dying with too much. And that would be a waste.

            1. Curious. Do you think I owe you anything? If so, the entitlement mentality you have might really hurt you over the long term since you’re not paying anything and consuming this post for free. There are over 1,200 comments on this post. It’s hard to keep track of everything.

              Please work on your emotional intelligence (EQ) if you want to grow your wealth, build better relationships, and live an easier life.

              “does this include insurance or just the purchase price? As a new driver, my insurance premium is worth more than the cars I am looking at.”

              To answer your question, just the purchase price.

  10. At some point this rule stops making sense right? Like if you have a household income of $300k you can afford a $50k car easier than someone who makes $60k a year and buys a $6,000 car.

    As you make more money your cost of living doesn’t go up unless you decide it should, but a loaf of bread costs the same regardless of your income.

  11. Great article. My partner and I are a one-car household. We own a car that we purchased for less than 5% of our gross annual income. Pretty good, right?

    However, I am starting to look at the total cost of ownership more closely. We’ve been considering getting an EV for some time now. With the higher price of gasoline and extra maintenance costs for ICE vehicles, we would actually save money on an annual basis by trading in our car for an EV that is more expensive on paper (paying cash for the balance, of course).

      1. Thanks for the link! The only thing holding is back is the recent spike in price of used EVs. Of course, if that gets much worse it will make ICE vehicles look good again.Had we bought a Nissan Leaf a few years ago I’d be sitting pretty right now.

      2. Jennifer Givens

        My disability insurance payment is about $2300 per month. I had paid my home off early and inherited around $120k. I want to rent for a year to improve my credit score so I can buy a modest home costing around $150k. I was planning on spending $20k on a car that I intend to keep 10+ years but after reading these articles, I’m second guessing if I should limit the car purchase to under $5k. I have no problem driving a beater; 20 years ago when my terminal illness made it impossible for me to work and make the money I was used to earning I learned really fast that when that hood gets popped open, some cars still say “Toyota”. I then let my high dollar, high payment car go and spent $250 on an older car that lasted 2 years. I haven’t had bought a car via financing since that time. Just wondering what my best strategy would be right now.

        1. Sounds like you need a really reliable car. 10% of $2,300 a month is $230. I would just pay $20,000 cash for Toyota Corolla for something really reliable with the hundred $20,000 inheritance. Keep it simple and minimize car stress.

  12. Hi Sam.

    I’m Brazilian. How can I apply and follow this rule living in my country, with a different currency?

    1. Same concept. Spend no more than 10% of your annual gross income on a car, even if it’s in Brazilian real. This may make things even tougher to buy the car you want. But again, a car is a depreciating asset. So you want to allocate the least amount of capital possible to a depreciating asset.

    1. Birthing wrong with a used Camry for folks making under $150,000 a year. My dad used to have a 7-year-old one when I was in high school. It ran great. He retired at a regular age and is comfortable.

  13. My wife and I tried this rule. In 2018 we picked up a 2010 Subaru Legacy for $7500 (cash), we were making around $120k at the time. Later on in 2018, we picked up a 2009 Ford Expedition EL for $5000 (cash). Our income has nearly doubled since then. We did the FS and DR approach all in one. It worked well for us to build up savings, but it was a pain in the backside.

    The Expedition turned into a headache, leading to us being stranded several times. We learned that the seller disabled the engine light when we bought it, then later found out (assuming) the mileage was rolled back… A LOT. Yes, we did a Carfax on it prior to buying it but the mileage was most likely rolled back 5 years prior. We ended up putting about $8,000 in the car over the 3 years we owned it, not including oil changes. $13,000 in over 3 years, $1,500 back to us on trade-in.

    The Subaru did us well for the most part, we ended up having a transmission issue that was going to cost us $6500 to replace, and we had put about $2500 into the car over the 3 years we owned it. It would have been $9,000 repairs over 3 years PLUS the $7500 we bought for it, so we declined and traded it in. We received $3,000 for the trade in for parts, it would have been $5,000 if we replaced the transmission. If we replaced it, that’s $19,000 spent over 3 years on a car that gave us 35,000 miles – it could have gone more had we replaced the transmission but that cost effectiveness just wasn’t there.

    We bit the bullet and bought brand new cars.. 2 of them.. we told ourselves we were NEVER going to buy a brand new car. Our financial situation is/was in a good spot; we didn’t follow the 1/10th rule but both cars will be paid off within 36 months. The comparative cars we were looking at were $30-$40k with 100k+ miles, or we spend $40k on a brand new one.

    We have 3 kids and live in rain/snow, so we wanted AWD and space. We had PTSD (jokingly) with buying the Expedition and didn’t want to take another chance – too many DIY people out there that don’t know what their doing to their cars. The car loans are sub 2.5% as well. We bought the two new cars thinking that if they last long enough, two of our kids will have them around the 10 year marks.

    We paid a “premium” for space, updated safety, reliability and longevity. Even if we have some repairs that are a few grand every 5 years, and we put 200k on the cars before the kids get them, we KNOW the history of the car and we won’t have any surprises.

    All that being said… I do like the 1/10th rule and understand it greatly, especially when you’re looking at sling-shotting yourself into a better financial situation. We are also fortunate enough to continue investing/saving/paying off debt with the car payments that will soon be gone.


    1. I don’t know who came up with the 1/10th rule, but it was clearly someone who knows nothing about cars. Cheap cars are unreliable money pits, and your story illustrates that. I’d rather spend more for peace of mind.

      But I don’t have financial security. At least I have a nice car!

  14. Buffalo Chip

    Very interesting article and very informative to many (but not all) people. That being said, not everyone is in the upper 10% wage earners and can waste their hard earned money on such toys costing the majority or more of their income. Those folks that drive BMW’s & Mercedes…all the power to you if you can afford it. But not everyone lives in California, metro-NYC or similar area and has that much disposable income.

    The key (as I am in my mid-60’s) after living all over the USA and parts of the world is DON’T LIVE BEYOND YOUR MEANS. Sure, everyone wants to live on the beach with palm trees and great weather year round. I know, I did it from Southern California to the Castles of Edinburgh and everywhere in between. Now I live in the country far from the big cities and related stress due primarily to financial uncertainty. Why uncertainty? Because NOTHING is guaranteed in life except taxes and death. Not your job, income level, health, stock market, vehicle, spouse, home/apartment or anything else. A simple accident or mishap can alter a persons entire life. With all the insanity in today’s “Covid Culture”, things have gone “Bat-S*IT Crazy”.

    That being said, after reading many of the comments in this thread, it is interesting to say the least, hearing from both sides of the financial spectrum. What works for someone living in upscale San Francisco is not going to work for someone living in rural Columbus, Mississippi and vice versa.

    Personal opinion, if anyone is living paycheck-to-paycheck and spending $60K on a new truck is either trying to impress the girls or over-the-top with testosterone injections. The older guy’s reading this know exactly what I’m talking about…we all have done it to some point. I have seen young people go without eating, live in a dump and work numerous part-time jobs just to make the monthly truck payment on the $60K PU. Insane.

    I have always bought high-mileage dependable vehicles. Yes HIGH MILEAGE and if you park them side by side to a new car, you can’t tell the difference. I have read in this thread that a cheaper vehicle will cost $3000+/year in auto maintenance. Yes, if you buy garbage…evidently the guy who wrote that has no idea on how or what type of used vehicle to buy. Remember, in the 1970’s and earlier (specifically up north) cars that made it to 50,000 miles were considered unheard of. The body would rot before the engine failed. No so much today. I’ve seen vehicles past 400,000 miles on the road! You need to have an experienced individual go to the seller and inspect for anything major. The transmission and engine are the biggies. There is no reason you can not have a decent car for around $2500 if you do your homework.

    Think about payments. Unless you pay cash (most do not), you can double the amount of the loan if you take it to full term. A $15,000 loan will be like $30,000 when all paid off. Then the REQUIRED FULL-COVERAGE INSURANCE until the loan is paid off in full. If you live in a big city, that is BIG BUCK INSURANCE. Yes, you might save on gas mileage over time and repairs, but, will you be paying $400+/month in auto repairs? I don’t think so.

    Bottom line, do what is best for you and your situation as no 2 people have the same variables. What works for me may not work for you. Personally, I don’t have a “Status Class” vehicle to drive around trying to impress others as is unfortunately so common. I’m happy with my 10-year old Jeep Grand Cherokee that is paid off in full ($3000 at the time) that has no body damage, has over 200,000 miles on it, spent only around $300 over the past 2 years in maintenance parts (I repair my own vehicle) and was worth around $40,000+ when it was new. I’ll drive it until it drops. If I bought it new and took out a loan, I would have been a slave to the bank and insurance company for 5+ years. Less stress my way!

    PS – Don’t get credit cards unless you pay it off 100% each month either. The 20% interest will eat your soul if left to pay out over time!

  15. I do somewhat agree with the objective and reasoning of the goal, with one caveat. The rule is certainly achievable IF you can perform some car repairs yourself.

    I make about average household income, and I own a 2001 Honda Civic and 1991 Toyota. By that metric, I am meeting the 1/10 rule. But for these cars have repaired them myself. The timing belts, faulty camshaft sensor, replacing brake pads. If you can do the work yourself, buying a Civic, Corolla or Camry, you can reliably get by paying very little for a functioning car.

    Also, I don’t stress things like dings in parking lots, thieves targeting my cars, or any other damaging element.

    I will say I agree with the author’s sentiment, but I do not think it is a make or break law. If someone does 1/5 instead, but sacrifices other areas, they can still accumulate respectable wealth. But the author already made a table for that anyways.

  16. This post didn’t age well at all considering what’s going on with used car market. Used cars cost like new

    1. That’s because you’re not thinking about the opportunity cost of investing in the stock market, real estate market, crypto, etc.

      A poor person thinks only about the cost of the car. A rich person thinks about opportunity cost.

      1. I will share a personal example of opportunity costs. We bought a new Tesla Model S in March of 2015 for $108k and sold Apple stock to pay cash for it. At the time, we were living in NorCal and where Teslas were common in our neighborhood. One of my buddies who ran a large body shop group that was one of the few authorized Tesla collision reapair centers and had toured the Tesla plant in Feemont. He was super impressed with Elon and their business model and was encouraging me to buy at least $100k of Tesla stock as he had just bought $150k. I didn’t buy any but if I would have taken his advice that $100k in TSLA would now be worth $2,545,000. I think about it often as I still use that 2015 Tesla with 126,000 miles on it as my daily driver. It’s worth about $32k now, lol.

        1. How do you spell stupid? W-A-R-R-E-N… And that’s for buying a $105,000 Tesla. People like you are so obsessed with others think that you feel you have to live up their expectations, drive what they drive, go whete go etc. Living in the same neighborhood with the Filthy rich wasn’t going enough. You could of went and bought 2- used Honda’s a couple years old or even just 1 and banked the $75,000. Why Honda over other imports. Because of the reliability factor. That Honda will last you forever in some cases as long as you service it appropriately. My next choice would be a usedLexus. They have good engines and are the cheapest to maintain according to many. If you have to hide your Lexus from your neighbors view then you need to move to a different neighborhood as it seems you probably do quite often. Not listening to your friends investment advice may of cost you in terms of paper wealth but hell we all have made that mistake. If someone told me 20 years ago to put my money into bottled water as it’s going to be a huge money maker in years to come I’d a thought he list his mind. Don’t believe in the market either. Many have gone bankrupt and to jail in that corrupt thinking. Ask Martha Stewart. Playing the stock market is like horse racing. Cheat to win, cheat to lose then cheat again to recoup the losses. Life is too short. And if a Lexus isn’t good enough for ya then you might plan on working til you die. You can’t take that Tesla with ya figuratively although some might opt to be buried in theirs, but you can keep making monthly payments for it til you do die. That’s essentially what one is doing by wasting their savings or inheritance on an expensive vehicles. I’d give anything to have a new Raptor. I’m just not willing to pay $100,000 for one that will lose half its value in few years. Crazy stupid there.

      2. Reading this now as I currently need to purchase a car…and I don’t understand FS’s response. The purchase price of a used car now seems to EXCEED the purchase price of a new one of the same model. If the new and used car both drain $30K, where’s the difference except for the lack of warranty, higher maintenance cost, existing wear/tear, and greater uncertainty in buying used? Without a lower sticker price, I fail to see the value in the current market.

        1. I’m not sure what else to say. Feel free to buy whatever you want for whatever price.

          If you are OK with forsaking any potential future investment returns, that’s probably a good thing. B/c it means you are already saving and investing enough for your future.

          The YOLO economy is here!

  17. This article seems like another hot take. While I definitely agree with the main sentiment (i.e. people spend too much money on cars), 1/10 is way too restrictive. When I didn’t earn as much, I used to drive real beaters, but it got to the point where the hassle of going to the shop all the time just wasn’t worth it. I now drive a Subaru that I bought new in 2015 for 19k. Given that I make about 170k per year, I’m not even adhering to this rule despite being what I consider to be quite frugal.

    Wealth serves to fund consumption and enhance quality of life, but people need to be sufficiently conservative to plan for a lifetime of purchases and “what-ifs”. As noted in the article, it’s also important to be cognizant of opportunity costs. Thus, the article’s main point is well-taken, but (as usual) it’s taken to an extreme.

    1. My car buying rule is actually not a hot take. I presented it to the world over 10 years ago and millions of people have take into account.

      Over the past 10 years, we’ve had a incredible bull market in stocks, bonds, real estate, and many other asset classes. I really hope that a lot of people during this time Invested more than spend less money on the a car they really didn’t need.

      But this is just my recommendation and guide. People are free to do whatever they want their money. Everything is rational in the end!

      1. Christina Cole

        Yes this is absolutely a hot take. To apply a 1/10 rule you should be applying yearly. Especially in today’s market, if you go out and buy a $4000 car and it has problems on you throughout the year and then the next year or two or breaks down on you then what’s the difference between that and buying a new car which is reliable and paying $3000-$4000 on it yearly? To apply this one 10th rule you will also have to understand some thing about cars in order to buy used, which not everybody does. I find this article just an extra add to confusion, not a solution. It doesn’t add any value or understanding to the costs of buying an old car or how to even go about it. You don’t just spend 1/10 of your salary on a used car and be done with it for even one year. And under these guild lines you could be missing out on a reliable used car over an extra $1000. This article doesn’t guide you in anyway, it’s pointless. It should be revised or deleted.

        1. Sure. If you don’t like the rule, presumably because you don’t come close to following it, do your own thing. No big deal. Nobody is judging you.

          Everything is rational. If you love your car and you are happy with your financial situation, great.

          Personally, I am happy to not spend so much on cars over the years so I could invest the money fully into the stock market and real estate market.

          I just enjoy making more money so I don’t have to work as much to take care of my family. Earning passive income is something I enjoy more than owning my car.

          But after such a massive bull market since 2009, I’m thinking of upgrading and living it up more. Once my Range Rover Sport gets to be 10 years old I’m 2025, it’ll be time to change.

          I think the ideal length of time to own a car is about 10 years or until it is about 10 years old.


            1. Pretty cool right? The 1/10 rule doesn’t discriminate between the type of car you buy. It provides a guidance for how much to spend based on income.

              Would you rather read car-buying advice from a bicyclist who doesn’t need or want or can’t afford a car?

              It’s really up to you whatever you want to spend. At the end of the day, it’s your money and you can live the way you wan. This article was more for people who artist friend we can arrange to help them achieve financial freedom sooner.

              If you want to buy a nicer car, make more money. Making 10 times its value.

      2. Christina Cole

        And on top of everything I said which you may or may not approve. Is that you drive half of the national average. The cost of you owning a used car which you do not let us privy to it’s cut in half for the average person. And again not sure if you do any of you own work On cars or not.

        1. The cost of driving a used car is not that much higher than that of driving a new car, unless that new car is a hybrid. In fact, in most cases, it’s lower, if you take the cost of insurance and depreciation into consideration.

  18. Irvin Pinto

    I respect your opinion but I still think this is way overkill. To get straight to the point, not everyone is sitting on a goldmine of money to pay 10% of their annual paycheck on a car and then end up racking up thousands more in repair bills. Case in point myself. My first car was a 2002 VW Passat which I picked up for $2500 but ended up spending $4000 more over two years, along with sleepless nights before I finally bit the bullet and got a certified pre owned 2017 Nissan Altima that came with an extended warranty. Fast forward to today and I just bought my second CPO vehicle, simply because of the stellar ownership experience I had. Did I lose on opportunity cost. Yes, but I could sleep well at night knowing any unforeseen expense (Like a $1200 wheel bearing replacement I did two years ago) would be covered by my warranty, but also the fact that I had a smile on my face every time I got behind the wheel of that car. Cars are my passion, and I have zero regrets spending on one. I will add that I do save/invest at least what I pay each month for my car loan, so I make up a little of what I lose in depreciation. This is also personal opinion but someone buying a 10 year old Land Rover really shouldn’t be advising others on cars. Those things are so unreliable, I wouldn’t go near one with a 10 foot pole. I did have the option of a 2016 Land Rover when I bought my latest car, but even an extended warranty couldn’t convince me to buy one knowing that parts and maintenance would make me broke, even though a vehicle like a Land Rover is perfect for my outdoor lifestyle. To put things in perspective, I’m 29, just having finished graduate school with a PhD, with near zero college debt, so I can afford to lose a little opportunity cost if it means living a little. Also, the idea of passive income doesn’t really appeal to me, simply because I’d be down to working till I’m 85 if it means doing what I love and making an impact on my field of work. This article has a target audience, like my buddy who’s investing to build passive income and follows the 10% rule to a T. But for someone like me who’s got a game plan in place for owning a nice car while at the same time saving sufficient for retirement, I think it just kills the fun out of life.
    I will say though that I am not adverse to risks, so spending on a car and investing in higher risk stocks and ETF’s is my thing, and should not be a thumb rule for anyone else to follow. It’s worked well for me, but I can’t guarantee it’s going to work for you.

    1. I think you are missing the point. The point is that the more expensive the car, the more other costs are (typically insurance). Warranties run out and parts wear out on all cars. Also, we can assume you rent and drive an expensive car.

      It is fine to justify the expense. That is not the question, but it is not a smart financial choice. And I drive a 10-year-old Grand Caravan that cost just over $6 grand two years ago.

      1. I don’t agree with the ‘not a smart financial choice’ argument. I don’t think there’s a one size fits all financial gameplan for every person. The 10% rule works well if you are already rich or have a large chunk of money in savings, that way the car you get is actually reliable and comes with a warranty in the case of the former or you have disposable cash that you could put in to fixing the car.
        In my case, I bought a certified pre owned Nissan Altima for $16k in 2016. This June, my transmission started giving out and I was at 98k miles, just two shy of the end of my extended warranty, and the dealership couldn’t ‘find’ the problem because shutting off the car and starting it up again temporarily made the problem go away. Now I could bite the bullet, dip into my year old savings(I graduated with a PhD last year so I’m 29 and in my first actual job) or do the smart thing and dump the car while the used car market is skyrocketing and get almost the same amount as I put in when I bought the Altima 5 years ago. I shopped around and found a great deal on a 2018 Equinox with AWD, the premium package and the pano sunroof for $24k. With my trade in value, I’m paying just $50 more for the Equinox each month. I also invest/save around that much so it’s not like I’m living beyond my means. And this is my first transition job post a PhD, so I’m fairly confident I’ll pay off the car sooner than my loan term and still save enough for a comfortable retirement. Now I ‘could’ have saved the $$ I’m paying for the Equinox and invested it but at that point it’s money I probably won’t live to use(unless I live past 100). There’s a good saying: You never see a UHaul behind a hearse. You can’t take that extra $$$ with you when your time is up. I can both enjoy my passion for cars and save for a comfy retirement at the same time with my current trajectory.

        1. This smacks of special pleading.

          The rule is a good guideline, and yes, it means many people wouldn’t even have a car if they followed it. But if you want to be like most people, then you will end up like them – which is living paycheck-to-paycheck.

          Not sure why you keep mentioning you have a PhD, as it’s irrelevant to the point and only shows that having a PhD is no certainty of financial literacy…

          1. Irvin Pinto

            I think a PhD is a bigger investment than putting $500 in the stock market each year for the 6 years you’d spend to get the degree. Education is never a waste of money. I’m not talking about most people, I’m taking about peers with a PhD in my field. My professor with a PhD in my field makes about $250k a year with his wife and they own an Audi E-tron and a Chevy Traverse, they buy new cars every 3 years and are building a new house so I doubt he lives paycheck to paycheck. I also think he’s smarter than someone who makes $250k a year and drives a Toyota Camry because they feel guilty about spending more on a car when they love driving. If you can’t enjoy the money you earn, you need to question your life choices.

            1. I think you just reinforced my point above. And your example professor (if real) is almost certainly living paycheck-to-paycheck if they live anywhere near SF or in any HCOL area.

              1. No I haven’t. I’m saying you can enjoy spending money and save if you make enough money. Even with a temporary post doc position, I still save money despite renting and paying off a car loan. I know that once I move to a full time professor position in academia, I’d probably save even more. Assuming I work till I’m 70-75, I’d have plenty of money to enjoy retirement and then some. You’d need to be splurging on a lot more than a car to live paycheck to paycheck with a $250k salary, so it’s all relative to someone’s lifestyle.
                I think this article works well for someone like my sister and brother in law who view work as a chore and want to retire early like the OP. Otherwise, you’d essentially be making money you’d never really end up spending unless you somehow live way past 100.

                1. Well, if you’re a postdoc now, you *might* be a full professor in 10-20 years. Academia is brutal. Why you need to save now.

  19. This has to be the stupidest take I’ve ever seen. If you make $60k/yr only buy a car that is worth 6k… wtf logic is that?!

    I deserve a nicer car if I make $60K/year. Why can’t I drive a $50,000 BMW if I want to?

    Just because I didn’t do well in school or go to a good college and land some high paying job, I should be able to afford the same luxuries as those who have done those things!

    1. Irvin Pinto

      A $50k BMW is overkill, just like this article. You’d be better off with a much more reliable $30k car. Word of advice, don’t buy European vehicles, the maintenance cost will get you eventually. For comparison, a Camry XSE costing ~$30k will hold its own and then some against a BMW 5 series in terms of equipment and features and will give you more than 200k miles of use. You’d be lucky if that 5 series makes it to 100k miles without major mechanical issues.

  20. I can’t even get on board with the 1/10 rule. I don’t want to spend more than $2,500 period, I don’t care if other people think I’m poor because of the car I drive, I would prefer to insure I’m not poor because of the car I drive. The new car flavor wears off way too soon I could never justify paying a car note, the car serves the same function, get you from point a to point b. I’m not paying a premium for that. I’ve seen countless friends take on car notes from $300 to $500 a month, it’s a colossal waste of money. Many of them trade up every 3 to 5 years. I can’t understand that desire to be in perpetual debt, it’s like they don’t even care what the total cost is, they just say “It’s only $300 a month” I’ve never had a car note and never will, I was never able to understand why so much commitment must be given to what gets you to and from work when cheaper options were always available. A $2,000 car that is well taken care of can get you to work or the store just like a $50,000 car. The cost of a car note would have to equate to the cost of extended basic cable in the 1990s for me to justify it and I’d even have a problem with that because it’s recurrent. That was $40 a month. Of course on my income level, this guide also says I should basically be getting around on a skate board or a scooter.

    1. CageFreeDinos

      I admire your aim, however at $2,500 I would be concerned about the car’s reliability. Especially nowadays with the inflated car prices. A cheap car is no good if you need it to commute to work and run the risk of not being able to get there.

  21. Hi there! Really enjoyed this article, thank you. Before I get to my financial/car question may I suggest you put a more user friendly “Leave A Reply” / Comment area… I had to scroll an insane amount past all your 1000+ comments until I found the comment box at the very end. Why not install at the end of your article?!

    Your 1/10th advice, are you suggesting 1/10th of one years costs per vehicle? So we make about 130k /year, 10% would be 13k. Would that be our budget for vehicle costs per year? Or total cost/life of the vehicle? If it’s just the budget for the year, that’d be estimated about $1083 per month or less.
    We bought a car new in 2006, total costs about $25k, paid it off and still driving it today June of 2021. Definitely have gotten our value out of it! We’re keeping this but need another vehicle and want to stay under 30k, well under if we can find the smaller suv needs we are looking for. Looking at your advice, it’d make sense if you’re saying don’t spend more than 10% of your income on a car yearly… but if you’re speaking 10% total life of car, seems very extreme and not a lot of options with that?

    Another question, We’ve saved up money and can buy with cash or at least part of it but don’t want to tie up cash in a vehicle IF we’re able to get a very low interest rate? What’s your take on cash vs. loans etc?

    Thanks so much for your time and help!!

  22. Hi Sam, I appreciate you writing this, I think it points a lot of people in the right direction, especially those that view cars as a utility. I assume that if someone was to view cars as a hobby and spend the money they have allocated for hobbies as well as 1/10th their income they have on a car, you’d see no problem with it?

    My main gripe, however, is that a lot of the reasons you brought up for not overspending on a car (maintenance, insurance, life-style creep) are more closely tied to the make a model of a car than to its purchase price (whether new or used). For example, if someone made 120k, using the 1/10th rule, they could buy a 12-year old BMW 7-series for 12k and it would be better decision than a used 2-year old camry for 20k. The problem is that the aforementioned problems, (especially maintenance), are going to be way worse on the BMW and cost way more in the long run, making it a worse decision, despite the lower purchase price.

    My point is that I think a car’s affordability has a lot more nuance to it than simply the purchase price of the vehicle. I’m interested to hear your thoughts on this. Thanks!

    1. If income 120k, according to 1/10 rule one should get 12k Camry, which for sure less maintenance than a 12k BMW 7.. Nuance is that with same budget you still need to look for less mainenance and less insurance car, but that apply to new or used car.

      If you can justify how newer 20k Camry cost less than a 12k Camry after maintenance, insurance…etc then yes 20K Camry will make more sense than 12k BMW.

  23. How does this rule apply to households that need 2 cars? Also we already own one car flat out and will need to buy a new car later this year.

    1. It’s the same. 1/10th rule applies to total household income for as many cars as you want to buy. $200,000 household income, perhaps buy two $10,000 cars.

      The car buying rule is to encourage families to either be disciplined spenders are encourage families to try and make more money from a day job or at home.

      1. My income is around a million, I owe 150k on my house. No other debt.

        I just dropped 150k on a new Mercedes G wagon.

        I understand your 1/10 rule, but i think as the income goes up, the 1/10 ratio can change.

        I don’t feel guilty, irresponsible, or foolish for spending 150k on a car in my situation….I have no boats, no cabin, toys, no kids and and a conservative wife.

        But I realize you are providing general advice…

        1. Nice! I had a MB G500 before as well, when I was 25 years old and only making about $200,000. But mistake. But it was fun while it lasted! Bought a condo in 2003 soon after I got rid of it.

  24. THANK YOU for writing this! I have been on my sister about this for a solid year. She has a couple of kids and keeps talking about needing a minivan. She and her husband are both teachers and make around $60k combined. I told her she needs to focus her search on something in the $6k range. She keeps trying to tell me that is unrealistic and she needs something reliable, which will cost at least $15k to $20k. I have told her she is absolutely crazy to even think about spending that much given their income. I completely agree with you that if she and her husband want a vehicle that costs that much, then they need to figure out a way to make $150k to $200k. As you said, they should easily be able to get a side hustle that adds $100k or so per year. Just drive an Uber or sell stuff on Etsy or something. It’s not THAT difficult!

      1. Agreed! And don’t have even get me started on that. From the time she was pregnant, I told her that she needs to look into adoption. Give those kids a chance. They are now 6 and 4 3 and I continue to plead with her to look out for her (and their) financial well-being and look into giving her kids up to a family that can afford to give them a good, financially stable life. I can tell that she doesn’t like me to bring it up, but I’m going to continue to do so as long as she and her husband are basically “working poor”.

        1. Okay depending on the area, 60k is not poor, it’s middle class. I think trying to convince someone to give up their kids is horrible thing to do, unless they are mistreating the kids. As long as the kids have food, shelter, and supportive parents, they’re better off than they would be in foster care. I can almost promise you those kids, if given up, would not end up in a well off family, since well off families mainly want to adopt kids. If you really wants what’s best for your sister and her kids, sit her down and explain to her the math behind saving and her spending decisions, instead of harassing her to give up her own kids!

        2. I never reply, but dude, you are completely nuts for this post. There are plenty of ways to raise kids on $60k/yr and “give them a chance.” I do not think $15k on a car at their income is not a fantastic choice, but it isn’t gonna ruin their lives. Of course she doesn’t like you bringing this up you sound like a complete nutter for telling her to give her kids up for adoption because you think $60k/yr is poverty. Seriously consider seeking treatment. I’m surprised your sister still talks to you if you have done the psychotic things your post claims.

        3. Wow! Are you not familiar with the power and depth of the love between a parent and child? Are you really that superficial or are you just joking?

          1. This post reads as sarcasm or satire. I think the posted is calling out the fact that this guidance only makes sense when presented with choices. Some people don’t have the luxury of a good choice vs a bad choice only bad choices with different degrees of consequence and risk.

            Buying an old sh&*t box will save money but it comes with other risks – like that of safety. One needs to weigh the likelihood of occurrence against the impact of the risk.

            I really like Financial Samurai for financial rules of thumb but come on – it is not possible to buy safe reliable transportation for 3 kids for under 15k (unless your a mechanic)

            That said – I WISH I could bring myself to buy a new car. I have 0 debt (mine and wife college, grad school, 2 cars and house all paid off) off) 45 years old. $1.5MM net worth. $200K cash in emergency fund. 2 kids. 50K saved so far for college.

            When is it ok for me to spend $40K on a new car without the guilt?

            1. When household income reaches $400,000+ :)

              I actually just wrote about saving for college in a 529 plan and for generational wealth transfer purposes.

              $50K for two kids is not enough unless then are both under 5. I don’t think we parents should count on our kids being genius or being prudent enough to go to public school.

              What if you’ve managed to build up that Net worth on only $150,000 a year at your age, that is really well done. And I would say splurge a little and shoot for a $25,000 a year car, not $15,000.

              That said, I drove an $8000 car the depreciated to $3000 for 10 years and it was great. It was a Land Rover discovery 2 and could gave transported 4 no problem.

              1. How much did you spend on repairs on a very unreliable rover?

                And don’t say nothing because I’ll know your fucking full o shit.

                Anything not Toyota is not reliable. The end.

                1. Why so much anger? When I drove a Toyota FX16 hatchback, I was proud of it. Be proud of yours!

                  It’s a great stealth wealth car.

                  Since owning my RR since 2016, I’ve had to replace the big fan in front of my engine. It stopped worked in 2019. Just out of warranty so the cost was $675 I believe. Replaced a fuel sensor recently as well. That was $300.

                  Not bad.

        4. Irvin Pinto

          You are the one that needs help, not your sister. You clearly don’t understand the bond between parent and child. If they want a reliable ride, so be it. I don’t believe anyone’s financial status is set in stone for their lifetime. For all you know, they might be making more than you in a few years, what then? And have you even considered the cost of maintaining a $6k vehicle, and all the mechanical breakdowns, not to mention the lack of safety features they would have to deal with. Cars are no longer a luxury, but rather a necessity. If they can take out a loan for a 20k vehicle, stretch it out longer for the sake of low payments now and pay it off faster when they make more money, that would be a wise choice.

    1. I am trying to understand where they teach? Do they both have a full time assignment? $60K combined seems to be very low and unless they teach at some rural private school, most teachers in any public school make more than $30K. As far as the minivan is concerned, it is better to spend a little more and get a good van that will last a decade instead of buying a car that is going to give trouble few years down the road. I don’t consider $10K a lot for a minivan regardless of income. It’s 2021, not 1990

  25. So basically by the logic of this ‘1%er mentality’ article, the majority of Americans can only afford very high mileage used clunkers and my experience with older clunkers is that there is hidden cost of both time and money that goes beyond just the face value sale price. Paying someone to fix your car adds up real fast. Then, the after effect would be that no dealerships will be able to sell any new vehicles and only the 5% of top wage earners will have dope rides while everyone else ride bicycles around. Way to keep the bar unattainable, but then that is the end goal of capitalism, the few get it all in the end.

  26. Yes, the amount of money people spend on not just cars but *options* on their cars is completely f’ing insane. I understand why. Car culture is a religion and an obsession for many men. But imagine someone adding $10k in options to their $1k phone or laptop. You’d think they were completely insane. And it doesn’t matter that it’s a more expensive base price. For a given level of income/wealth the amount you spend on unneeded options on *anything* should be relative only to your wealth not to the base price of the thing. Having said that, I know the rule is simply stated for the purposes of a lowest common denominator (i assume) but where you live makes a big difference. Since cars cost the same nationally, but houses and other costs of living don’t.

    1. You only live once

      It amazes me how easy people spend $5 on Starbucks latte’s and $10 on a banana split at an ice cream parlour. If you buy a new car with the desired options and you then drive the car for the next decade, so what? For a lot of people, a dependable car is a MUST. I think this 10% cut-off is very conservative and not working for a lot of people.

  27. Just for perspective though… I’m considering going back to school for a PHD which would in no way increase my salary and I’d only be doing it for the experience (I.e. lifelong dream). The opportunity cost will be about $300k which is MORE than my annual income and it’s purely a luxury. But if I die without it I’ll deeply regret it. Life is ultimately about experiences and minimizing regret. Finances factor INTO that but if finances become the dominant factor in your life, you’re missing the point.

    1. Exactly! I just graduated with a PhD and I’m working on my Post Doc with an annual income of ~$55k and I just got a 2018 Equinox for $25k. I have next to no student loan debt, and I’m looking at a great career moving forward. I’m not going to buy a $5000 clunker and end up paying $5000 in repairs over the next 5 years just because of a 10% rule. My first car was a $2000 VW Passat when I was making $25000 as a graduate research assistant during my grad school days and I ended up putting almost 5k down on repairs, not to mention the sleepless nights worrying about what would break next. I had enough and financed a certified pre owned Nissan Altima for $16k that put a smile on my face every time I drove it for the next couple of years and helped me sleep better at night. A sub $10k car is not worth the hassle. Not everyone can afford to wipe off their hard earned savings on repair bills.
      Also on a side note, go get the PhD! It’s really going to boost your career for the future! It’s huge future investment if you ask me

  28. Andrew Untch

    I think that in 2020, 10% of your annual income is on the way too cheap side for an entire car. For one, that leaves the average consumer in the $4,000-$7,000 range which anyone who has ever shopped used cars knows that’s the “Goldilocks Zone”, as in the supply just doesn’t exist. I can also tell you that for that price you aren’t getting anything under 100,000 miles. I can also tell you as someone who has owned many cars in that price range and mileage that your WILL have expensive fixes to handle. In fact, any car over 100k miles needs to have the timing belt, water pump, serpentine belt, pulleys, fuel filter, spark plugs, and probably struts swapped out immediately to continue operating, which adds an extra $1000 at least. I’m someone who has to drive 300 miles a week commuting. That means you’re suggesting over 15,000 miles a year on a beater car for 10 straight years. Yeah, screw that buddy, I’ll spend a couple extra thousand and get a warranted car with a few lower miles. 25% of income seems more reasonable for people who aren’t Mr.Krabs. I spent that much about 4 years ago and now I make almost twice as much so it works out well. The car still hasn’t crossed 100k and it’s still worth about 10% of my yearly income. Nothing horrible happened and my car is better than yours.

    1. I guess the problem is your concern is about the lifespan and maintenance add up the real cost and that make sense. But once it is raised to 25% people start to talk about brand and luxury car and not most economical Japanese car. Also this rule applies to new and used car. As for used car it is possible to better off spending 25% on a Japanese car than 10% on a used Range Rover.

  29. You obviously haven’t heard of Tesla. Cheap cost to operate, very little maintenance, and with full self driving coming it is an appreciating asset.

      1. Exactly. Instead, they sad and poor today. If they had only thought about how much happier and better than other they could have been if they had purchased the stock instead.

        1. I bought a Tesla. Yes. I would have been better off financially if in invested the money paid for the Tesla, in Tesla stock. However, getting to know the car and see how awesome it was made me decide to invest in Tesla too. Not so many stock but still. So, buying the Tesla was a sound investment. After three years it is still a joy to drive and I don’t regret anything. Life is too short for that.

          1. Adlina Lexus

            I bought A a tesla model X and a model S and I have never had an issue with money. It might also be that I make over 500,000$ in anual household income A year. I agree that tesla’s are amazing and I still love to drive them. my other car’s were BMW and audis but I say that tesla is way better! I saw up there the cars you should buy but I say if you can afford that car and it’s what you like there is no problem buying it! So I say tesla 100% all the way.

  30. Dinkar Dashora

    What if my company pays for car worth 25% of my Gross annual income , and, every 4 years I am entitled for new car ? Company pays for insurance also every year.

    If I don’t buy the car then amount of car is paid to me in 48 installments, after 30% tax deduction.

    Will this 10% Rule will have relaxation to 25 % ?

    1. Why are there so many replies here looking to cheat. I remember in school where teachers would discourage cheating in an exam by say, “If you cheat you only fool yourself.” That didn’t necessarily seem to be the case though.

      But this is like dieting: cheating will only postpone the goal of becoming independently wealthy, and being able to retire early if desired. You can spend it now, or save and invest and have much more later.

      Putting some numbers on this: we’ll assume an income of $100K. The company will pay $25K toward the cost of a car over 4-years. And I’m not really clear what Dinkar was saying, so I’m going to assume it means that he can opt to get cash of $6,250 per year, plus insurance ($750) and buy whatever car he wants, or use a bus or bike. So Dinkar’s income for the purpose of this column is $107K, and therefore he can afford a car valued at $10.7K, which he should drive for as long as he can.

      So the rule gets relaxed from 10% to 10.7%!

  31. (Note, this really all goes out of the window in the face of the pandemic, and if there is a real societal and cultural shift in how we approach work and heading to the daily office, we may change our approach and fully be on board with your 10% rule if cars become kind of useless and collect dust in our garages).

    In the old days before 2020, we treated our cars almost like a sanctuary to how we treat our home, with respect and care, as it’s a place where we spend at minimum one hour a day, and at *least* 8 hours a week in. That’s around 400 hours a year in our vehicles at the very lowest range, without factoring road trips or longer drives for site visits and other business needs. I really don’t think someone making 200k a year should be schlepping it in a 10k car (if a family of two vehicles to get around) under your guidelines.

    Where I live, browsing on Autotrader, that’s a really low bar unless you love working on vehicles or are best friends with a mechanic. You’re getting maybe a beat up 7 year old Corolla, a 10 year old RAV4 or 8 year old Nissan Rogue. *Generally* speaking you do not want to keep a vehicle much beyond 15 years of its life, so in the best case scenario, someone would own a 2013 Corolla and a 2012 Rogue (which by the way is way too small for a family of four, especially with car seats), in 2020! For a couple that makes *200K* a year! Frankly I think that is ridiculous and selling yourself short unless you live within minutes to rapid transit and can easily get around without a vehicle. Maybe applies if you’re in downtown Manhattan with a 5k mortgage I suppose, or right in the heart of San Francisco.

    Spend 8 hours in a 2018 Acura and spend 8 hours in a 2012 Nissan and you can decide for yourself if it’s worth it, but to me it’s a no-brainer if it doesn’t significantly impact the rest of my life and my monetary allocation. The comfort, enjoyment and smile on my face – and I’m not a gearhead or a mechanic – is well worth buying a few less electronics or a marginally smaller home in my life. I’ve owned 20 year old Toyotas and have owned a 1 year old Lexus and it’s a complete world of difference when commuting.

    I think a 25% rule is much more sensible and practical, and aligns better with most life stages if you have superb financial sense and management abilities. A family pulling in 120k can pick up 30k worth of car, maybe a single newish mid tier SUV like a RAV4, or CRV and a used Civic. Totally makes sense, is reasonable, fits their incomes compared to the rest of the country. 200k income – 50k of car, can go up to an almost new Honda Pilot and a lightly used Acura TLX. Again, very reasonable, great vehicles. No way this family should be driving 10 year old Corollas if they care at all about comfort and where they got to in life!

    300K and you should be totally fine getting a brand new BMW 3 series and a Nissan Murano or used Lexus RX. And anyone who lives in a household with an income of 500k can pretty much own whatever Tesla, Range Rover and Jaguar models suit their fancy in their garage honestly unless they’re horrible with their money.

    My spouse and I are middle-upper middle class (150-200k range of household income) and have absolutely no problems affording two cars that combined cost 1/3 of our annual gross income – a lightly used Japanese SUV and a lightly used BMW sedan. We are in excellent financial shape, including for retirement. The two key things are: we bought them used, and we paid with cash incurring no debt. Bad idea you say, at historically low interest rates? Well, we wanted to allot more of our available lending ability to acquiring more property that could be used as investable assets, and rates aren’t great for used vehicles. By going the lightly used route, we kept the warranty for major issues in the coming couple of years and have very nice and enjoyable vehicles to spend our time in, that we plan to keep for 8-10 years.

    As always for most of the posts on this blog, we think the financial advice is brilliant and well worth listening to and considering, I just wanted to provide a contrarian anecdote for this point and do not feel we are completely out to lunch. Thanks for writing!

  32. This may be OK if you have no savings or investments. But, if you have two paid for houses and a net worth of about 2M, what is the harm in a super-clean $15K car that you are NOT going to buy every year? Especially if the purchase price is only 10-15% of your cash on hand? Unlike most people, my cash on hand exceeds my annual income. I know cash is a terrible investment, but I keep it around just for situations like this.

    I bought a used low-mile Accord earlier this year and gave it to our daughter. In some ways, that car is nicer than the one we are driving!

    I totally get the depreciating versus appreciating assets idea. I’m a math professor. But, does that mean no one can never eat steak, only hamburger, and only from Aldi?

    1. They make a damn good burger now for less than $10!

      If you’ve got no debt, a multi million dollar net worth, and have your expenses under control, then go for it. Feel free to buy whatever you like.

      This car buying rule is for people who are still on their financial journey and who are likely under a lot of debt and trying to max out their 401(k) and build passive income.

  33. My employer determined that government-forced wfh has been so successful that half of us are authorized to do so forever. The remaining half just moved into a building that saves the company well over $1.3 million per year.

    This in turn, has reduced my family need for two daily drivers. It’s time to put my beloved 18 year old F-150 Supercrew (with original spark plugs!) out to pasture.

    Many thanks for helping re-index my priorities.

  34. Omar Ferrer

    What are your thoughts about Car Subscription Services like Volvo Care? These subscriptions include car payment, insurance and maintenance with little money down. Each subscription also includes 15,000 miles/year, which sounds more than reasonable to me.

    1. IMO, this Volvo program is horrible, overpriced and designed for someone just looking for a convenient option. If you separate the three transactions, it can cost less than $700. Depending on your area, a XC can cost from $400-$550 per month. Depending on your driving situation, insurance could be cheaper than $150 and Volvo offers complimentary maintenance. They just bundling everything . The price sounds right until you do research and realize you could be saving money.

  35. I think everyone complaining that 1/10 is too little money is missing the entire point. It means the VAST majority of people can NOT afford a new car. They also can not afford an off lease used vehicle.

    This rule does not mean if you make $50,000 a year you can afford to spend $5000 a year on a 10 year loan so therefore can afford a $50,000 car, it means you can only afford a $5000 car(purchase price). While this may shock you to think someone making six figures($100k/yr can only afford a $10,000 car but if you want to grow your wealth you can’t spend that much on a depreciating asset.

    While I can hear all the naysayers saying, so how are full time minimum wage folks(lets assume 20k/yr @10/hr) meant to get around if they can only afford a $2000 car? The answer is buy a $2000 used car, or ride the bus and take uber’s. They realistically can not afford a vehicle. With Insurance, registration, drivers licenses and fuel alone they can easily spend $3k+ a year where if they did the math on what it would cost for ride sharing and public transport they would come out way ahead.

    Not everyone can afford a vehicle, and most people can’t afford a new vehicle. The math doesn’t lie and its one of the main reasons most people never get out of the rat race.

  36. This advice makes no sense. If anything, you should recommend that the monthly payment not exceed 10% of the gross (or take-home) monthly income. No one purchases a new (to them) car every year, and if you hold a car for 3-4 years, the effective amount you’re spending on the car each month is in the single-digits. The purpose of your advice should not be spend the least amount of money on everything you consume/purchase – but to make smart purchasing decisions that allow you to afford a better future.

    1. ChrisDuluthGa

      Totally agree that this is more realistic!! And when there are zero other debt liabilities…then go for what you want to pay.

  37. This article completely misses the forest for the trees. Author actually suggests not owning a car if you only make $20k/year; really? Good luck holding a job or having any quality of life whatsoever in just about any city without robust public transit (most of them).

    Why even bother with housing? You can steal a tent from a homeless person and squat in the woods for free. Think about the savings!

    While you’re at it, stop throwing money away on food. Grocery stores and restaurants throw out perfectly good food every day; dig through their dumpsters every night and you have and endless supply of food completely free! Better yet, just stop eating all together you don’t even have to waste time dumpster diving. You might die eventually but think of the cost savings of not being alive!

    1. demo kon-ment

      How on earth did you afford a computer and have the time to write this based on your own advice. You are either homeless and sharing you unhelpful point of views from a library computer, or you live in a household that has everything taken care of and no concept of anything but a ton of opinions on everything.

  38. Thanks for telling me that I shouldn’t exceed 1/10th of my gross annual income when it comes to my new car purchase. I was about to look for Honda dealership around our area when I came across your article, although I’m really glad that I did. It taught me that I should think twice about my purchases especially if it is a big investment like a car.

      1. Tell that to the guys that bought GT Porsches and doubled their money within a year. Or the guys that bought a LaFerraro for $1M and sold it for $4M 2 years later..

        1. Exception that proves the rule. If you have $1M to spend on a car, you are not part of FS’s target audience.

  39. Marcus Mahoiney

    Zero debt. No mortgage. >$2m in total assets. Wife has a 7-year old Highlander XLE and I have a 3-year old VW GTI SE. We might replace the Toyota in another 7 or 8 years, or when the oldest kid is able to inherit it. The average term of ownership for a Highlander is 14-15 years anyway. The GTI might not last as long, even though it’s newer, simply because it sees more city driving and is a VW, but we’ll see. I do plan to replace it with a VW ID GTI, assuming we get one, although the Honda e looks amazing… I doubt the US ever get sit though. Maybe an electric Civic SI though? Definitely electric. I drive 50) and my office has charging stations. Once the kids are out of school and either in college or working we won’t need a Family Truckster like a Highlander and we plan to get something smaller, likely hybrid or electric, depending on infrastructure. We’ll need something with more 500 miles of range to drive to family.
    ANYWAY, point being, this article is obviously directed at people who don’t have a solid grasp of their finances or are utter penny pinchers who probably also separate their double-ply toilet paper into single in order to save money. For the rest of us, just do your research and shop HARD. DOn’t get into a situation where you have to buy a car and accept the first deal that comes along. I spent months crafting the deal on my GTI – it’s a 2017, I bought it new after the ’18s had arrived for less than $25k (original sticker was $32k) out of state, pitting about 6 dealers against each other. It’s the EXACT car I wanted, I love it, and I’ll keep it until it’s no longer reliable, viable transportation. Get the car you need (meaning afford, in addition to basic practical requirements), and if you can, the car you want. Just be smart. Know your limitations. Don’t let someone take advantage of you. YOU have the high ground because YOU have the money. Take your time. Research. Shop. Negotiate. And if the deal sucks say See ya.

  40. 50, single, no kids, $125K/yr. My condo will be paid off in 10yrs. About $680K net worth not including equity in my condo. Paid $33K for my Camaro SS. I drive around 5-7K miles per year since I work remote (since 2014). I owe $13K on it, and will probably pay it off this year. I put away $ every month in savings plus a big chunk of my check to my 401K. I financed the car since I tend to trade cars too often when I pay cash (less paperwork involved). I don’t spend $ on travel, clothes..etc. Pretty frugal. Only vice is I like sports cars.

    The sound, power, handling… feels like a supercar when I get behind the wheel but it cost nowhere near one. To me, it’s worth it. I get it if cars are just A to B to you. If not, why work your butt of everyday and not have something that is always exhilarating to you and you can afford it and still save? Instead I could driving a $12K car for cash, lose out the enjoyment, and save a little more $ potentially…… to have for what?

    1. We share a similar story. I’m 27, earning $160K a year with no kids or debt. I have a net worth of $320K & travel about 4-5 times a year but I do not enjoy trips to the bar or expensive dinners.

      I also have designated bank accounts and source of income for each initiative. Vacation is paid for by bank account bonuses and profit from my first side business. This budget resets annually and funds roll over. Investments are done from my salary. Cars are funded by straight profit from my second side business.

      All said and done, I am in a comfortable financial position and make enough sacrifices to be able to afford a drive the car that I desire.

      The 10% rule is great advice but it does not directly contribute to my level of happiness in life. I’m quite sure that I am just as happy or probably happier than those are solely follow the 10% rules. Congrats to those who do.

      1. When I was 27, I was making $8/hr, lol. Only thing I don’t like about having a nice car is the “worrying” about it. The joy of driving it comes with keeping it relatively clean, not sending it through crappy car washes, avoiding curb rash, not wanting to park super close to other cars. I’ve had much cheaper cars and I don’t worry about any of that stuff. Wheel covers are easy as hell to clean too :)

  41. How about people who see their car as a toy? I’m a “gear head” that enjoys racing and tinkering on my car. What’s an appropriate amount to spend on “hobbies and recreation” that could be lumped into the transportation category for use towards a vehicle.

  42. Trying to get ahead

    Financial Samurai, I am 38 years old, my wife and I earn about 550k/yr and we are worth about 3.4mm. We have 2 cars. One was purchased new for 28k and one is worth 20k new but leased for 200/month. My wife wants to replace the leased car with an upgraded car when the lease expires. Does the 1/10 rule apply to total cars or per car? Also, do you use original cost or current cost? The most conservative application would be that our 2 cars combined should be max 55k and one was 28k, so we can spend 27k max on new car. We would lease that for 275/month but using purchase price as a barometer. I know it’s cheaper to own than lease but we feel leasing is a nice luxury and we are conservative so we are ok with this. Plus the tech improves so much every 3 years. The car my wife really wants is 60k and leases for 650/month but that’s outside the bounds of this guidance.

    1. Total cars. So $55K maximum value of cars at purchase.

      Leasing costs more than owning usually, but if you’re following the 1/10th rule, the potential extra cost doesn’t matter.

      I leased a 2015 Honda fit for three years for about $215 a month. Business expense of course. It was a great little city car and I didn’t feel the lease payments one bit. It was nice to just hand over the keys to the dealer and not have to try and resell it on craigslist.

      I then paid cash for a larger vehicle given we had a baby. I plan to on the vehicle for 10 years and I feel I got a good deal at the time.

    2. Well if you want to stick with the FS, then you ought to go with his other metric for auto affordability: 5% of net worth. That would allow you to purchase $170K worth of vehicles. So with your current vehicle, she who must be obeyed can still shell out $140K and you’ll still be on the way to financial independence.

  43. Being obsessed with material possessions is unhealthy, such as a car. On the flip side, being obsessed with building one’s net worth is also unhealthy.

    In light of hyper consumerism and materialism, exhortations to be frugal, are certainly welcome, and people should listen to those voices, but people should also think critically about their own situations and apply the spirit behind the advices.

    If you make $30k, spending $30k on a car is likely to be financially irresponsible. Buying a $3k used car that will likely expose you to higher risk of harm may also be irresponsible to your well being.

    The ultimate goal in life isn’t to have the material possessions (or some ideal) of your dreams. It also isn’t to become financially independent by 40 either.

    But who believes/cares about ultimate things anymore. Surely, only very few people.

  44. A different Perspective

    In a city where public transport is widely available, one can wonder why even having a car. And if you consider a car a transportation tool and you don’t care for it, why bother? A car is a car, a dish washer is a dishwasher. In the midwest, public transportation is next to nothing. Where we live (in the state of Misery), you really NEED a car. In fact, since we both work, we need 2 cars. Car pooling is not an option. We make in total $60K a year so we are far from rich. Fortunately we have no revolving credit card debt and no student loans and a affordable mortgage on our small home, but other than that, things are not easy for us financially. There is no way that 10% of our gross income can take care of 2 cars AND their aggregated costs of car ownership. We always had older cars and paid for them, but one of them really gave us trouble to the point where my wife and kid got stranded in a not so kosher neighborhood. It wasn’t fun. And this was the moment where we sat around the table. The kids went from 2 hobbies to one, we squeezed some on our household budget and we replaced the lemon with a CPO Toyota Corolla (No more American). Simple but reliable and transportation Thanks to Corona we actually got a good deal, also in terms of finance. Our car payment is about $250 per month for 5 years, but a Corolla of a couple of years old should last 15 years with due maintenance. Actually, the goal is that this car will stay in the family for the kids. This is the first time that we ever took out a loan for a car, but my wife in particular wanted something more reliable after that episode. You got to understand, for a lot of people, where money is tight, cars are needed depending on locality and work distance. The 1/10 rule, as well as the “car per salary” table is ridiculous for most working class families without reliable public transport. Well, at least I got a raise, which was not expected in these weird times.

    1. Seems to me you guys are making thoughtful and responsible decisions given your situation. Not everyone can get an MBA and score a finance job that will skyrocket you to the top 10 and likely over time top 1% of average annual income.

  45. Stephen Baker

    Your mistake is to be concerned with the price of the car compared to Total Cost of Ownership (TCO).

    If you buy a complete piece of crap used economy car in order to stay under 10% – then you’ll be spending more on gas, repairs, etc.

    TCO analysis is CRITICAL.

    I recently bought a Tesla Model 3 for $40k – intending to keep it for more at least 5 years. Multiple studies have shown that over 5 years, TCO for the Model 3 is less than a $25,000 Acura or Corolla.

    Since I don’t earn $400k/year – if I took your advice, I’d be spending MORE money on a $25k car.

      1. Troy Ballinger

        I got a 2017 Corolla with 23,000 miles for $13,599. Toyota’s will last well over 150,000 miles and I financed at $205 for 48 months with about 5,500 down(from bonus from work). I MUST be at work, and I help take care of my elder mother so I can’t risk having a car that will break down even for a few days. I have bought used beaters and I will never risk being broken down on the side of the road again. I spend 13% of my monthly income pre tax on my car and my insurance combined and some may say that is too much. I am willing to pay a little extra for the peace of mind that comes from having a reliable car in my driveway. I get the lower price of the car means I can afford repairs but I would rather put that on a low monthly payment over 48 months on a very reliable car over continuously poring money into a bottomless pit on wheels.

      2. Marian Grant

        I’m wondering your take on leasing. There are 199 leases on Toyota’s (and other comparable cars) with around 2500 down.
        So you are basically renting a dependable vehicle with no maintenance costs. Does this ever make sense?

  46. For many people, a car is a need more than a want. It should be budgeted as such like rent and food. The 10% rule works for financial freedom. Seems to make more sense to apply it to lifetime earnings. For example, someone making 50k/yr is 1.5m over 30. That’s 150k or 5k/yr over 30 in lifetime for car expenditures (insurance, gas, payments, etc). So yeah, you can buy a 50k car off 50k salary. Two or 3 of them over 30 years. Of course, you can also lower the percentage to 5% of lifetime earnings for added freedom. Wouldn’t be impossible to drive two 35k cars for 30 years. Metrics also changes if you’re not trying to work for 30 years.

  47. lmao at the article and comments. Advice is especially useless unless in an urban setting. A good saver can easily spend 50% of their ONE YEAR earnings on a conveyance that will last them MORE THAN 10 YEARS. With everyone offering 0% APR, the average would then be 5% year, which can easily be budgeted for most. You worked in finance? Yikes!

    1. Yeah this article is an absolute joke and doesn’t factor in the total cost of ownership along with the cost of not having a reliable car when you need it. Total farce, very surprised this guy worked in finance.

  48. I have regretted a fairly expensive car purchase. It was paid for in cash, so it wasn’t a loan issue. More the opportunity cost of investing the money. Ultimately I decided it was a sunk cost since I’d lose so much selling it and just drive my money out of it.

  49. This article seems odd to me, surely a 10% rule would be spread across the monthly payments? Who pays off their car in 12 months? Admittedly I only skimmed the article.

    My wife earns of north of 250 and bought a 50k glc, I earn the same and have a 2013 A4 that I didn’t pay much for (25k if I recall), but If I spent 60k on my next car, it’s not a stupid amount of money. I think I read something like if you want a 30k car you should earn 300k, that’s too funny.

    To the person that wants the Mustang in their 20s, crack on. You are only young once!

    1. probably not Monthly payments, because then you can afford any cars if you divide by long enough time, just like mortgage. What author is missing is to average cost over years car driven.

  50. Alternatively

    Some people spend more on cars, some people spend more on clothes or food. Some people spend more on a big house (though an appreciating asset, bigger houses also cost more to maintain). One thing is for sure, you cannot take your money with you in your grave. And nobody knows when he/she is going to die. Not even FS. It can happen sooner than you think. But spending your money wisely and with due consideration is the key. Of course, having a proper retirement plan is a must. Paying off credit cards, students loans etc is key for financial success. I have a government job with a decent retirement plan. I don’t drink (alcohol), don’t care for fancy clothes (Goodwill has surprises, try it out!), I don’t smoke, have an ordinary sized home. No revolving credit card debt, no student debt and neither does my wife. So after all these years driving old sh1tty cars, 2 years ago, I bought a nice brand new $32K car that came from $40K due to years end model, at 0.9% for 5 years. Wife said, go for it!. So now we spend about 15% of our monthly income on cars (payment, insurance, gas). We can easily afford it and I enjoy every drive in my new car. You only live once, remember that!

  51. I’m curious of the writer’s input on my situation, as I do not technically follow this 10% rule but I think of myself as financially responsible: I really enjoy driving and working on cars, and my car is a large part of my monthly entertainment.
    I’m in my mid 20’s, single, make 120k a year, save 2k every month for retirement, have an emergency fund and no debt, and am saving up for a house to buy in my early 30’s. I am planning to buy a used low milage 2018 Mustang GT for around 30k in cash. I feel like I can afford it, even though it is technically more than 10% of my gross income as I am meeting all of my other savings goals, have plenty of money left over in my budget after planning for the increased gas, insurance, and maintenance. What do you think, acceptable or stupid?

    1. I think it’s a bad move. I understand loving cars in your 20s. I loved the 5.0 Mustang GT from 1990 myself back in the mid-90s.

      But don’t bank on loving what you do in 10-20 years. You’ll want options and I recommended building your taxable investment accounts to build as much passive income as possible.

      At the end of the day, you want FREEDOM. And money buys freedom. And freedom is way more valuable than money or a car.

      At least challenge yourself to make more than $120K for 1 year if you want to buy a $30K car.

      1. Considering our lives basically revolve around our jobs and money, what’s the point in making money without spending it on things you enjoy? The dude is still saving 2k a month and clearly has solid financial plans for his future.

        Your advice should be given to people who only want to indulge in their hobbies during retirement.

        Joe, if you’re reading this I say go for it man. As long as you know you can afford it then life is way to short to not treat yourself and have some fun. I got myself a golf gti and it makes me smile every damn day. I’m sure your mustang will do the same :)

        1. I love the FS, but I have to go with McKenzie on this one. I am a car guy also so I may be partial. The thing is that you are both right. The FS approach is like scoring %100 on a test while McKenzie’s and the original OP’s approach scores you a healthy %92. Now this is where we get into diminishing returns. 100 percent is awesome but the effort to go from 92 percent to a 100 will be way more that 8 percent. Now is 50+ present more effort, energy etc worth it to achieve the remaining 8 percent, is the ROI worth it? For me I am usually happy with my 92…but again I am not shooting for greatness

  52. Breakfast Ball

    Love this article. First car after graduating professional / graduate school was a slightly used Mercedes for $42k when I was $250k in student loan debt with my wife. I sold the car after enjoying it for 2 years when I purchased my first home.

    Following a rule similar to this, I delayed vehicle gratification for the next 12 years and I’m $3 Million net worth wealthier. It took time to accomplish my investment goals after seeing my household income increase from $250k to $1 Million+ per year over this period.

    A large car payment would have been a barrier along the way no matter how much I tried to justify based on annual income. Now, I’ve got a growing financial nut and a 5% net worth number to work with. Unfortunately, I care less about cars, my wife gets a company car, and I get a car allowance. I drive a used Toyota and don’t care about all the Range Rovers and luxury cars dropping off kids at school in the morning. I’m content knowing that I could quit my job and survive for 20+ years based on my monthly expenses or pay cash for any of the vehicles that I typically see if I desired them that much.

      1. But such an environmental disaster. Consider a Rivian instead: FAR more enviro-responsible, capable of anything the road to Tahoe could throw at it in any season, and priced at $75k.

          1. Marty Frazer

            Ending globalization would be a permanent solution to waste and environmental degradation. How much would a 65″ TV made in The U.S., and not in The PRC’s CCP owned, non profit manufacturing complex (search: Category: China Government Owned) cost? If The U.S. were to manufacture more of its own things, it would also be more likely that people would repair things, instead of just throwing them away, and order another from 7,000 fossil fueled miles away.

            Lincoln’s economic advisor, Henry Charles Carey would be rolling in his grave at the decline of his country since the financial sector has been steering it to deindustrialization, especially since 1971.

            1. @Marty Frazer You ignore the fact that a 65″ TV made completely in the US would cost 3x as much as what’s available now, and would still only last 5 years on the top end, because capitalism.

              The US has pooped the bed pretty hard on quality items they manufacture. There’s almost nothing that the US makes that other countries don’t do as well/better, and cheaper.

        1. Marty Frazer

          Since most of the nation’s electricity is derived from natural gas and coal, The Rivian is a fossil fueled car, and a lot of CO2 is produced just to make the batteries, alone. There is a woman who’s had an old, 1950s Chevy for something like a half century. In 50 years, the average EV owner might have gone through 4 or 5 cars, even if they maintained it very well. If everyone were like that old woman, however, we could have 75% fewer factories producing cars, and most of the parts of those cars. It would be better for the environment to get a low mileage, gasoline truck and make it last a few decades.

          1. Replacing a battery every 10 years that is charged at home via solar uses far less fossil fuel than consuming them on the regular for the same amount of years. And it is a step in the right direction and as many of us as possible must each take those steps as we can to begin turning the ship away from the iceberg so to speak. . . Of course they are not perfect – yet – but they remove at least one major portion of excessive gas and oil from our world. Plus those Rivian suv’s look like tanks – they will last.

            Be on the right side of history and make an effort.

          2. the power plants are far more efficient in terms of fossil fuel output than an individual car engine. orders of magnitude dfference

    1. I think the point of this article is savings rate. A lot of people want to finance everything and feel like they can afford it if they can make the payments. Live life how u want.

  53. I think a lot of other things should be taken into consideration and the rule should be adjusted to suit personal situations. If I make $100k a year by myself, I should most definitely be able to own a brand new Corolla or Camry that costs about $20k. I would put in a nice down payment, pay about $200 a month and pay off in 6 years and realistically expect to own the car for 15+years. At $100k salary, I wouldn’t just be buying a car, I will also have other expenses in my life. What if I’m someone who spends frugally in those other areas of expenses? Should I not be able to afford a better car if I cut down on other expenses? If my peers are spending $50-$100 a month at Starbucks but I’m not; if my peers are spending $200 a month eating out with coworkers for lunch but I’m not; if my peers are spending $300 a month on clothing and makeup but I’m not, should I not be able to afford a better car? These are just examples of course, but the point is we all get to choose how we want to spend our money. I think buying a nicer car that I feel good about driving and will be driving for as long as it runs is a good investment and it makes me happy.

    I agree that there are really good deals out there for buying used cars and they will carry you for many more years to come but there are also bad deals out there where your car breaks down… say… 2-3 years down the road. As much care as you might take in buying that used car, sometimes you just don’t know whether or not there are hidden problems. I would rather buy a reasonably priced brand new one, have my peace of mind and drive that car for what it’s worth. Some people may disagree and that totally and completely fine. The point is we all think and behave differently! We have to make decisions that make sense for us. It’s all about balance.

  54. Conflicted Car Guy

    I’m struggling with your advice in this article.

    I gross about $350k per year and I’m leasing a Mercedes-AMG C43. The purchase price is around $65,000, however for my lease I traded in a car worth $11,000 and put $10,000 down. The monthly payment is around $600.

    Using your math, the purchase price of my vehicle weighs in at about 18.5% of my gross income. That being said, the monthly payment is only about 2% of my gross monthly income. I live very frugally in all other respects, living well beneath my means when it comes to housing, food, clothing, and travel.

    I suppose I could have invested that $21k instead of using it as a down payment on a lease, but I feel like I already have enough money. I’m maxing out my 401k and putting over $100k into index funds each year. I think life is more important than hoarding up as much money as possible and maximizing the return of every single dollar.

    If I’m being honest, I do regret leasing my current vehicle, but not for financial reasons. I live in an area with ever-widening inequality. I feel very self-conscious driving it around when I know there are many families in my area who are struggling to pay their rent and put food on the table. My heart is in a constant battle between wanting an even fancier AMG model (because I feel like I can afford it), and wanting to break lease and drive something more frugal so I can better support my local community through giving.

    I guess what I’m trying to say is that building wealth is not the only reason to spend beneath your means. Check out Luke 12:16-21.

    1. The FS also has another metric for affording a car which is 5% of net worth. This is a better measure for wealthier individuals. So for a $65K car, you’d need to have a net worth of $1.3M. With an income of $350K it shouldn’t take long to achieve a net worth of $1.3M.

      And if you don’t have that kind of wealth, then maybe you are spending less carefully than you think; and a cheaper car would be a wise choice.

      Regarding wealth disparities we live in a country where a huge number of people don’t think medical care is a human right. We care more about building bigger and better bombs, than giving decent medical care to the military who get injured in our quasi-legal wars. We’re an odd country.

    2. “I live very frugally in all other respects, living well beneath my means when it comes to housing, food, clothing, and travel”. You see? Some people spend extra on clothes, wine, cigarettes etc, and you spend a little extra on a car, perhaps you enjoy it. So that’s fine and it seems like you have plenty of opportunity to save in spite of having the car. So there is no issue. Only someone who cares ZERO about cars would say that it’s too much.

    3. You should regret your lease bc you’re not even getting a V8 for all that $$$. C63 or go home!

  55. This makes no calculation of what buying a car with a payment plan (typically a few years old from a dealer) would save you in light of pulling a lump sum payment from investments for an old clunker. Many dealers offer little or no money down, or 0% APR. Those years of doing monthly payments leave thousands of dollars in investments that you would’ve dropped instantly on a private sale older used car.

    Moral of the story is that this shouldn’t be a “rule”, but a good use of money if you are upper/middle class. Any car above $50,000 is really a measure of style/luxury that doesn’t increase usability of a vehicle. But I guarantee that anyone who falls into the 10% rule with a $50,000 vehicle has more than enough expendable income to not worry about splitting hair. “Yes, saving money allows you to invest more and have more money later.” No shit!

    Lower wage earners should not follow this rule, as a $10,000 vehicle is likely to last much longer and have lower repair costs than a $5,000 vehicle. It only takes one major repair for the lower to eclipse the higher.

    A more basic word of advice is to purchase lightly used, basic transportation, and keep it for 10 years/200,000 miles. People waste the most money on loaded new vehicles that they only keep for a few years (or even worse, lease!)

  56. SailFaster639

    As a someone that works in finance and as a car enthusiast I throughly enjoyed this article as well as the comments.

    Throughout my life I’ve driven the best car for the money.

    At 17 in ‘10 I was gracefully gifted a really cool fire truck red ‘91 Honda Civic Four Wheel Drive Wagon (yes they made a Subaru like Civic in the 90s) with only 79k miles. It was motorized birth control. Screw it was free and I only drove it to work, friends with daddy’s paid for Jeeps or Bimmer 335s could drive me around instead. That little red shuttle got me through senior year of high school, two degrees in college and the two years at my first job in finance. It was paid for and I love it my little red POS!

    At 23, during summer ‘16 I was due to start my first real job and wanted to treat myself to a car. Spent $9.5k cash (using saving and a bit of my signing bonus) on a beautiful one-owner 382 horsepower Navy Blue CLK550 Coupe Mercedes with 123k miles. A trade-in to BMW of Sterling VA that probably only yielded $3k-$6k off the price of the new car as a trade. The CLK had a window sticker of $55k in 2007. I purchased the car for unknowingly close to the one ten % rule considering my income, it felt like a ton of money to me. I had a little money saved ($20k after tax signing bonus, $15k saving). Till this I love my V8 Merc.
    Fast forward a little, received a more important role at the company by which I’m employed. A salary increase and fixed bonus came with it. Increased my take home to $154k. Unfortunately, I totaled my little red civic summer ‘18.
    “That Civic is a death trap” my parents would say & I finally was scared enough to realize they were right.
    So the civic was gone and I was down to the CLK550. Summer tires & rear wheel drive isn’t ideal in snow. I wanted a AWD as a daily. Figured with no debt and a net worth of $172k at 25, income of $154k take home I‘m due for a newer daily. December ‘18, I bought a one-owner real estate agent white ’14 E350 4-Matic Mercedes trade-in from a Cadillac dealership. Had 99.9k miles on the clock and I paid $16.5k cash. Mercedes wanted something like $63k just four years before I purchased it. My point is some people are good with money, others aren’t.
    Let the people who aren’t finance savvy fuel the auto industry and just figure out what you can afford using the 1/10 and be FREE.

    I do really want a true sports car like 911 or Corvette in my 20s and I’m running out of time. Until I increase my income substantially and have a net worth of at least $500k I know it’s no business of mine to be paying $50k cash for a used car.

    For those interested, I find that if you look for cars that are trade-ins at name brand dealerships the miles do not matter as long as the Carfax shows strong maintenance pedegree. For example, say you made take home $100k and had to buy a car. Maybe you’re not like and just want a good reliable daily, I’d look for the newest V6 Lexus I can find at any name brand dealership with a Carfax that checks out. Those cars a virtually bulletproof and because prices of Toyota’s are so strong on the used market the equivalent Lexus usually is a better buy. Seriously!

    Would be interested to know what others think of my choices & ideas.

    Hope my car buying experiences provide perspective.


  57. Just to clarify my position.

    I currently drive a used car that is ~2k.
    I bought it new 10 years ago for 12k.

    I will replace it with new 40k car.

    Moral of the story:

    I can keep driving my 2k car and I am fine with it.
    But I would NEVER EVER consider buying one from someone (given my current circumstances)
    Why? – financial gamble and safety risk. I know my car for 2k, but I do not want to know other man’s used car for 6k.
    I honestly do not care for money that much to take on the process of buying used car (Craigslist and all the nonsense associated with it) + taking on risk of wasting my time at the carshops, missing meetings, etc…

    Person who will my car from me is lucky but crazy nevertheless.

  58. I think it’s highly exaggerated to have to earn 300k a year to get a 30k car. I make 50k a year and I can comfortably afford paying $300 a month for 5 years.

    1. FS’s other rule is you can spend up to 5% of your net assets on a car. And if your net assets aren’t above $600K with an income of $300K, you certainly shouldn’t be spending more than $30K on a car.

    2. I too earn a good income, but the statistics are correct. A car is nothing but a depreciating asset. I purchased an older BMW X3 12K that I use primarily for work. Car is great and I didn’t pay 55K. Look at older European cars with some mileage on them. You can get incredible deals and not have to think about the 1/10th rule.

      1. You should not treat car as an asset at all. Depreciating or not. You are not treating food, electronics, furniture as an asset, right? Have you ever thought how much your t-shirt depreciates? Will put car to shames.
        Car is a consumer product. Some of that product is utility, some is luxury (same as anything else).
        It just one of the most expensive things one will buy, so it gets all the attention.
        Cars also hold a special place in our culture which allows people to pass judgment on each other.

        1. “Cars also hold a special place in our culture which allows people to pass judgment on each other.”


          This is clearly true for you as you have literally obsessed over this post for FIVE+ years. Unless your family was murdered by an old car a la Steven King, this obsession you have for trolling this post is truly disturbing. Get some help.

          1. I have read this post only 2 months ago. Thank you for tracking my commenting, but I would rather have you focus on replying/arguing to the actual points I am making.

            1. Lol. Liam sounds so bothered! I receive notifications on this post for a very long time. It doesn’t mean that I care to judge myself and others based on another person’s rule, for 5 years.

  59. I guess with the 10% rule, the automakers would simply go broke. Rednecks would no longer drive new pickups any more.

    1. Not really, If everybody invested the US average car payment in good investments, they would be worth millions in a couple decades. If everyone did that, they would just be buying later in life (delaying gratification) and have no financial stress. Of course these millionaires would continue to be upgrading, passing down trucks at a lower cost to the people who made were in their shoes a decade or so before. Currently, car dealerships flog every dollar out of people making 45k a year buy letting them have the car for 600 a month.
      I make drive a 3000 dollar car, less than 5 percent of my income. No, not sexy for a 20 year old to be driving. But hey, with the amount that I invest yearly, I’ll be able to afford anything and be retired withing 20 years.

      1. LOL.
        If everyone invested, consumption rate would drop and economy would stop.
        Whatever your job is, how would you make your salary if everyone stopped buying (good produced by your labor) and start saving.
        So stupid

  60. This is something I strongly agree with! My dad would always tell me “Never buy a new car. Always pay cash.” The simple truth is that if you can’t afford to buy it right now, with cash, you probably can’t afford the car.

    The 10% rule seems to accurately capture this reality. When I was starting out, I was making about $40k/year and I bought a $4850 Toyota Corolla. (Not quite 10%, oops, sorry Sam).

    However, new cars in the same category could have easily run $25k and I CERTAINLY didn’t have the money to pay cash for one of those.

    One of the fascinating things is (much like Dave Ramsey points out in Financial Peace), you can be paying that loan at 4% to the bank. OR, that money could be invested at 7% in the (S&P 500) for the same length of time EARNING you money.

    I ran the numbers on this transaction and it came out to a pretty clean $13k that was saved over the course of 6 years. All for being willing to settle for a “not new” car.

  61. I wish I had read this article 5 years ago. Should have bought a used SUV instead of a brand new fully loaded one. Those car salesman are good in persuading me to get all the upgrades wah!
    Great article btw.

    1. what you are telling us, is that you are very easily persuaded…either by car salesmen or by the author of this article.

      1. Serge,

        You’ve been trolling the comment section of this article for over FIVE years! You need to get a life. If you want to waste all your money on cars, Sam doesn’t care. But don’t complain when you struggle with money. Cars are the #1 money sink in the States, as although 1/3 of people here rent, over 90% of Americans have cars.

        *Yeah, I know I’m writing this on Xmas day, but it’s a day where I have time for this. And I learned something new and strange looking for that 90% stat: the Western state with the highest percentage of car-less people is Nevada. Not what I would’ve guessed and pretty much points to the ineffectiveness of all mass transit west of the Mississippi.

        1. Percent of carless people in nevada is still very very low compared to say that in Uk (for example).

          The whole premise of rigid 1/10 rule or bike is silly.
          1) Reliable car more often than not is absolute necessity for those who technically cannot afford one per 1/10 rule. Irrespective of what FS or anyone here says.
          2) Car CAN be an investment as operational asset (get to work, school) to get ahead even if it causes negative cash flow in short term. Sometimes it is cheaper to live farther and pay for car
          3) Cars that are less than 6k-8k are not worth buying as they bear too much risk for failure (unless you already own such car and know it). New/newer cars are incredibly cheap (and no I am not talking about bmw, you frugality fanatics). Of course, sometimes one need to purchase a junker, thats life

  62. Judging from your educational history, I am positive I am much older than you. I am 50 years of age, come from a financially illiterate background in an economically challenged area of Texas. I could go on and on about the challenges I have faced in my life, but I had to laugh at the advice you provided in your article. In order to make some marginal improvements to my prospects as I near retirement, my husband (who also has a horrible financial history) and I have been making some very pointed decisions.
    I face ridicule at my job in the Austin, Texas area on almost a daily basis. I drive a 2006 Town & Country van. It has peeling paint, I removed the interior headliner (with the horrid Texas heat, it started to sag) and has dings and dents all over. However, it is mechanically sound, the ac works great, it is surprisingly fuel efficient, AND in a parking space challenged area, I don’t care if someone parks too close to me.
    Thanks for validating that decision for me.
    Look forward to reading more of your articles,

  63. Mr. Dogen,

    Possibly the best article I’ve ever read on this topic (and I’ve read plenty of them).

    I only wish more people would read it and follow it.

    Thank you!

  64. 100k miles is NOT the point of failure. That’s nuts. A modern, well-maintained car should have no major issues at 100k miles unless it’s the result of a defect or damage. Most cars made in the past 12-15 years don’t even require you to change spark plugs until 100k miles.
    Do some research on True Delta or even Edmunds. Most cars, if they’re going to have a problem, will develop symptoms within the first 20k miles. Direct injection engines can begin having coking problems around 30-40k miles. Turbocharged cars that were driven hard might see some turbine bearing failure before 100k. Some CVTs get “rubber bandy” around the same. But stick with relatively basic transportation, like a previous gen Corolla, with meticulous maintenance records, that passes a third-party pre-purchase inspection, and you’ll have a decade’s worth of reliable transportation. Just don’t neglect it! Get a $20 OBD scanner and manage any check engine lights. Change your oil – and use quality synthetic – every 8k miles or 9 months. Keep the engine bay clean (believe it or not, cleanliness CAN improve reliability). Don’t drive like a jerk. You’ll be fine in that $4500, 10-year old Toyota with 98k miles.

  65. Is this suggestion to own a $4,000 to $6,000 vehicle a joke? You’re just trolling the audience, right? Do you know anything about vehicles and what you end up with if you’re getting a 10% of your salary ($4-$6k) car?

    Hint: Problems. That’s what. And routine and expensive ones. Even a more reliable Japanese or Korean car in that price range is a severe financial gamble. You’d be looking at vehicles well beyond the 100k mile mark. Which, as any mechanic would tell you, is the mileage point of failures in vehicles. How does one plan to commute to and from work to keep a job when you’re storing your car or truck at the mechanic/dealership for another costly repair? Plan on using up all your vacation time? Not to mention, the constant labor and parts to fix these decade+ old vehicles (at those suggested, 10% of salary price points). Just how far is that whopping 60-90 day warranty going to take you? Oh, right, you already know.

    Newer vehicles are tenfold more reliable then a decade older, 100k+ mile automobile. Another plus, a bumper to bumper warranty. I’m not saying you need to buy brand spanking new, but I think it’s far more intelligent to purchase even a $15,000–$20,000, 2 to 4 year old vehicle then a $4,000–$6,000 “beater” from 2010. In short, pretty terrible advice from you to suggest buying a rolling bucket of problems to someone based on your silly 10% salary rule. Unless, of course, you’re a shady mechanic who is looking to keep their lifts busy.

    1. It became apparent he know nothing about cars when he said that you would need to make $350,000 to spend $35,000 ON A LUXURY car. LOL He knows nothing about cars and it would be amazing if you could buy a quality non junker car for 4k-6k

      1. Well, Adam let me fascinate you with my last used car purchase. 2002 Lincoln Continental with 90k miles. The vehicle was driven by a retiree and maintained by her retired mechanic husband. This cars engine was very clean and had zero rust on the undercarriage, a big deal here in Minnesota, since the couple had moved back from 30 years of living in the Seattle Tacoma area. After talking the seller down because the rear driver side window did not roll down, I bought the car for…….$3,000.

        1. Hi Zack
          18year old lincoln cont. For $3k.
          Great job on talking seller down! Amazing! and congrats on getting your junker.

          1. LOL.
            Seller probably is making a fortune by not having to remove grease stains from his driveway.

      2. You are telling people to spend $3-4,500 on a used car that will no doubt tear up within a year. They will then spend another $3-4,500 on another POS which will do the same thing.

        A good car is a wise investment for a LOT of people. Who cares if the value depreciates? I don’t buy a car to resell later. I bought my car to be a reliable means of transportation to and from work.

        Someone could easily make a $250/$300 per month car payment if they only made $25,000 per year.

        That whole “of you can’t pay cash for it, you can’t afford it” is a crock. How many of you paid cash for your house?

    2. I 100% agree. It’s not like a person buys a new car every year. I make 40K a year, and spent 17K on a 3 year old car w/ 30K miles. I have been driving it for 3 years now. With monthly expenses of 270.00 per month for payment and insurance, I spend 3240.00 per year, less than 10% of my annual income. I am still driving my car and have only paid for oil changes and brakes for repairs. If I had spent 4K on a car, I probably would be buying a new one every year.

      1. I have to admit, 10% seems a little extreme, especially if you make less than $50,000.

        That being said, I purchased my 2005 Honda last year for only $3,000 and I would be very very surprised if the car did not last over 10 years. Even a new engine for the car is less than $1,500 installed..

        You are not going to be driving a cool RWD coupe with power– but you can certainly find a reliable Honda or Toyota with higher miles easily for under $4,000, all day every day.

        The author says flat out– if you are happier living in debt, go ahead and spend 100% of your income on a new car to have “peace of mind” that your car is so reliable (Hint: All cars can get flat tires, or have mechanical issues– maintain any car well and it just happens less often). The truth is you would be smarter to buy a car 10 years older, uglier, slower and without the heated seats and LED lights and invest. But, it’s your life– live it.

  66. It is funny to read all those comments from people trying to convince others, but mainly themselves, that funneling a 40% of their monthly income for the next five years to that BMW they just purchased is a bold move, because “used cars are unreliable, they all break and then you spend a lot of money and stuff”

    1. I am not sure why are you so hung up on the idea that everyone is buying luxury car. Yes, someone making 40k should not buy 40k car
      But for someone making 20k, it might be prudent to buy new 15k-20k car.
      But maybe you personally should go out and try driving a bimmer…seems like you might have a thing going for this car

      1. It was only an example, actually, I have driven several BMWs myself, my father had a e36, a friend of me has a 5 series… they are nice cars, but the point I try to make is, there is no point in spending the 30-40% of your income in a car. I know a lot of people that have been chaining loans for decades, when it wasn’t a new car (they really didn’t need), it was an RV, or a motorcycle or a new pool, or whatnot… then one of them suddenly loses his job and you have to listen them whine for months…

        1. Spending 30%-40% of income on BMW is stupid.
          But spending 20%-30% on reliable (non-junker) $20k new car under warranty is sometime much better decision than buying a ticking bomb for 8k-10k.

          Again, you equate buying new car with buying a luxury car.

          Remember, the price of car also includes a risk for maintenance expenses. This is why luxury cars drop their prices like rock after warranty period.

          $6k car is really a $10k car. $6k price, $6k deferred maintenance/repairs

    2. Right…because according to the financial Samurai, the only people who could afford a $25K Toyota Camry base model are those earning $250,000 per year. In what world does this sound reasonable, proportionate or practical? It isn’t.

      The Samurai said the TOTAL one-time purchase price of the car should be no more than 10% of your income. He did not mean spend no more of your monthly income on a car payment and all associated expenses, which would be much more reasonable (i.e., if you earn $60,000 per year no more than $500 per month all in for payment, gas, insurance).

  67. Each one can adapt the spending to his own values. For me even 10% it is too much. Bike and common transport help me to not overspend on.
    Yes, I had to rent/buy a smaller aprt. and closer to my job, but in 10 years I had an aprt. and not a broken old no valuable car.

  68. I find it humorous how aggressively some respond to this advice. I’ve spent much of my 20’s in a cheap sedan because I wanted to save money. Also, cheaper cars normally have cheaper repairs. Despite what some may believe I didn’t live at the repair shop although I did live with annoyances. My left door eventually wouldn’t open well, my A/C broke, and the car had other small gremlins. I also saved a lot of money and started investing in real estate as a teacher. The point is to live frugal and shake up many of our preconceived notions. The notion is that we don’t need expensive cars. If you’d like a nice car then that’s your call. No one is suggesting that it’s some sort of moral shortcoming. It’s just that many of us have more car than we truly need and we find great ways to justify them to ourselves.

    1. The response is such because the advice is simply wrong. No bearing on real life. There is a difference between marginal cost of luxury and baseline cost of reliable transportation. For someone living in a modern world with busy life and optimistic outlook, it is simply more economical to buy new or near new car under warranty with very low probability of issues. That baseline would be 15k-25k.
      If someone is making 20k a year, missing 1day of work or spending money on repairs – is much more expensive relatively as compared to someone making 200k.
      1/10 rule advice might be ok for those who value their time at exactly $0/hr or even less

      1. Unfortunately, for someone who makes only $20,000, it is even more imperative to not own a vehicle. They will be stuck in financial quicksand forever with car payments and maintenance issues.

        Focus on making more money instead.

        1. quicksand – maybe.
          You need operating budget to get ahead. Sometimes just to operate, sometimes just to improve efficiency.
          Again, completely useless advice because it is applicable to a very limited subset of reality.

        2. So… Let me get this straight. No car? The number of places you can Bike or use mass transit to get to work is limited. Your advice works for someone in an urban area or living fairly close to work. Now take into account many urban areas removing bus routes for cost saving measures and it gets worse. If you claim a Cab/Lyft/Uber are viable options, I strongly disagree.

          The long term cost is a much better number to shoot for than upfront price.
          Also, ignoring safety for price is a terrible idea.

          The advise on buying a $5000 car is pretty good if you can find a reliable one that the price isn’t boosted much higher. Internet car guides are fairly inaccurate in the pricing of older reliable cars. You cant touch a Civic or Corolla that is mechanically sound for under $5.5 – $6k in my area. I helped my daughter get a corolla with 120k miles on it. On paper it had a great service history and no accidents. The lot had cleaned the engine bay so you couldn’t see where seals were bad and fluids were leaking. We paid cash, which I 100% agree with. After 2 years running that car, the cost of ownership, Maintenance+Fuel Was higher than my wifes Camry purchased 2 years used. The mileage isn’t just about the engine. Its about tires, suspension, transmission, body, seals, etc… I have purchased one vehicle new in my life, and its been great base toyota 4runner which was close to the same price as buying it 2 years old. I have owned it for 10 years. The front loaded price was high, but long term cost was pretty reasonable. Yes its uses a lot of fuel but for pulling a trailer and spending a lot of miles off pavement, a fuel economy vehicle would not be capable or have survived the wear. Low cost vehicles are low cost for a reason. FYI I sold my daughters Corolla after 2 years for what I originally bought it for. So it ended up being a great value. Unfortunately that is not the case very often.

        3. Hi Samurai! I know what it’s like to be without a car and making 20K a year. A car is the only way to get ahead when you are poor.

          How can someone take on OT pay and holiday pay if the buses in your area do not run on weekends, not run after 6pm, or on holidays?

          If the bus takes you 30 min to an hour to get to work, it is not feasible to get to work on time using a bike or walking, especially in bad weather.

          Not owning a car is the worst and keeps people poor! It was frustrating for me to turn down better job opportunities, second jobs, and even college internships because I didn’t have a car! With a car, you can say “I can get there” instead of “How can I get there??”.

          I paid $7000 for first car in cash it was a 5 yr old Suzuki, had it for 9 years. Owning a car made a HUGE difference for my career! Could find better jobs, always around 30-35% to previous base pay each switch!

          That being said, used cars have short term benefit but they are a gamble. You are at the mercy of car shark repair men which I paid thousands to, and used car salesmen who are broke crooks, that close shop and I had to get the police involved to obtain my title. I decided no more used car.

          Once I was more stable in career and excellent credit, I went and financed a new car!

          With my first car I gave it away for free to someone who needed it.

        4. Roger Clotz

          Not own a vehicle if you make 20k. You realize how unrealistic that is for most people right? Your advice is worthless because it takes place in a bubble.

          People that make 20k can’t make money. That’s the whole point. The idea that someone that works 40 hours a week and brings home 20k is going to be homeless and carless is so unbelievably ridiculous.

          You’re literally saying here that someone who makes 200,000 can only own a 20,000 used piece of crap toyota or something. What’s the point of making 200k? Your advice might not be “wrong”, but it’s not realistic. Get real man.

          1. I made $20K one year and I managed with a car and insurance with gas. It was a sacrifice so not necessarily accurate to say you’d end up homeless. Having the car will open the door for more opportunities.

            If someone can comfortably get around then I’d say maybe you don’t need a car now but to tell them no because they earn $20K isn’t ideal. I was able to pay $800 rent, eat , gas and everything plus save money. Having this car made me accept a job offer to become a manager and get paid more.

  69. Absolutely horrible and unrealistic advice.
    This is the problem with financial frugality blogs…while claiming to be not about money, the obsession with money is enormous.
    No value of time – older car have much higher probability of breaking down. Do I want to impact my career by being late or spend my weekend time in the shop/garage?
    Waste time looking for this used car on craiglist – how much do you value your time?
    Car is not an asset. it is a running transportation expense. Leasing an economical car at $200/month is a great way to greatly reduce potential time wasted on car repair. 1 major repair on old car can be 2 grand, which is 1 year worth of leasing a brand new vehicle.
    Try taking public transport and see how much it will cost you a month.

    We live in a modern world.

    1. How is it horrible advice to save money and not spend more than you can afford? If you like staying broke like the average American keep buying overpriced cars that you don’t work for but borrow money for if you want an expensive car start earning more money or get a real job work harder, shovel some dirt and get to work.

      1. Your cliched madness about “frugality” is preventing you think clearly and realistically.
        There is a British expression…”I am too poor to buy cheap things”. While a hyperbole, it bears a lot of truth.
        There are tons and tons of people, who are making $20k/year and absolutely need a car to work. Advising them to buy $2k car (cash) is a terrible advice. And please – no anecdotal evidence about how your beater has no issue… on average – $2k car is few miles away from a major repair/maintenance. This is why it is 2k.

        1. There’s an old American saying, “A fool and his money are soon parted.”
          You seem to believe an inexpensive older vehicle is not reliable, that is just not true. Many older vehicles have a long life ahead of them, without huge costly repairs. Like another poster mentioned, you may have some squeaks, rattles, or issues, but that won’t prevent you from getting from point A to point B. If you purchase a $2-$6k vehicle, and then a year or two later have to invest $1k for repairs, that is much more affordable than a $20k+ vehicle loan.
          Someone making $20-$40k has no need for a $20k vehicle. Public transport or carpooling would make more sense. Of course, this is the path of someone who wants to be financially free. If you want to be a slave to debt, please go grab a new car loan immediately. I hear they stretch them out 84 months now.

          1. I invite you to use a public transport (or even carpooling) and be able to get ahead…
            This is typical frugality trap where focus is only on savings.
            Car is investment sometimes..not as an asset, but as reliable operational tool to achieve your other goals.
            And please do not give me BMW example again..we are not talking about luxury car

            1. Sorry Surge, but you are simply wrong. Samurai is right.

              First of all, you have zero data showing that a new car results in being late to work less. All cars are subject to crashes, flat tires, and unexpected mechanical issues, even $250,000 Lamborghini’s. You are implying that spending 90% more on a car somehow means you are 90% more reliable, and that is false.

              He clearly states in the article if you make $20,000 you have no business owning a car. The costs of owning even a cheap car mean that you are spending more than you make and you will never “get ahead” like you said.

              I bought a $3,000 2005 Acura RSX last year with 160,000 miles. It is ugly and slow, but it will run just as well as your $20,000 car for the next five to ten years! And even if it didn’t, I can afford to replace the engine five times for the premium you spent on your car!

              Financial Samurai gave you good advice and that is to sell your car, start taking the bus and get rid of the deficit you live in!

            2. Taylor, I guess you have plenty of free time and money (to spend on Uber) while you engine is being replaced. And I guess you have a lot of time to go craigslist hunting to get that non-junker car for 3k.
              It is utter idiocy to say that someone who makes 20k has no business to own a car. This just shows complete lack of understanding the realities and costs of public transport in 80% of the USA. Keep taking bus and you will be making that 20k forever.

      2. Roger Clotz

        That’s not his advice though. His advice is to spend 10% of what you make in ONE Year on a car. That’s ridiculous. It’s an ongoing expense. Maybe you can get away with that stuff in NY or something, but not most places. I live in Orlando and you need a car, and no one making 6 figures is driving around in a beat up honda with 200k miles.

        If he said 10% of your annual income, sure. As in every check 10% goes to your car payment, but that’s not what he’s saying.

  70. Interesting article. Cars are my hobby and yeah I have typically 3-4 at a time which probably makes you go REEEEEEEE. I’m a single man, no kids, and I make around 65k a year in my early 30s. I have several rental properties that all cash flow within the 2% rule and I have roughly half a years salary saved. None of my cars have payments as I hate payments and typically pay things off in 6-12 months ish.

    Things I sacrifice for my cars.
    TV and movies
    Nice clothes
    Fancy restaurants
    Pretty much anything that isn’t car related I don’t spend any money on.

    I do wish I had a couple years salary saved away but I just can’t not have my cars.

    Thats my ONLY vice.

    1. How can someone who makes 20k a year even buy a 20k worth car?

      If you take a loan with bad credit, you’d end up paying 30-35k across 10 years.
      Who in their right mind would choose to do that?

      A person with such a low annual income cannot afford a car. It would be easier to simply switch jobs to one that doesn’t require a car in the first place.

        1. Roger Clotz

          Do about 1 minute of research and you would know. I’ll do it for you though.

          The average credit score of someone making under 30k is a 590, and credit score and income have a descending correlation. Therefore, it’s clear that someone earning 20k would have a credit score average below 590. Remember credit score is directly tied to income.

          590 is a very poor credit score, and we can assume most people making 20k have a lower score. It doesn’t mean you can’t have a higher one, but it’s not wrong to point out the correlation.

  71. I have spent most of my adult life making a monthly car payment. As a young adult, I was told and believed that it’s “a part of life”, like taxes and utilities. So, being a truck guy, I consistently made payments on the newest truck, trading in religiously.

    When my wife and I payed off our 2012 Prius C (50mpg, thank you very much) in August of 2018, we swore we’d never make payments again.

    We bought an 02 Silverado with only 171k miles earlier this year for $4200 cash. Truck was owned by one family and meticulously maintained.

    You are absolutely right that vehicles are far more reliable from the 90s and up than they were in my youth (I am 46).

    Thankfully, we are in a good place financially. Though we gross lower than the US median, we are wise with our money and have a nice cushion in the bank. Plus a sub $1000 monthly mortgage payment and no credit card debt.

    Much as I would love a fully loaded 2019 Ram Rebel, I refuse to pay $50k for a truck! It’s financial suicide! My 02 is just fine and by purchasing it so cheap (including much cheaper sales tax and reg fees) I was able to spend some money having fun with the truck. More aggressive BFG tires, Flowmaster exhaust, smoked lenses, etc. plus since my wife and I have clean driving records, we pay less than $70 month on insurance for two vehicles!

    At the end of my long rant, let me leave the reader with something that my wife and I tell each other whenever we feel like doing something stupid…there is no car or truck that would feel better to drive than the feeling of having some financial independence provides us.

    1. Funny that most commenters here that are against buying expensive car, have a car model in mind that they would love to own…BMW, Ram Rebel, etc….
      Somehow, they chose not to own their dream, but rather comment about their prudence.

      1. I love Lamborghini. The V12 Aventador just makes me giggle. Ferrari, McLaren, Porsche… I especially love BMW. I had an E46 M3 for my first car! It was a 333HP RWD monster, and it was a blast to drive (and fix!) and I spent every moment dreaming about it.

        But, it was financial suicide for someone making $20,000 a year to own (It was only a $15,000 car, but it was a BMW lol). I had convinced myself at the time that it was a great investment and that I would own it for a lifetime and if I ever did sell it it would be worth more! I am not saying you are living in the exact same illusion as I was, but let me tell you that I was not “Owning my dream” when I was working two jobs to afford just to make ends meet.

        The dream for a lot of people here is FI (Financial Independence) and that provides a whole lot more peace of mind than a new car. Samurai isn’t saying don’t buy your dreams– he is just saying wait until you make enough to afford them without being stressed out.

        1. Roger Clotz

          You were poor though. No offense, but there’s a difference between a bad decision and owning a decent car. If you only make 20k you have to do what you must. I make 70k a year in an area that individual income is ~25k and household is around ~45k. Do you really think I’m going to be driving around in a beat up junker, worrying about constant maintenance issues?

          If you are searching for financial independence you aren’t going to find it by having a cheap crappy life. I’ve done that, it’s cheap and crappy. I have a nice car, own a house, have almost no debt other than student loans I’m going to pay into oblivion. I spend money when I want, on what I want, all the time. Build your skills and get a better job. I’m not rich, but I’m very very comfortable, and the idea that I’m going to have a $7000 car is ridiculous. It’s something I use everyday, the investment is worth 10% per check at least.

    2. Roger Clotz

      That truck likely wont last you long, and even if it does, you’ll always worry. It’s the guy like you that says “we can’t take the truck, I don’t know if it’ll make it!”. You don’t make enough money to really live the lifestyle you were, that’s understandable, but this isn’t good advice for people in a decent position. If you make less than the US median, you aren’t in a good place financially.

      Of course buying a truck that ~110% of your annual income is suicide, but that has nothing to do with what’s being discussed here. This guy is saying you can ONLY afford a $4000 beater and that’s wrong. Sure, if you are poor it’s not a bad idea, but someone with money is going to appreciate reliability. I have financial independence already, so using some of my money now, instead of seeing it arbitrarily raise my bank account is worth it.

  72. Kent Kirkland

    Excellent advice. Wish I would have seen this when I was younger. Mostly learned the hard way. Thank you.

  73. I make $150K a year and mostly live a frugal live but it is hard to buy a decent car with your 10% rule. I am doing a lot of research and most likely will buy a 2018 Avalon XLE rental car with 37K miles for $18K from Hertz. I can’t believe this car is $35K brand new.

    1. Why don’t you look at a 2014 or below model from a private seller instead of a late year fleet model? You certainly can find a well maintained, reliable Korean / Jap model for < $15K.

      1. New car absolutely worth the premium to avoid smelling previous owner, dealing with previous owner, dealing with all the bullshit from private party.

        1. Dude you’re a troll. There isn’t any bullshit if you pick the right private party to buy a car from in the first place. FB Marketplace makes this easier than it’s ever been before, as you can look for a private car in richer areas of someone who kept great maintenance of the car and are just looking to upgrade or be dumb and get a luxury car. Paying 10k to avoid smelling the previous owner is ridiculous, get over yourself.

          1. I never said “luxury” car. I said “new” car. Most commenters have a glitch in their brain equating new car with a luxury car

  74. Mike Peterson

    I think this article is well intended, however your points are ridiculous.

    Unsure why you are assuming everyone is buying their car out right.. if everyone followed the “total price of your car should be 10% of your income” the luxury car market wouldn’t exist.

    You also should realize it’s beyond absurd to simply say “ figure out a way to make 300k” so you can afford a low end Lexus. I am baffled at the fact that anyone would take this article seriously.

    If this holds true, then let’s consider housing costs . You should aim for 20-33% of your income to go to housing. So you would need to make 1 million a year to afford an average house.

    Crazy this thing called Financing exists that allows you to buy something you wouldn’t be able to buy outright today.

    This article is worthless bc it goes against what I believe in.

    1. Mike, it sounds like you shop for things based on if you can afford the payment. Save up and pay cash. My base pay is 225k so achieving that 300k he’s doable for me. I’m in need of a car and I’m considering, coincidently, the Mustang on his recommended list. I only want to spend 12 to 15k max.

      1. Very bad advice. We live in modern world. Not hunters/gatherers society. We trade our skills for other skills via money. We trade our time vs. assets via borrowing/lending.

      2. You can easily brag because your base pay is almost quarter of a million. Yes you should be able to afford everything cash. Financing does not mean that I cannot afford something. I finance large purchases because of the flexibility to keep my money and possibly invest if needed. I am buying a $200K home soon and will be financing it. How does that mean I can’t afford it? I can pay cash & still have $300K liquid cash available? I like to pay cash for small purchases but I won’t knock on someone who personally can’t afford to. When I went to college, I took out interest free loans, simply placed in my cash in Long term CD accounts then repaid the principle after 5 years and pocketed the interest. Doesn’t mean I would knock on my colleagues who financed their education? I did too.

        The 1/10th rule is definitely a guideline and can help some people with their achievements. I hoard so much money that I just want to live happy now & not by necessarily buying expensive cars and blings. But by worrying less about the return on every dollar and decision. I just want to relax. I look at others that are living happy without as much money and fancy cars as I do & I’m like damn, we’re both humans, they have less outside but are living contend and happy. I started adding my family members as beneficiaries to all my investment and bank accounts

        1. Ah contraire, you may be financing but that’s because you are playing with the money to make more money. You obviously are skilled at living below your income and saving your income. Excellent job, I wish I was more like you. I wasn’t bragging but making the point with the author. I make a lot of money, comparatively, but spend a lot less on vehicles than people making a quarter of what I take in. If I think it’s a bad decision for me then I definetly think it’s bad for average Joe. You can pay off anything you finance today, so it’s not the same thing. Your money is working for you where as most people are working for their money.
          Btw, my income hit 260k last year and I’m still looking while saving a little. College debt is a killer to family finances.

          1. I watch a lot of comments on this article and find it insightful to see that many people who have well above average incomes ($150k+) tend to recognize and agree with this post, while many people who are in the $20k-80k income range have some of the strongest objections to it.

            Also, it tends to be that most people who have accumulated a substantial net worth also agree to the premise this article is based on. Keeping the your liabilities as low as possible so that you can invest more until your investments bring your income high enough to afford the nicer luxuries.

            The same advice this article is based on advises those finishing college to “keep living the lifestyle of a broke college student for the next 5 years”. Believing you need a separate bedroom for each child, or a car worth more than $5k for it to be dependable, or a new iPhone because yours is 2 years old… is just not factual when you look at what others have done in their lives who forwent those things.

            If you want the statistically best chance to be financially average, you can borrow for liabilities and keep your payments below your income. But, most people looking for financial advice and reading blogs like this, are looking for how to be financial winners in life and looking for advice on how to not be one of the 70% of people living paycheck to paycheck. Yes, you can have a car that is 50% of your annual income and not live paycheck to paycheck, but statistically the people doing that are the anomalies and not the norm.

            1. Your observation is correct; but you mis-construed meaning of it.
              For someone making 150k+ it is much easier to maintain this fairly absurd rule. For 15k+ it is significantly easier to get decent and reliable car.

              Now, someone making 40k…of course people will buy car > 4k. You tend to interpret this as lack of frugality. I argue, that in this situation, it is imperative to get a much more reliable (and expensive in absolute terms) vehicle. Assuming car is a necessity to get to work/school.

              Main problem of frugality blogs: Focusing on easy thing and not understanding people and investments in general.

              Main problem of this blog: Bring back x-factor discussion. Frugality brings out worst in men.

          2. Hi Al,

            Btw, I thought my $160K at 26 was comfortable but now I am aiming for that $260K. Yes, I definitely make, I won’t say smart because it may be subjective, but careful financial decisions and crazy sacrifices. In senior year I walked to school 3 miles RT to save $3 a day. I walked to work the same distance until I needed a car.

            The funny thing is, the average Joe is just a comfortable and happy as me today. I totally get your point because I wonder how some people close to me could be so irresponsible with money.

            I am fortunate to not have student loans. but based on your income, heck of an investment to make for education. Congrats!

    2. “The luxury car market wouldn’t exist.” – Exactly. Just like the luxury space ship market doesn’t exist. Or the luxury private jet market is exists but is a minuscule size of the automobile market. The purpose of your life shouldn’t be to perpetuate the existence of a luxury market that sells depreciating assets to a population with sub-zero savings.

      Financing exists that allows you to buy something you can’t afford – Isn’t that exactly the problem with the entire leeching financial industry. I wish most people had basic arithmetic abilities before they jump into financing things they shouldn’t buy anyway. Financial security is traded away for knick-knacks. An older generation that lived through depression would be shocked.

      1. Jayson Levitz

        I notice that you did not comment on Mike’s point about financing a house. If mortgages did not exist, hardly anyone would be able to purchase a house. Your logic is so faulty it IS ridiculous. Your logic means that hardly anyone would buy a new car, because you would have to earn $300,000 in order to buy a $30,000 Honda. Absolutely totally absurd.

    3. I am reading this and laughed at someone making 200K should buy a mazda3 hahaa, seriously.
      I understand that knowing how to “wisely” spend your money and saving/investing your money is very important, but why snag a car worth 20K while making 200K is a good compromise? but accounting for parking tickets and traffic violations is fine to “budget” on? If so, your priorities are wrong and your financial management needs tweaking.

  75. I’m not sure if this article predates another one you wrote in which you say in essence, “By all means buy a good car if you can because you have to protect your family from the war zone that are the streets.”

    Still, I have to disagree with the 1/10 of gross income rule stated in this article. It’s pretty impossible for most people to do. That means you’ll have to make $250,000 just to buy a run-of-the-mill $25,000 new car. Of course, I know you’re saying to buy used (which is what I did when I bought my luxury car). Still, I about 30% of my gross income for my car because I was tired of the road noise and low crash safety rating of my old car. I was also willing to consume the cost of the 5-year loan because I know very well my return-on-investments will more than cancel out the cost of the car loan.

    In the end, personal finance is personal. To say “must” does a disservice to people. They have to find the solution that is best tailored to their personal finances, wants, and needs.

    1. It is true, everybody should do what they think is best for themselves. I don’t think it’s a disservice to share the 1/10th rule. I have gotten feedback from hundreds of people since I first introduced the rule saying how much they appreciate not spending too much on their car and investing the money in this bull market.

      Nobody has to do anything if they don’t want to. It is only the people who feel the worst about their car purchase decision who will get the most offended by this post.

      I think a $20,000 to $25,000 car is great. And some people want more and that’s fine as well. But when people spend big bucks on their car and wonder why they don’t have as much money as they want, that’s when things got kind of funky.

    2. For god’s sake, stop spending 50% or more of your take home on an automobile. Why is that so impossibly hard to understand!!!!!!!!!!!! Argggggggghhhhh!!!

      It sounds like simple math but everyone is incredibly worried about what their neighbors will think and incredibly insulted that they can only afford to drive a jalopy. Well, sometime the truth is hard to hear.

      Anyway … I make over 200K per year and wouldn’t ever consider paying these insane car prices. It’s insane. Please stop!!!!

  76. New or late model cars are much safer than old cars. Newer cars offer an array of safety tech that can avoid accidents and not just save you from injury or death but others as well. Following the 10% rule will mean 95% of people would not be able to benefit from technology that can save lives. So I completely disagree with the 10% rule. To the point where I think it’s patently absurd advice.

    1. John the world is overpopulated anyway. If some buyers affordable cars lack 10 airbags theyll either drive better, slower or the population will “correct” for their shortcomings. I make around $26k, live in expensive New Jersey & drive a 280,000 mile chevy cruze. So i dont wanna hear it bro!

    2. I think it’s reasonable.

      1/10 of household incomes roughly 11k,

      That covers our cars a 2011 odyssey and a 2012 Nissan Leaf.
      The leaf would have been covered by someone making $35k following this rule, and the odyssey around 60k.

      Neither of which I would say were unsafe or Jalopys.

      I think the tone of the post is to be reasonable, in your vehicle consumption, you don’t need a 25k car when you make 27k a year.

      If your worried about safety, you’d be much better served by owning a 20 year old sedan that you drive 1k miles a year than a brand new car that you drive 20k miles a year, statistically speaking.

  77. Some food for thought:

    If you live in a rural area with inclement weather, 2wd vehicles will generally not be a worthwhile option. If you have a 2wd vehicle there will be days when it is NOT safe to drive to work. What is the new plan? Are you just hoping your boss will understand? What if you work on commission or hourly? If you drive a 4wd vehicle, the cost isn’t going to be comparable at all. Show me a 4wd/AWD vehicle for $4k and I am going to show you a vehicle that HAS or WILL HAVE serious issues (I have had MULTIPLE of these vehicles, one of which was even a Toyota). And a lot of times these issues are not cheap. Twice the amount of differential work, high and low gears, overdrive, not to mention it probably has a larger engine to help push the vehicle along. Meatier tires, because if it is 4wd/Awd doughnuts likely wont cut it. What if you use your car as a part of your work? Maybe you are a traveling salesman and see 50k-60k miles a year. Maybe it is a part of your hobbies/side jobs. I am an outdoors man and contractor, and would have a really hard time loading up myself, 4 friends, and my dog with all of our gear in a Civic, not to mention it will be nearly impossible to access the locations that we need to get to. Some lumber? Nope. (Well, you could probably figure something out.)

    I know that a used $8,000 Land Rover is mentioned above, but what do you really spend on maintenance? How many miles do you put on each year? In these rural areas 20k-30k is not at all uncommon. What if you are not very mechanically savvy, how much are your repair bills really costing you now? If you are mechanically savvy, how much is it worth to you to take away from recreational/family/friend time to have to work on your car? Is wifey going to be happy because your Ramen noodle dinner date was interrupted by you having to replace the fuel pump, otherwise you don’t have a way to take the kids to school tomorrow?

    What happens when you find out that your alternator is shot at 7:00 a.m. as you are getting in your car to go to work and your battery is dead. Are you hoping the manager understands? Is that worth getting fired over? Would the extra money spent put a smile on your face as you drive places, or at least keep you from worrying about turning the key off cause your aren’t 100% sure it will start back up again? Is it worth saving that money to have to dry the inside of the windshield with a paper towel continuously because your A/C fan motor is blown and it is going cost 10% of the value of your car to change the motor out?

    Then there is what I call “micro-stressors”. To me, small stressful items add up to a lot of stressful tension. Does the headlight being out, the dent in your passenger door, and the cracked windshield keep you from getting good sleep at night? How many dollars is this worth to you. Are you a jerk to loved ones cause you can’t get over the hole in your exhaust that wakes all of the neighbors dogs up? What if you are in a line of work where appearance really DOES matter (i.e. real estate agent, talent agent/marketer, car salesman?, politician, board member/appointed individual, etc.). Are you worried about the resale, or maybe if it will even be worth anything at all besides scrap?

    I am not saying that older/used vehicles on a budget are a bad idea. I have had multiple, and I absolutely adored them all, but most of the issues listed above are actual issues that I have had with those vehicles. It needs to be understood that there IS a diminishing point of return in vehicle value and that people need to be cautious of a “One Size Fits All” budgeting approach to vehicle buying. I know it is safer to tell people to spend less and hope they follow suit, but my examples above are strictly to provide the understanding that you need to do what fits your lifestyle, and budget. You need to be very honest with yourself when asking, “What is this worth to me?” Quantify your life, your free time, and your needs. There is no guarantee that a more expensive vehicle will keep you from experiencing issues, but I will tell you again from experience, my most recent and most expensive vehicle, has had none at all. (I also really enjoy driving it.)

    Globally speaking, only 80% of people even live to see the age of 65. 1 in 5 of us will not even SEE the retirement we are saving for. You are welcome to eat your Ramen, and spend your morning commute sweating through your polo, wiping the front windshield with paper towels while listening to the drone of your leaky exhaust through your duct-taped window, but I would rather make a plan with more critical thinking involved, that allows me to drive something that is reliable, comfortable, and enjoyable.

    *I love Ramen.*

  78. hi Sam,

    I’m tempted to try the Personal Capital resources but part of me is quite nervous about giving some corporation access to all my finances! I know the info is out there already in a decentralized form, and I do think I could benefit from having a clearer more centralized picture… But I’m on the fence.

    I notice they’re in SF. Have you talked to them in person by chance? You must feel they are pretty secure and upright. What about their system security? Am I kidding myself? How can a layman even begin to gauge corporate system security? Aaaaah!!!

    A friend once said to me: Use the technology, just don’t let it use you. I love that statement but it’s a real trick figuring out how to do that in most cases.

    Open to your feedback

    1. Yep, I actually consulted with them part-time from 2013-2015. I’ve met all the founders and c-level executives. The founders founded an online security firm called Passmark.

      If you don’t feel comfortable using technology, don’t use them. Paper and pencil work too! Just don’t lose the paper.

      For some reasons, I’ve always been comfortable using technology, credit cards, buying things online, etc. Online, there’s a record, so I trust things will be resolved.

      Related: Is Personal Capital Safe To Use?

  79. TheEngineer

    It is fascinating when an article stirred up strong emotions. It reminded me of the college years when I used up three cars in 3 and ½ years and finished my B.S in Engineering. Each one of the car was 1/30 of the income at the time.

    I chose to drive $400 cars because it is the only way I attained the college degree – a dream beyond the reach of both of my parents.

    The author of this article has his heart in the right place, but he may have crossed the boundary of telling others on how to exercise their hard earned resources.

    Financial Independence is very simple. It is not rocket science and it based on simple math.

    The following proposed money plays are based on the Trinity study.

    85/15 Money Play – spend 85 cents and save 15 cents on every dollar of income. Put the saving in investments with the return between 6% to 7% for 35 years – after 35 years, the accumulated saving along with the compounded interest will give a 30 years of income with 95% or greater probability of success.

    60/40 Money Play – spend 60 cents and save 40 cents on every dollar of income. Put the saving in investments with the return between 6% to 7% for 20 years – after 20 years, the accumulated saving along with the compounded interest will give a 30 years of income with 95% or greater probability of success.

    50/50 Money Play – spend 50 cents and save 50 cents on every dollar of income. Put the saving in investments with the return between 6% to 7% for 15 years – after 15 years, the accumulated saving along with the compounded interest will give a 30 years of income with 95% or greater probability of success.

    40/60 Money Play – spend 40 cents and save 60 cents on every dollar of income. Put the saving in investments with the return between 6% to 7% for 10 years – after 10 years, the accumulated saving along with the compounded interest will give a 30 years of income with 95% or greater probability of success.

    None of these Money Plays require the specific incomes, and they do not tell you what to buy, what to eat, where to live and how to live.

    You just have to pick a play and it is your creativity and resourcefulness that will make the play a success.

    Good luck!

  80. Todd Shields

    Great principle….while we are at it. Everyone needs to spend 10% max on their vehicle (vehicles to multifamily units), then spend no more than 10% on their mortgage, then spend no more than 10% on utilities/food/entertainment….that way they can save 70% of their income every month to invest.

    What rock are you living under? I get the principle, but that is not the way society operates today. Great, lets all go back to the 1940’s and get our priorities aligned right?!?!

    This is whimsical thinking and not something that most people will follow even a little bit.

    My advice is give advice that is applicable to today’s society and social norms and you will get a whole lot more bang for your buck.

    P.S. – I have a net worth of 5.2 mil. And even I don’t subscribe to the 10% of income philosophy (I make 450k yr.) and I am doing just damn fine.

    1. The author has a parallel calculation of 5% of net worth; and one can go for the higher recommendation. So unless you are motoring around in Koenigsegg, you’re probably within his guidelines.

    2. The “social norm” about money is to be broke because people buy things they can’t afford (poor) or go into massive debt buying things they can’t afford (middle class). I think the whole point of this website is NOT to follow social norms. But for some reason the car has became fused with most Americans’ identities, hence the constant flames on this old article. Believe it or not, you are not your car.

      If you ever worry about being judged by others (especially strangers) because of the car you drive, you have problems way beyond what you pay for a car and financial freedom/security will likely always elude your grasp.

      1. Well said. The average American is not getting ahead in their finances because they’re not saving aggressively, not investing properly, and spending too much on things that are unnecessary.

        $38,000 after-tax for the average new car price in 2019 vs. a $62,000 median gross household income is completely out of whack.

        Student loan debt, credit card debt, everything debt is keeping people from achieving financial freedom.

        It’s what people want. I don’t want to be average with my one and only life. Time is way too precious.

        1. 38k car is around 500$/month perpetual lease.
          This is new.
          You can get excellent new car for $20k, which is around $250 lease.
          Very very reasonable for $62k income. Because you’d rather be able to get to office on time and not waste weekends on car repair…

  81. This is not good advice.

    If you only spend $4000 on a car there is a good chance that in 2-3 years you will be spending another $4000 on another car because the cost to repair it—the gear box, for example—will exceed the value of the car.

    1. You can find well running, 8 year old Honda Civics for $4,000 – $5,000. Up to you if you want to spend more of your $40,000 on a car. It really is your choice. Don’t let me tell you otherwise.

      I loved my used Civic and used Land Rover Discovery.

      1. Diana P McGinley

        Can’t see where to post a new comment. Please respond to this repost:

        “Yo says
        May 12, 2019 at 1:24 pm
        is this assuming you change your car every year? If you plan to keep your car for 5 years do you mean 10% x 5?”

  82. Armando Silvier

    The awful, horrible truth is that most Chinese (especially mainland Chinese) people who grew up or whose parents grew up under Communism are so focused on wealth, money and how to get rich that they have absolutely no clue about what it means to a) actually live and b) what it means to be truly content with what you have. I highly doubt the author’s wealth was earned merely by his intelligence and hard work; it’s virtually a certainty that he started out without much but, that his family or relatives gave him the financial power he needed to get where he is today. For example, where did his $million education at Harvard come from? His pocket money or savings? My point: don’t preach to others about things you know nothing about. Your advice won’t be worth what you think it is.

  83. Carlos Alberto Leon

    Wow!! You can sense the emotional attachment to car spending in these replies! I wonder if people felt so strongly about paying more for their wooden wagons back in the day?

    Anyway, good read and mindset reality check-in. Alas…it will be difficult to overcome the big auto marketing machine. We all know undermount blue lights on hand holds are required to get from point A to point B after all.

    But I digress…I actually have what is probably an inane question but will ask it it anyway because it’s applicable. In a single-earner, two person household…10% PER (assuming two vehicles)…or TOTAL??

    (You have to admit…it’s kind of funny to think how yesterday’s top of the line luxury is now considered a clunker that half the replies here suggest is unacceptable to own! is there such a thing as luxury inflation? my iphone suggests so…)

  84. I have benefited from the articles on this website before, but I must join the chorus of those concluding that this article contains terrible advice. I would advise those reading this article today (June 2019) to take the principle behind this article to heart (“don’t buy too much car!”), but ignore the specifics and establish a more reasonable standard than 10% of gross annual income. There are two primary reasons for ignoring this advice:

    1.) The advice is impractical for most of the country. F.S. treats vehicles as if they are pure luxury desires in the way chocolate, entertainment, or vacations might be. They aren’t. Most of this country requires a safe, dependable vehicle to get to work each day, to shop for groceries and run errands, and to raise a family.

    The reason that F.S. has overlooked the impracticality of his chart is that he has spent almost his whole life in NYC and SF, two cities with extensive public transportation systems and clogged roads. These are cities, in other words, where real alternatives to cars exist and where driving a vehicle to work is often more a headache than a luxury. That situation is not the reality for most people. Dependable vehicles are necessities.

    2.) The advice will likely prove costly. Does F.S. have any practical experience with what a $4,000 vehicle is actually like?

    In the same breath that he complains about the associated costs of maintaining a vehicle, he recommends that someone making $40,000 a year should purchase a $4,000 junker?

    Thought experiment: what should that same person do when (s)he learns, six months into spending 10% of their annual income on a vehicle, that the transmission has failed and that the cost of fixing it is $2,000? What about the next year when the brakes require total replacement for $1,200? These are not fantastic or rare examples. Anyone familiar with vehicles in the 4K to 8K range will know that such things happen often. You are guaranteed problems at that range, no matter if a mechanic checks it out beforehand or not.

    With this advice, F.S. puts someone in an impossible situation. Either dump their broken vehicle for a terrible depreciation (likely less than 1K), or reinvest 50% to 75% of the vehicles worth just to make it functional again. Not even to mention the non-existent resale value a 4K vehicle will offer, no matter how much money you waste making it functional.

    I suspect, once again, that this advice comes from a place of practical ignorance. F.S. is not someone who has much, if any, experience with vehicles in this range and thus unwittingly leads his readers into a terrible financial trap.

    Note to readers from someone who has tried this path: don’t waste money on either a clunker or a new vehicle. Save money for a strong down payment (4-7k), take out a modest loan (again 4-7K), and purchase vehicles anywhere from 8k-14k, depending on your financial situation and auto needs. It will save you money so long as you maintain the car well.

    1. I drove a $2,100, 1987 Toyota Corolla FX16 for 6 years up to 160,000 miles while in Virginia from 1993-1999. The car was fine.

      In 2004 I drove a 1997 Honda Civic for two years and it was fine.

      Then for 9 years, I bought a used Land Rover for $8,000. It was fine too.

      So yes, I absolutely have experience driving economical cars.

      1. But you were also single, and just a student. For a family (with kids), buying a car that cheap is risky, unless you are a solid mechanic by profession. As much as you are correct about the depreciating factors of cars, for a family in rural area, you have to have a solid vehicle. For those people, a 4-5 year old car has already gone through a great chunk of depreciation and yet, such a car can go easily another decade with normal maintenance. Remember, the situation is different for a young single student in his early twenties versus a family of living living off 50K a year. different situations need different advice.

          1. No, there are no non-junkers at 1/10 rule, if you income is 50k or less.
            THere is are no if/buts about it.

            1. jason wagner

              Go on auto trader and use the filter cars with less than 75k miles. Honda and toyota newer than 2012 and you will find alot of cars with low miles in the 4500 to 7k range

    2. Your modest loan of $7k is worth $10k over 5 years which pays for 4 transmissions, 2 brake jobs and a massage.

      1. lol stellar reply. Sometimes we think that spending way more for something more reliable will save us money, when in fact it just means we end up spending more than our “worst case scenario repairs.” It comes down to doing your homework and researching which models are more likely to fail. They’ve been on the road for years and surely some info must be available on which gremlins each model has. Even your 8k-14k car is not guaranteed to be free from failures, especially if not well taken care of.

        I’ve never owned a car worth less than $5k, but in my experience, most people who own cars cheaper than that don’t bother to fix the A/C or cosmetic damage. They just concentrate on keeping the car moving, even if it means having to wipe the inside of your windshield with a cloth when its raining because of condensation. I could add other annoyances like having everything rattle, noisy engine/transmission, rough ride, a slow car. Either way if you want a car that cheap, it’ll get you from A to B, just not very gracefully.

  85. is this assuming you change your car every year? If you plan to keep your car for 5 years do you mean 10% x 5?

  86. I think teaching people to be frugal is good especially given that on average Americans are spending a lot (saving rate is low compared to other countries).

    But I also have to say that 10% is extreme and putting too much emphasis on saving things; do not forget that (i) life is not just defined by how much you save or how financially successful you are, and (ii) sometimes saving too much means that you have to DIY a lot (e.g., repairs) and all those hours of DIY work could be used to earn income (i.e., the so called opportunity costs).

    On (ii), for example, a doctor or lawyer or consultant or alike is usually paid a couple hundreds $ an hour, and sometimes a car breaking down can cost him/her a client. Let’s say you lost 5 hours a month to doing repair or driving to repair shops after you bought a used car. 5*12*$200 is 12k annually and 5 years means 60k which can buy you a Audi A6. Well, this is not completely truth because income is taxed, etc. but you get the idea. Not to mention the business interruptions you got from car breakdowns.

    And this is just purely financial aspect. There is the invaluable memory of driving a cool car.

    So there are many aspects to consider… and I think the article here is bit on the extreme side and does not apply to an average American. Perhaps it worked perfectly for the author’s circumstance and the author’s values, but perhaps not for an average American.

    I am a university professor in CA (not to validate my argument but just some background info.; people from different background have different perspectives).

  87. Why are parking tickets and traffic violations used to bolster your argument? Aren’t those independent of what car you drive? What does that have to do with how much to spend on a car?

    The problem with this advice, and the staunch stance of the author, is the lack of nuance. The REAL answer is “it depends”. There are many factors to consider that the author, well, didn’t. Why not? Because 10% is easy advice to give, it’s more marketable to throw out this nice round integer and be dogmatic about it then it is to consider all the myriad of situations people can be in, all the factors to consider, and actually consider the intrinsic value of driving something you like. Think of how much longer and harder to write this article would be if the author actually considered multiple perspectives. Sorry, but this is just lazy writing.

    If you like nice short fluffy phrases, “Follow those who seek the truth, run away from those who claim to have found it.”

  88. Wow… Happy new year 2019!
    After a careful reading of this post, I have come to the conclusion that 10% of annual income spent on a car is a lofty goal to attain, but simply impractical for most people.
    I get the need for savings and investment, and I am an almost religious user of a budget.
    With that being said, penny pinching and eating noodles so you can amass a fortune after your productive years is not the way to go.
    There is joy for sure in a pile of stash in the bank,  but happiness is always relative – there is no state of absolute happiness for the human soul.
    In lieu of the fact that misfortune may well happen to you before you are ready, and that low income earners may very well remain at that salary level for the rest of their lives through no fault of theirs and regardless of hard the work, I say it’s a bit cold-hearted to suggest they never own a car until they can manage six figures salary – which may be NEVER.
    I say buy a car (used or new), just let it sit between 10% to 30% of your YEARLY INCOME, and you’ll still attain your financial goals on schedule.
    Personally I’m a used car fan, buying from 100k miles to 150k miles and driving till 200k miles to 300k miles.
    If you are a car enthusiast and would not mind spending really BIG on a car purchase, or you earn minimum wage and a 30% annum car is not safe in your books, I say spend up to to 50% of your annual income and draw the line there.
    But have it at the back of your mind, that you have increased the time it would take to reach your goals NORMALLY.
    50% annual income should be the maximum you spend on a car, so you can have enough to eat, live and change that car
    Spending above 50% is very risky and should be discouraged.
    At over 50%, you would not recover quickly if your car were to immediately breakdown, also you would have lengthened the period it will take for your wealth and savings to grow.
    Therefore as a general rule, I’d say try not to exceed 50% no matter what!
    You see, we WANT many things in life but the reality is that we only NEED a few things in life.
    Always let your car buying decision be governed by NEED and not WANT.
    Satisfy some of your wants in some other ways, preferably with the lesser expenses in your budget.
    And NO, you’ll never be fully able to satisfy all your wants no matter how wealthy you become
    Apologies for the long sermon, I do tend to ramble at times, but I hope I have been able to assist someone, somewhere.
    Full disclosure I am 30 years old with median income, 45kish per annum.

    P. S.
    The percentage values I stated above represent a single or lump sum car payment, not loan or lease.

    1. Don't care to be rich

      I totally agree! While spending 10% or less on a car is probably sound advice in some situations (young person, someone with a very low salary, anyone with lots of other debt), I think it is extreme for many. I just purchased an almost new $70k vehicle and am quite happy about it. I actually own 4 autos, and one of the others is also a $70k vehicle. I am a crazy budgeting fool, love listening to Dave Ramsay, and like reading things by people like the financial samurai. However, my goal in life is not to be majorly wealthy. I like being debt free except for a car payment, having a good retirement plan, owning a nice place, eating very well, driving very nice autos, traveling, etc. In other words, while I love managing my money and controlling it, enjoying life is more important to me than being rich. I enjoy life, consider a car payment to be acceptable debt for the moment (although before long I should be able to drive very nice cars without debt – yay). I also like spending on vacations, expensive foods, etc. But, hey, why not? I make decent money, manage it well, and live well. Yes, if I was very frugal I could be very wealthy some day, but that is not my goal. For those of you who want to be rich – fine. I understand. I do. Happiness and not being enslaved to others because of debts is good enough for me. I will leave becoming billionaires while driving older, untrustworthy autos and eating beans and rice to others. And, I HAVE driven many 10yr+ autos. Two of the ones I own right now are such. They have their place for farm vehicles and sometimes local driving, but I love road trips and need reliable autos for that so that I am not stressed about breaking down everywhere I go!

    2. Is fun reading all the comments.
      I think the article is bang on.
      The purchase price of your car at 10% of income sounds perfect to me.

      If you are making 40-50k you can find 100’s if not thousands of cars to choose from in the 4-5k range. You take them to a mechanic before you buy and they will tell you if is worth it.

      A new car still needs tires, batteries, wipers, oil changes, fluid changes at same interval as an older car.

      If making less than 50k it become more cost efficient for you to take a couple days off work if you need the time to fix your car yourself. Than pay 1000’s of dollars for a mechanic to fix in one day. I do my own repairs and have never had to take more than a weekend to repair my now 14yr old that I bought as a 9yr old used car. I’ve had people comment mistaking my car for a new one just because I redid the headlights.
      At 5-10k the options open up to pretty much any make model. At 10k-20k you can get used Porsches to even some Ferrari’s.. 20-50k will get you pretty much any enthusiast car could want.
      People spend 60-70k as much on a new SUV or pickup truck as some people spend on a used Lamborghini 70k that looks every bit as good as it did when had a 300k price tag a decade earlier.
      You can get a new 20k-30k economy car or a used 20k-30k Porsches that most people can’t tell the difference to what year it is.
      In the end is your own money to do as you wish.
      Thanks for the article I reference it whenever I try to help someone with car buying budget. I can’t remember how many years ago first read it.

  89. I know this is an old post, but I just had to add to this because I think everyone is missing the point about how much to spend on a car. I love all your articles and you have helped me with finances for sure, but this article, meh ….. I drove my last car I bought brand new for 17 years, then gave it to my son 2 years ago and he is still driving it. If you spread the cost over the time used, it averaged out to a little over $1300/year – not bad. Maybe the 1/10th rule would make sense if you looked at it on a per year basis. Don’t spend more than 1/10th of your salary A YEAR on a car, but to say 1/10th total seems unrealistic. “Regular people” new cars are around $25000. If you spread that out over 5 years with 0% fianancing, then 1/10 would be $2500 per year, which hopefully is less than 1/10th of their annual salary. But the absolute biggest reason I would not follow this advice is because you are talking about driving around in a beater and there is no way on God’s green earth I would ever drive my 4 year old grandson around in a beater. That is why I got rid of my 17 year old car that was still okay to drive – it was okay for me to be in it, but not my grandson. I bought another car that had all the safety features I could find to make sure he was as protected as possible. I would be negligent to drive him around in a rust bucket. If you would drive your kids around in a beater just to save money when you are a millionaire, that would be almost criminal. Also, a junker out on the road is a hazard to all other drivers. It’s not always just about money.


      You are welcome to believe what you would like, but the believe that all vehicles that are 1/10th of someone’s salary are unsafe rust buckets would be completely inaccurate and fed by feelings and not actual data. In case you haven’t checked… there are a lot of very nice vehicles that are all newer than 10 years old that cost $4-6k (right around the average income. Just to preempt the $6k higher than 1/10th the average, try negotiating.

      A quick search on craigslist shows there’s nearly 600+ for sale that meet that criteria in Nashville alone.

      If you believe those are unsafe rust buckets that are dangerous to all other drivers, you are in the minority.

      1. This is Crazy

        Pete, I know this is about a year later, but you have bumped your head. This article also mentions 90’s vehicles. 90s vehicles are some of the worst cars you can buy, when it comes to reliability. Even worse than the Detroit crack years. There is a reason there aren’t many on the road.
        And back to bumping, private sellers are the worst way to go, unless, you have a few grand to repair and refurbish, or the private seller can produce all service records not on a Carfax.

        The advice in this article is for a young person just starting out, and is evem wrong there, because with today’s new prices, used cars have gone up. I recently bought a used vehicle, and what sold me on it? 3 years old, certified, warranty, new tires, checked from top to bottom by manufacturer certified mechanics, and those small problems fixed Before I bought it. Yup, a few hoses were bad, even after just 3 yrs, and if I bought as is, or private, that was another $800 right off the bat. Just like when I did buy as is, a while back, 4 yr old car. 3 months and $600 later I had a running car for a full year, then evey 6 months I had to park it for 6 months to a year until I coild afford, or someone helped me get intake manifold fixed, computer fixed (after 1200 in other repairs that didn’t work), and after 14 yrs, I sold my 9800 used “gem” to the scrap yard for $350.

        So, to you, and the OP, 10% a year should be a better buying tip in financing.

  90. Hi,
    I agree with you. It is not advisory to spend more than 10% of your income on a car. It is interesting materialism has lead to the point of cars becoming financial symbols in our society. I personally enjoy commuting to work by train. However, should I want a car it would definetly be a Lexus as this is a small dream of mine I have had since I was a small kid. In case you live in an area where a car is a must, financing services can help you out.

  91. Otto Juárez

    While I totally agree with the logic behind de 1/10th rule I also disagree with the way is transformed into buying advice, as it doesn’t provide guidance to all variables involved in the adventure of owning a car.

    Let’s say I follow the rule strictly , I still can run into trouble (buying gas guzzler, buying a 10+ year old car, etc).

    A better approach is to calculate the TCO (total cost of ownership over a 5 year period) and then calculate what percentage of your earnings it represents.

    Let’s say you make 70,000 USD a year and drive 15,000 miles a year.

    Option 1 (Buying a USD 7,000 2008 Ford explorer)

    Over a 5 year period you will have the following expenses
    1. Depreciation: USD 3,500 (half the price)
    2. Gas: 15,000 miles a year (15 mpg @ 2.8 USD/gal) = USD 14,000
    3. Repairs and maintenance: USD 6,000
    4. Insurance: USD 5,000
    5. Total= USD 28,500 for 5 years = 5,700 a year (8.1% of yearly salary).

    Option 2 (Buying a USD 20,000 2015 Honda Accord)

    1. Depreciation: USD 10,000 (half the price)
    2. Gas: 15,000 miles a year (25 mpg @ 2.8 USD/gal) = USD 8,400
    3. Repairs and maintenance: USD 3,000 (newer car)
    4. Insurance: USD 5,000
    5. Total= USD 26,400 for 5 years = 5,280 a year (7.5% of yearly salary)

    In option 1 you are following the 1/10th rule while in the second option you are clearly violating it (30% of your yearly salary!!! God forgives us!). But over a 5 period time if cheaper to own the Honda than it is to own the Ford Explorer. I am already listening the cynics saying that I am comparing different types of car, but before you shoot me, the 1/10th rule also doesn’t account for this either; in fact I chose the examples on purpose.

    Another advantage of this approach is that you can factor all the cars in the household and the total shouldn’t be more than 10% of the household income, ideally it should be closer to 5%.

    1. Sounds like you enjoy your new(ish) Accord and there’s nothing wrong with that but you’re omitting significant costs from your analysis. First of all, analyze similar vehicles.

      Option A:
      1.$20,000 2015 Honda Accord
      2. Gas: 15,000 miles a year (25 mpg @ 2.8 USD/gal) = USD 8,400
      3. Repairs and maintenance: USD 3,000 (newer car)
      4. Insurance: USD 5,000
      5. Loan interest = $1500 (most people cannot afford $20k without auto loan)
      Total cost after 5 years = -$38,000
      After selling car = -$28k.

      Option B:
      1. $5,000 2007 Acura TSX
      2. Gas: 15,000 miles a year (25 mpg @ 2.8 USD/gal) = USD 8,400
      3. Repairs and maintenance: USD 4,000
      4. Insurance: USD 5,000
      5. Compound interest + investment savings of spending $270 per month ($15k car payment with $5k down) on low interest index fund: -$21900
      Total cost after 5 years = +$1371.
      After selling car: +$5371

      Therefore driving a slightly older, though similar car for 5 years was completely free.

      1. Thanks for pointing out that I didn´t include the financial cost. I normally use my savings to buy a car, and since interest rates (low risk) where around zero for a while so I didn’t find it relevant to factor that in the analysis. But you are absolutely right that doesn’t apply to everyone and I forgot to mention it in my analysis.

        I compared different cars on purpose, to point out that blindly following the advice on the article is a mistake. There are other factors to consider like the ones we seemed to agree on (plus the financial cost).

        Owning and driving a car is never free, is you hadn’t buy a car at all, you would have probably +26,000 USD after five years. Comparing that to your estimate of +$5,371 there is obviously a cost.

        At the end of the day, financial analysis is just one factor we actually use to make a final decision (otherwise nobody will get married and have children based solely on the financial numbers). It depends on how much you drive, how much you enjoy driving, how important is reliability or having the lastest features in a car. Obviously the more you want the more you’ll end up paying.

        P.D. I have never owned a Honda. Just data I found with a quick search on google.

        1. Sounds like you’re still missing the point of the 1/10 rule. Your attempt to debunk it using TCO isn’t convincing when you look at the numbers we provided. We assume that someone making $50k a year needs to buy a car and has narrowed his options to a newish Accord or a used TSX. Sure you can fudge numbers by deliberately picking unreliable clunkers, but let’s assume a basic level of intelligence/financial acuity.

          The original difference in price between the 2 options is $15k. After 5 years the net worth for the person picking option A plummets by $30k while option B remains the same. Unless the TSX requires multiple engine rebuilds, there is no way the Accord would ever be the better buy for someone making $50k since the opportunity cost of getting a $15k loan is so high. To correct your analysis you need to include opportunity cost in your total cost of ownership which includes loan interest and 5-8% return from your average mutual fund.

          The reason the 1/10 rule works is because it allows you to use the markets to offset your depreciating assets. Someone making $500,000 can easily afford a $50,000 car because if he invests the same portion of his income as option B, his car will essentially be “free” as well.

  92. Ran across this article this morning and totally agree. I’ve only owned 2 new cars in my life and after the second one regretted it completely. Since 97 I’ve been buying good used cars and investing the rest in property which is now paying off our dream home and also putting enough away for a stress free retirement. All my cars have been around the 10-15K mark and driven until they could be driven no more. Yes it is a choice but I personally know what that choice will give me now and in the future. I have employees that buy a new car every 3-4 years yet they own nothing, are drowning in debt and refuse to listen to any advice because of that so called lifestyle. Maybe they will figure it out, who knows. But I digress, thanks for the excellent article.

  93. Michael Ladd

    I agree with the author of the article. Buy used cars that have a proven reliability record. Since 1989, I have spent $47,800 on automobiles. I estimate that I have spent $4,500 on repairs. That is a total of $1800 per year. Yes, this is extreme, but I have invested the savings into my 401K with remarkable success. I do not believe in spending money trying to impress people who I don’t even know. If the people who know me don’t like me because of my car, tough! I got over peer pressure when I was in grade school. The point is that we do have an easy opportunity to accumulate wealth if we are wise about automobile purchases. Alternatively, I have travelled to 14 countries, and don’t hesitate to go out to eat. With vanity ruling, I could have easily spent $126,000 on automobiles in the 29 years, rather than the $47,800.

    1. 1. $47,800 for car over 29 years. You must not know what new automobile technology is! Try to live once!
      2. You don’t need to impress anyone. It’s for your own enjoyment.
      3. If you have money to afford luxury, pay for luxury! Of course, after retirement saving!

      1. Michael Ladd

        I know you are right about my ridiculously low amount of expenditure on automobiles. However, everyone cannot have high salaries or wages. I have chosen a lower stress occupation, and others legitimately don’t have too many open doors of opportunity. So, for middle class or lower middleclass, choices must be made. Perhaps it is twisted, but I enjoy seeing how far I can stretch my “automobile” dollars. I could not have spent much on automobiles and been able to travel, unless I choose a high-stress occupation. I appreciate your comments, but I do not feel at all “cheated” in life after my automobile choices. My current vehicle is a 2005 Nissan Titan, 4 door, 4 wheel drive and it doubles as my work truck. It is comfortable for a long-legged 6’2′ guy. Great sound system, quiet, and smooth ride for a truck. It really loves gas stations. Your comments are OK, but some people are so hostile to other opinions. When this author wrote the article, it was not intended to be applicable to everyone’s circumstances. Old saying- “if the shoe fits…”

  94. A guy with great shape

    This post is so wrong. Do you even know what you are talking about, Mr. Executive Director?

    I agreed with Lou above. Making $200k/year and driving a Toyota Camry is miserable. Enjoy life a little before you die!

    Current driving a Mercedes Benz and I am total happy, financially independent, have no issue with car payments. Plus, I also maxed out my 401k $18k/year for the rainy day plus stock trading account for annual bonus.

    Knock on wood. If I crash, a MB will save my life, I don’t think a Camry would do munch. My lief is worth more than just a few thousands dollars a year.

    My net worth is a bit less that Mr. Lou but I think I can afford a lifestyle of driving a luxury car which has pilot parking, 360 camera for my own safety and convenience.

    Thanks but no thanks!
    “Lou says

    June 7, 2018 at 2:25 pm

    Thank goodness I have never taken advice from someone who makes 35K a year. I am 49, working, and have a net worth of 3.8 mil. The thinking in this article is what I loath.
    I spent 2 million in the last 30 years on vehicles that brough happiness and memories, otherwise id have 5.8 million and be living in remorse. At death you better have spent some of the fortune amased….otherwise it was all for not.”

    1. If you spent $2 million on cars in the last 30 years you are missing a lot more than that from your current net worth. If you would have driven more practical cars and had invested in something like the S&P 500, your net worth would likely be double what it is now. I get it, I lived in California for the last 2 decades and many of my neighbors have the same attitude towards driving nice cars as you do. I drove company cars and my wife drove mostly used cars in the $12k – $25k range until 2008(at age 43)when we spent $45k on a new vehicle that she drove for 6 years until handing it off to our son. We paid cash for that car in 2008 and sold stock in the tech company she worked for at the time. Those shares of stock would now be worth $460,000. Maybe we should have bought a used car or something practical like a Honda Accord at the time, lol.

      My point is there is a big opportunity cost, especially when you are young for driving expensive cars that depreciate 50% in 4 years or less. We were super frugal with cars when we were raising kids and it helped us become financially independent before age 50. Had we purchased all the toys and expensive cars that many of our neighbors did, we would certainly not yet have a net worth and passive income that puts us in the top 0.1%. We are now 53 and I’m retired and my wife only is working because she loves it and we still have our youngest child living with us. As soon as she is off to college my wife will retire and we will enjoy spending time at our 3 homes and traveling the world.

      BTW, I have nothing against expensive vehicles, I just couldn’t bear the opportunity cost when we were in our 20′, 30’s, or 40’s. Our current vehicles are a 2015 Audi S5, 2015 Tesla, 2018 Range Rover, and a soon a new Boxter S.

    2. I make 200k a year, base. No debt. Total comp about $250k, and I drive a 15-year old Honda Accord without a working radio. My net worth is about $1.6m (I made much less money until recently). This article has convinced me I might be able to spend more for a car than I might otherwise. Maybe I’ll splurge on a new, base Accord or Charger (if I can dicker the price down to about $24k).

  95. AGAIN… another completely out of touch post… you’re writing posts about how everybody makes $300k a year and now all of a sudden people make $24k/year. whoever takes your advise must be incredibly gullible and inexperienced.

    if you’re buying a clunker, your service cost will outweigh the cost of a new car, you put yourself and your family in danger, you put other drivers in danger. it’s true you shouldn’t spend 100% of your salary in a car, but you’ve made it clear in other posts no one earns so little… so make up your mind. either they do make money or they don’t.

    used japanese cars tend to be bullet proof and these are great for college kids or people with low income jobs, once you break $60k/year move to a city where you can live comfortably and buy a normal new car.

    you write about getting out of the rat race and your pushing everyone into the same generalization… not everyone is as clueless as you are.

    1. I admit, I am clueless many times. But at least I’m free.

      I did not feel bad driving an $8000 car For almost 10 years that depreciated down to about $2000 when I sold it. It actually felt incredible investing for savings in the stock market and real estate market since 2010.

      How about yourself? What’s your background?

  96. The rule does not talk about cost over time. You need another rule for that.
    If you are spending 10% of your salary every year, that’s a lot more than spending 20% of your salary every 4 years. The latter has been my experience.
    I have been calculating the purchase cost per mile (purchase cost plus major repairs minus disposal price divided by miles driven). I’ve had cars that I drove for $.02/mile.
    I always have a fund setup for the next big car expense. I’ve never had a car loan by doing this.

    1. I usually keep my car for a long time. I had two cars for over 13 years. Unfortunately, I had to replace them at the same time. I probably would be ok paying of these two cars. I just feel like I’m always in debt for long period of time and I guess I’m just tired of of owing money.

      1. There are quite a few things to consider age, total asset, and your goal. Fifty eight thousand dollars in debit for all of your assets including a house is not bad, if you are young. However, if you are about to retire than it is not so good unless you have a assets that will support your retirement. Like you said should be able to pay off the 58K in a year if you cut down your spending. The problem seems like it is your family spending habit that keep you in debt.

        1. FWIW. I don’t disagree with you on that. My wife is the one who doesn’t spend much. I’m the one that spend way too much on toys. I’ve always like the new gadget new toys. Cars has always been my love. This year, I have curbed my spending but I just free like I want sell the car and get a fresh start. Even if I sell this car, I still have one great car and a commute car. I am considering to buy an old 05 Lexus LS430 around 9k to replace this vehicle and make it as my commute car. Give me current commute car to my son when he is ready to drive in few months.

    2. Chuck, I can understand not including minor costs of keeping a car such as oil change, or wipers, as that cost, while not a constant, probably wouldn’t vary much. But I was just wondering is there a reason why you don’t include the cost of fuel in your per mile calculation?

  97. I wish I follow this rule sooner. I would said I enjoy my life way too much and seems to be always in debt. I have an Audi S7 which I brought used last year for 44k. I have been thinking of selling to get out of being always in debt. I will only get 35k selling to the dealer, but I also don’t want to deal with the hassle of selling it privately. I also brought my wife a lexus suv which will still owe about 25k. My wife and I have total income of 200k. I own about 15k on the Audi. I have a total debt of 58k with CC and Car and the mortgage. If I am frugal over the next year, I probably can paid off most of this debt. So my question is, should I just get rid of the S7 and just take the loss?

  98. I had an internship on the West Coast about 5 years ago and was under 25 at the time. Was told that car rental for the two months that I was going to be there would be ~$2,200 for an average American sedan. Wound up buying a 1994 Corolla with new tires, a new clutch, and no rust, but 215,000 miles on it, for $2,200. Drove it around for a few months and took it everywhere (I did a lot of sightseeing on my weekends since I didn’t know anyone out there). Wound up driving it home (to New Hampshire, a ~3000 mile journey, with some detours) and still drive it today; it now has just under 300k miles.

    Total maintenance costs during my ownership have been about $1,500 (tires, brakes, including rotors/drums/2 calipers, 4 tires, a used set of steel rims ($80) to replace a rim bent from an incident with a pothole, a new, cheap radio, a door handle, an exhaust manifold, a flex pipe, rear brake lines, a fuel filter, plugs, wires, a distributor, and some other minor stuff). The car has only stranded me once, and that was a relatively easy fix (the distributor).

    Parts for cars of that vintage are incredibly cheap and readily available and I do all of my own work on my vehicles (lots of space and no fancy electronics make this relatively easy). Registration and insurance are also dirt cheap (Its around $200 a year without collision, but with comprehensive/liability). There are also very few electronics to go bad (manual locks/roll down windows) and the car is pre-obd II, so no real annual inspection since the garages don’t have the right equipment to interface with the car; visual inspection only. That Toyota is the best car I’ve ever owned and, although its underpowered, its also light (105hp/2300lbs, 5 speed manual), so reasonably peppy.

    I gross ~$125k and my wife grosses about $60k (she drives a 2006 civic with 255k miles that we bought with 130k miles). I see friends who make much less drive far nicer vehicles, have issues with them, and trade them in at a loss while I still drive my same vehicle. I restore older vehicles/motorcycles on the side for fun, drive them around for a bit, and then make a (typically) small profit on them when I want something fun to drive. Would never consider buying a new vehicle and having to take the immediate depreciation hit.

  99. I didn’t own a car until I was in my late 30s as I had lived in NYC and didn’t need one. Now I live in the burbs and bought an old Japanese car for under $2000 3 years ago. I love it, it’s reliable and I will drive it forever. I would never buy a new car, but if I need to replace it I think I would be ok sticking with the 1/10th rule which would be about a $10,000 car.

  100. I am not sure how dead of a post this is but I was looking to see how much I should spend on my car, obviously. What math did you use to come up with this 10% number?
    I make 70k, ~58k after taxes.
    I am about to finance a 50k car.
    With this car payment, per year it is only 18.5% of my salary.
    Rent is only 16%.
    Everything from groceries to electric to eating out and gym is 23%.
    AND I still save(invest) 37.5% of my money every year with 5% left over in case of “emergencies.”
    Obviously I could spend less on my car and save more but how can you justify that saving almost 40% of my money after taxes is not financially stable because you claim by you chart that I would be in huge debt. I am just trying to understand where this large chunk of spending is in your scenario.

      1. Pete @

        I agree with FS here. I now make around $200k and have been driving an $8k truck I bought a couple years ago after my $5k car sent a deer flying down the interstate. Out of full disclosure: I also bought a $5k motorcycle last year and last week bought a $6k car because the truck is a diesel f-350 and I finally grew tired of trying to parallel park it downtown. But, I got along just fine for years having vehicles in the $5k (or less) range. Now that my income has grown, I choose to have my 10% spread between multiple vehicles, each with a different purpose, instead of just one $20k vehicle.

        If I was in your shoes (which I was only a few years ago) I’d spend follow FS’s advice above. Then instead of spending 18%/year of my income on a vehicle I only have to spend 2%/year in maintenance on it and I’d continue to invest the other 16.5%/year. I know that next month or next year something else will come around that I want. If I’m already spending 16.5% of my money on the car I locked myself into, then I can’t spend it on the other things. Whether that’s traveling, kayak, new mountain bike, charity, RV, etc. You’re talking about spending $800/month on something that plummets in value. You’re investing a lot already, which is great, but you’re talking about locking yourself into payments for a single thing you want now and not considering all the things you will want later as well.

        Something else to consider: did you know you can take just about any vehicle and have them redo the seats with new leather and add heated AND cooled seats for about $1200? You can also have a fancy radio with touch screen, camera, wifi, etc for under $1k more? All those fancy things the new cars are selling are not that expensive to add to any other vehicle. If you find a well maintained vehicle for a good price, you can just add the actual features you want without spending anywhere near $50k.

  101. This is a great article. The best car I gas ever owned to date was my 1992 Geo Metro 5 door. It was a 3 cylinder, 49 horsepower masterpiece. It cost me a mere 1100 dollars and got 45 miles a gallon regularly. It was dirt cheap to insure, dirt cheap to fix and downright fun To drive. I will forever miss this car. It leaked oil, it leaked gas, and the ignition key had to be perfectly aligned otherwise all the interior electronics didn’t work. It was fantastic. I’m truest bullish on cheap high mpg vehicles.

  102. I don’t see how simply stating 1/10th income is enough of a guideline. It really needs to account for how long you keep the car and then decide what percent of you income that costs you for the life of the car. It really should be what percent of you annual income every year you should spend on your car. If you spend 10% of your income on your car but have to replace it every 5 years then that will cost you more than buying a car for 20% income and keeping it for 10 years because the purchases every 5 years will cause you to pay 2 times as many tax and transaction costs.

    Paying 10% of income upfront for a car does not include all the maintenance that will come with it over the next few years so that is another reason you should be looking at the cost per year of owning a car relative to your income instead of just the 10% cost without including how long you will own it or estimated maintenance.

  103. Again FS offers sound advice, although I disagree with Yoda FS on a ROTH account.

    The 1/10th rule limits your ability to purchase depreciating assets that suck your wealth building power.

    It’s insane how car payments for 60 months, then repeated for life, can impact your chances at financial independence.

    Save up, pay cash, drive for 12 years. Invest that money you saved. Boom! you will have some wealth built up.

    Never underestimate the power of modern marketing and the Dark Side of the Force to separate you from your wallet.

  104. Long, spirited debate!

    I think the recommendation is practicable with some caveats. As many have mentioned, the rule will put lower income people into cars that are more likely to be unreliable.

    In my experience, it’s very hard to find a car that will run reliably without near constant maintenance (like feeding it a quart of oil every other week) under $3k. Cars in this range are really just stop gaps because they’re likely going to have some sort of major system failure (rust on the body that compromises safety, transmission, engine) within 18 months that will require either a significant investment or, more prudently, the purchase of another car.

    Above $3k, you start to find cars that will run reliably with only routine maintenance. For 3-5k, you should be able to get 3+ years out of it. Above 6k or 7k and the car may last closer to a decade. I’ve had my Toyota Camry for over 8 years now and I originally bought it for $7500. I’ve only had to do routine maintenance and I’m sure it has another couple years before it really needs something major.

    So, to get back to the 10% rule, I think those that make less than $30k should have the allowance to go up to 20% so they can get a car that can reliably support their career and salary growth. Having an unreliable car IS stressful (I’ve had a couple) and can limit someone’s career and income growth.

    Above 50k though, this rule is definitely practicable and, really, if you can ignore the marketing out there and focus on function, there isn’t much actual “NEED” to spend more than 10k on a car (though I thoroughly support people with the means spending as much as they want on a car). I’ve owned more interesting cars in my life but this used and slightly abused Camry has helped make my net worth interesting.

  105. Thanks for this important topic. New cars burn up money fast. Over the next couple of years, we need to be careful of cars with flood damage following two years of hurricanes. Those flood damaged cars could wind up being sold anywhere in the country. Rust begets rust. A talented young guy who worked on our house thought he got a terrific deal, then spent $1000’s as his truck rusted away.

    Our 2004 that has been so incredibly reliable, etc. (only 90,000 miles) that we decided to repaint it, suddenly needed $2100 in repairs this month. Because we paid 0.00% over 4 years (yes, ZERO %,) the car has cost approximately $2335 per year (purchase price + major repairs, not including routine maintenance, insurance, gas, etc.) Assuming we drive it another 5 years and it needs another $2500 or so, our average yearly cost will be about $2000 per year. Our second car (1999 model) that will be donated or driven straight to the junkyard (whenever we get a super deal on our next car) was purchased 5 years old for cash, has 185,000 miles and will average approximately $1100 per year (purchase + major repairs.) The difference in average yearly cost is simply the difference between buying a new car and buying a five year old car (they are different models, of course, but the same brand and essentially the same style.) I wouldn’t buy new again. I would buy, for example, a five year old BMW (super reliability as well as comfort and driveability,) with the idea of driving it for 20 years. Other than that, I would look for a new style that people have been crazy about (remember, you are buying 5 years old) so that the car will look newer and fresher for longer. If you are in sales, especially in Real Estate or corporate sales, this is all terrible advice. You need the image of a new car (and sharp clothes.) Sales people might be best served by leasing.

  106. Alex Dennery

    Hey Guys,

    I have a hard question that I’ve been trying to figure out. I drive an old beater 98 civic that only has 150k miles on it and should last at least another 100k miles, or about 10 more years. However, my dad wants to get my brother a car and he’s willing to sell me his car for prob around 13-14k plus maybe give me enough for a down payment in exchange. His is also a honda (2015 accord) with 50k miles on it so I’d be getting a good deal bc it wouldn’t be sold through a dealer (saving 2k approx) but I feel like I might miss out on opportunity costs if I invest the 200-250 per month it’s gonna cost. I’m already investing like crazy at 22 yrs old but still not sure if this would be a smart move or not. Also my current yearly is about 45k (after tax).

    Thanks I could use advice on this.

    1. Don’t spend money if you don’t have to. How much do you drive and rely on your car? Do some research and find out what the average per-repair cost is for a 20-year old Civic. How have you done with preventative maintenance? At that age things like gaskets, seals, hoses, and some fittings need to be replaced, which can be expensive and potentially catastrophic. Is it a manual or an automatic? Honda autos tended to be troublesome, and again, potentially expensive for an older car. Luckily parts are a dime a dozen and if you have a good mechanic, even a full engine/trans swap isn’t TOO terrible a prospect. But also factor your time. Say you do have major issues – can you afford to be without your car for a week?
      That said, just because a car is newer doesn’t mean it can’t have problems too. It’s just far more likely that a 20 year old car, even one as remarkably well-engineered and built as that generation of Civic, is going to give you trouble. The question you have to answer is will that trouble cost you more in the long run than buying a great newish car that you could easily keep for 15-20 years.
      If it were me in my early 20s, I’d sell the old Civic to a high schooler for a few grand, buy out the Accord, and keep it for a decade or two.

      1. Alex Dennery

        First off thanks for the advice. Yeah repairs are definitely something to consider I have had repairs in the past involving oil leaks and hopefully that nightmare is all over with but you never know. I think I’ll probably end up buying the newer car thanks!

    2. Benjamin Reynolds

      Definitely consider safety as well. My previous car was a older Civic as well. It’s really an amazingly reliable car, but it’s a tin can compared to my new car. I would not want to crash that car and I’m not going to put a value on my life. So for me it’s worth it to pay a little more to be in something that meets modern safety standards.

  107. What would you recommend an individual do with all the extra money not spent on a car? Diversified investments? What’s the point of saving, investing, and amassing great amounts of wealth for the sake of wealth? I’d surmise that having a reasonable safety net, living comfortably, and having the means to being happy would apply to the majority of people as opposed to draconian cost reduction schemes imposed on every aspect of life. What good is a large lump sum at age 50 when it only took the past 30~ years of penny-pinching to accumulate? I can easily see young folks dedicating decades of their lives accumulating wealth only to realize later that they never got to do the things they wanted to do in life while their bodies were younger and more able.

    tl;dr I’d like to know what your core values in life are and how they guide you in your financial decisions as well as the viewpoints expressed in your website.

  108. These comments have been interesting and I would like to know what the thought is for our situation: We have a 2001 Nissan Altima – 170k miles – car needs ~$2k in repairs. We drive it less than 5k miles a year so I think we should just repair it.

    Our other car, a 2013 Toyota Camry (bought new, on clearance, 0% interest) is almost paid off – 5 months left.

    I would love to be w/o a car payment but my wife is concerned with the safety of the Altima.

    Thanks FS community!

  109. I like your blog a lot. I even recommended it to somebody last week :)

    That out of the way, this post is less about spending money on cars and more about you advertising you are not a car guy and see no value in them. Telling a guy who makes $190k that he shouldn’t buy anything more than a new civic is only possible if you get nothing whatsoever out of cars.

    A guy who makes $400k, but he shouldn’t buy more than an avalon? I drive an avalon now (I am below your avalon income bracket). I leased it with $0 out of pocket and I pay under $400/month for a brand new, safe vehicle, that’s luxurious and that I enjoy driving. Even if I bought a brand new car for $500 it would still cost me money in repairs (more than my new car), gas (more than my hybrid avalon). Meanwhile I’d hate the car, and it would be significantly less safe, as newer cars are continually releasing safety updates. I have run the numbers and the difference between driving my avalon and something cheap like a new toyota corolla is around $150-200/month.

    I wear the same $30 watch I wore when my household income was 1/4th what it is now. I wear the same kind of clothes, too. I live in the same house as when my income was 1/3rd what it is now. In fact, I haven’t changed my lifestyle at all except for basically driving slightly nicer cars. I still don’t vacation, don’t spend money on gadgets, etc.

    1. It’s possible to be a ‘car guy’ and spend less. I remember having my VW in for service and driving a loaner base-model Golf. I was pretty impressed (as a car guy) at the ‘value for money’ proposition. And that’s just a new car off the top of my head. Used? Tons of options. The hard part is breaking the mindset that you ‘deserve’ to eat $10-12k in depreciation each year.

    2. Thanks. It’s all good and personal preference at the end of the day. I just don’t want people to regret buying something they couldn’t comfortably afford or get sick of years from now and regret having spent so much.

      I absolutely know that if you spend 10% or less of your gross income on a car, you will not regret the expense because it is insignificant. And if you take my message trying to earn more to get that fence your car, you will actually feel awesome to be able to afford such a nice car and have a nice income stream.

      I didn’t mind driving a Honda fit for three years, nor do I mind driving a Range Rover sport now. Both followed my rule.

      1. I’ve always been mystified by how much our California neighbors were willing to spend on a car and I’m 100% sure that driving expensive vehicles has delayed retirement for 5+ years for almost all of them. When we bought our first new house in a nice suburb of Sacramento in 1998 for $230,000 the neighborhood was full of Mercedes, BMW’s, and luxury SUV’s. The homes were all tract homes and none of them were worth more than $350k. My wife drove a VW convertible at that time that we bought used for $12k and I had a company provided mini-van. We bought our first new car, a Buick Enclave, when we were 43 years old. We felt somewhat guilty spending $45k on a vehicle even though we were paying cash and my wife was getting reimbursed about $700 per month for mileage from her company for that Buick. We waited until age 50 to buy our first luxury car, a new Tesla Model S. At that time the Tesla was less than 1/20th of our annual income but we still had to think long and hard about it because it was exactly the same price as our first home in 1995. We are now in our early 50’s and I am retired and my wife is only working because she loves it and we still have our youngest at home with us a few more years. I’m convinced if we had spent like our neighbors the last 25 years on cars, motorcycles, boats and RV’s, I’d still be working and our retirement nest egg would be a couple million dollars smaller.

  110. Kimmi Malette

    I think this is a great rule. My husband and I make about $100k between the two of us. We have been on a debt crushing crusade now for the last 4 years and have paid off everything (88k) except for my school loans which will be paid off this year and then no more debt.

    Now, no more debt means no car loans. During this time we have been able to save for two used vehicles (8k and 13k <– partial business expense) we were able to pay for our wedding and honeymoon (15k) in cash.

    My vehicle is a little Mazda 2 that cost us 8,000 that we paid for in cash. when I bought it, it was 3 years old. I have had it for 3 years no issues. Wonderful vehicle and we also bought it from a dealership.

    So not only do I think this rule is great but I also love the fact that you advocate purchasing the vehicle right out. When you do this, you get ride of the extra couple grand you would be spending on finance charges and probably the extended warranty since you are most likely purchasing a vehicle you can't afford and therefore can't afford to fix.

    When you purchase a vehicle in cash you make better money decisions and what I mean by that is you weigh your wants and needs. I went from a SUV with leather heated seats and a sunroof and more perks to a Mazda 2 manual tranny that the only real feature is the electric doors and windows :) When you have a set amount to use to purchase rather than a payment (that might extend for 84 months!!!!) you really say to yourself…do I really need that. 99% of the time your answer will always be no.

    Now, the plus side to saving all this money on something the depreciates so quickly is that you can invest what you would have spent into something that will actually gain you income or even pay off other debts. This helps lower the amount money that is getting flushed out of the household on unnecessary interest charges or even pay off your home early and save thousands and thousands in interest :)

    It pays all around. :) :) :)

  111. “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.”

    Perfect example of the false dilemma fallacy. What you can afford is an entirely subjective term and you haven’t defined it, so you cannot possibly say what someone can afford. If you take afford to mean “having spare money to invest” then maybe, but if you take afford to mean “being able to pay bills and love comfortably”, then you might also be completely wrong.

    Also, why is having a nice ride lower on the priority list than other pleasures in life – like stopping working earlier? Some people enjoy their work, and would also like a nicer car.

  112. If by 10%, you mean 10% of your salary per year, then fair enough. If however you mean that someone on $50,000 should only buy a $5000 car then you don’t live on planet earth. Someone on that salary can easily afford to have any reasonably priced car they want. I’m on about $37,000 per year (by current exchange rates – I’m in the UK) and I wouldn’t hesitate to buy a $15,000 car – although I don’t need to as I own mine outright currently.

  113. This is my problem with this article. Yes it’s general good advice to not splurge on a car to take you from point A to point B. The problem is when you buy a $4000 car for example you may not be getting a reliable vehicle. Of course you can pay $30,000 right out of the dealership and your car can be a lemon but at least there is some sort of warranty backing that up. Though most of the time you’re in a fresh car, you chose what you like and you’re happy with it. That’s just one example.

    I think the problem lies with where people spend their money overall. Going out to eat food whether it’s fast food junk or a fancy restaurant is not wise but people do it and do enjoy it. Some people like expensive sports like skiing or snowboarding. Some people like attending sporting events that are also expensive.

    If you have the budget and you do like cars, I don’t see how buying a car you like that is reasonable is a problem. I think the 1/10th rule is awful. The initial problem lies with the person and how they spend/save their money in the first place. Sure you can drive a shi*t box if that’s ok with you, but some people enjoy what they drive. While others may live in a downtown condo with no car but enjoy $200 dinners every weekend.

    1. The Mr Samurai, think you need to commit Seppuku !! You show no connection to reality! A $4000 – $6000 used car today will have from 120,000 to 200,000 miles, and will need everything from tires to a new transmission. Not to mention the lost days from work when it leaves your ass on the side of road, or won’t crank in the morning. And forget about driving anything over 40 miles one way! (uh oh, want be taking it on vacation!) Unless you are mechanically inclined and do most of the work yourself as a “shade tree” mechanic, I would advise your readers to “get real” and go to the auto parts store and check prices.
      What crack pot advise!

      1. Benjamin Reynolds

        Bro, have you been living under a rock? Cars with 120,000-200,000 miles are barely broken in these days. If you’re car isn’t going to 200,000 miles with relatively low repairs you’re doing something wrong.

        A $2,000 Civic for 150,000 miles on it will be pretty trouble free.

        And tires?! You can’t count consumables as a negative on a used vehicle. ALL cars go through tires even new cars believe it or not. My Focus goes through a set of tires every 20,000 miles, I’d have to be buying a new car every 15,000 miles if I didn’t replace the tires!!

  114. Really liked the article! I have a question as this is something I may do in the near future:

    Car I want: Porsche 911 (7 year old) goes for about $70,000.

    Resale Value after 5 years of ownership will be about $45,000-$50,000.

    Cost of owning the car: $5,000 a year, Gas will be a little more than I currently spend, Insurance will be similar. Maintenance may average out to about $150 extra a month. Porsche are known to be reliable.

    All other expenses aside, wouldn’t you agree that someone making around $100,000 a year can afford a car like this. (Your chart says $1,000,000 which would make this nearly impossible for the average Joe).

    Looking forward to your thoughts!

    1. Don’t worry man. If the car only cost $70,000, you only need to make $700,000 and not $1 million.

      Goal of this article is to help younger folks especially think about the ridiculousness of buying such an expensive vehicle when public transportation is cheap, and ridesharing options for cheap and easy to use.

      The people who disregarded my advice years ago are in much worse financial shape today because they could’ve use the money to invest and watch their money double or triple. And in a bear market, those who have expensive toys they don’t need will feel the weight of 1000 boulders on their shoulders because their jobs may be at risk.

      By what you can afford folks! And if you need the thrill of a fancy car, just rent one for a day or two.

  115. this is an old thread but still very interesting in 2017

    i only make 32k a year while my wife makes 50k

    my wife pay the house , electric/tv/internet bill and the food

    i pay the car and most tools/hardware/appliances that we need for living.

    i bought a fully equiped subaru 2017 at the price of 35k . (60 months payments.).

    as of today i have 18 months left to pay… buying a new car means no repair and most of everything can be done under warranty.

    i have not missed any payment.. it is tough, difficult and stressful.. but i have 18 months left… im sure i can do it. i have zero debt on my credit card.

    i simply do not see myself taking the bus. and my needs also include my image, my pride, my ego.. drinving an old rusty car look dumb in some situations and i don’t want too look poor..

    we also travels alot and driving a brand new car is qlso much more safer.

    i fully agree with the article but the 10% thing does not fit my needs

  116. Ms. Conviviality

    I read your 1/10th rule a while ago and thought how unfortunate that I didn’t have that advice when I purchased my brand new dream car, a 2008 Toyota Prius. I am now faced with the decision of buying a car because Hurricane Irma flooded my car and totaled it. I’ve had 3 weeks to decide what to do about a replacement car and as much as I want to be a devout Financial Samurai, a car costing 1/10th my income would not work for me because I’m afraid of the mechanical issues I’ll have to deal with having an older car. In the long run, it would make more sense for me to get a $15,000 Prius that’s about 3 years old. I thought long and hard about how to follow the 1/10th rule and this is what I came up with. Because I don’t want to take any money out of investments/savings for the replacement car, I’m going to ride 5 miles to and from work for the next 5 months to save on car loan payments/insurance/parking/gas. These savings in addition to the insurance payout would be 1/10th of my income, $8,300. Then I would take the $8,300 and invest it to earn enough money over the next 4 years so that the investment would pay for the car. The plan is to take out a 2.64% car loan in 5 months and have the investment income pay for the loan. The benefit to doing this is that after the car loan is paid off in 4 years, the $8,300 will still be available and earning me more money!

    1. Ms. Conviviality

      Since the most recent post mentioned the 1/10th rule I thought I’d return to my comment here to provide an update on my car situation. The $8,300 I invested returned $2,100 during the last 7 months so that was good but I didn’t use the earnings like I thought I would. I did ride my bike to work for a good 5 months and was loving how fit I got and the money I was saving. Unfortunately, I had to stop riding the bike when I got hit by a car on the way to work. Fortunately, I was able to fully recover after 5 weeks. I couldn’t get myself to continuing biking to work after I got better though. Although the physical benefits were great it wouldn’t have been worth it if I was ever seriously hurt or dead because of another accident. It’s funny how a person can get used to whatever becomes the norm. I got used to riding my bike so I thought I didn’t need a car. While I was healing, I was driving a beat up loaner car, a 2005 Mitsubishi Lancer. As first, I thought the car was the crappiest thing I had ever seen because this car really needs a new paint job, the glovebox hangs open due to a broken latch, the plastic part of the gear shift floats on tops of the metal part, the driver’s side window no longer rolls down, and there’s a large yellow paint stain on the back seat. However, the car has been reliable despite its looks and that’s the most important thing to me in a car. So, I’m now the owner of that $800 vehicle. Even when I got promoted with a 10% pay raise a month ago I didn’t even consider getting a new car!

  117. I made this mistake in 2013. I bought a brand new car as I thought that it’d save me trouble with warranty and maintenance. I paid off my loan in 2 years instead of the required 5 so I ended up paying less. But it was still a lot of money. Even though looking back, I would have bought a used cheap car; my car has served me very nicely giving me absolutely no issues and has a great 35+MPG! I get the point though, a car is really just a liability.

  118. This is a great article, I have always been a proponent of buying with cash, and driving your car until the increased maintenance costs out way the benefits of buying another car. Vehicles are the worst investment (although necessary) you will ever buy. Where else do you spend thousands of dollars only to have it consistently depreciate overtime.

  119. Baced on your theory of 10% of your income on a cheap , unreliable car would be foolish if your jeopardizing getting to work on time & your livelihood. The title should be , buy the best car you can within your budget. Spending a little extra on a better quality or more reliable car is the better option in the long run as repairing an old car could cost more than you think. Pick a 3-5 year old car as most of the depreciation is within the first few years, and is still in good working order & condition with in your budget ,is my recommendation.

  120. Patrick Flanagan

    I had a laugh at this. 1/10th your yearly earnings buys you nothing but stress and headaches. If you have to drive that car any meaningful distance you will break down, miss appointments, etc. A car with that price tag is certainly beyond its warranty date and you are buying a mystery 100k + miles. Even for 7-10k that’s certainly the poorest investment of the poor. Many a used car salesman has a lemon for 7-10k. At least with a new car you know every mile on it because you’ve driven them!

    Better advice for the financial samurais would be to sick to the urban sprawl and skip the car altogether. For everyone else who travels many miles a day back and forth to work the dependability of a warranty and a reliable ride cannot be underestimated. It’s worth more than 1/10th your yearly earnings.

    There are other options, too. Carpool with coworkers or quit your long distance job for a closer job.

    It’s not the end of the world if you have a long commute. Bottom line is a car is too valuable to price at 1/10th your yearly earnings. If you don’t need a car you’re probably making up the difference in your rent (urban life usually is more expensive). For example my home loan in the sticks is $400 dollars /month. This is the benefit the car loan brings me. I would have to add both my home loan and the car loan together to match the price of these urban rentals my so-called financial samurai friends rent. The difference is I wind up owning both and they own nothing. Go figure.

    By the way I think you can still save 30% of your yearly earnings and afford a car and a place to live. Maybe a more practical approach to buying a car would be to not spend more than 1/10th your earnings annually on a car loan over 5 years.

  121. Charles Sarahan II

    I don’t follow this rule. Whether it should be applied depends on the situation. If you live in an area with poor public transportation, a vehicle is required. I do agree that you should focus on a Toyota or Honda. They run forever.

    I also tend to hold my cars for 15-20 years. I have one car right now (bought new) that has 325K miles on it. I am giving it away to another family member. My other cars are 10 years and 2 years of age. If I lost the 2 year old, I would replace it with a used Toyota. Gotten comfortable with that brand.

  122. To: all younger people reading these posts… Life is NOT a dress rehearsal, live, love and enjoy your income buy what you want when you can. For realities sake those people saying they make 250k-300k are NOT buying 25k – 30k cars. No matter what they tell you. Don’t let anyone tell you your place or what you can or can not do. Do your own thinking. Find and make your own place at your own pace.

    The most recent Census Bureau data showed that median household income — what people in the exact middle of the American spectrum earn — is $53,657.

    Those families who make $250,000 a year, on the other hand, belong to an elite group: Americans who earn enough to be in the highest 5 percent of the income distribution. That top stratum captures anyone who makes $206,568 or more.

    Let’s keep it real a rising tide lifts all boats~

  123. Okay I’m not sure I agree with all of your figures. But I LOVE the idea of the self-flagellation. In any case:

    My current car is leased and I pay 1/10th of my take-home (after 401k, HSA, etc.) on it. It’s pretty “affordable”, but I won’t lie I think 1/10th on a lease payment is too much and I wish I hadn’t done it, but I’m sticking with it until the lease is up. It was an impulse buy and I’m too old to be doing that. Not a hugely injurious one at the end of the day, but a childish one for sure.

    Anyway, my previous car I had leased a brand new Altima and the lease payment cost 1/15th of my take-home (yes that was all-in–I put no money down) and honestly it was a great price to pay. For that payment I got a car that was brand new, meaning 100% reliable and under warranty, totally stress-free, economical on gas, and it didn’t suck to drive; had satellite radio, reasonably powerful, etc. Don’t forget also, when you get any car you’re losing money as it depreciates, and a lease payment has that already built in.

    Sure, i could have bought a used altima and kept it for ten years, but at some point money is meant to be spent, and driving an old junker may end up saving me money long term (not a ton, really), but it also sucks, and given my income (pretty decent) it’s just not really worth the hassle or the pain. And I can save money elsewhere; I spend little on clothes or eating out, for example.

    When I run numbers, the difference between buying a new car vs an old amounts to something like $100-150/month at the most after calculating depreciation, repair costs, gas costs (newer cars tend to be better on gas), etc.

  124. Wouldn’t financing it over 5 years lower the percentage of your income spent on the car? Instead of 95%, wouldn’t be more like 10-20% per year?

    1. I think you are missing the point of this article Jake. You don’t get to spend 10% per year on a car. You buy a car worth 10% of your annual income. Say your are on $50K, then you buy a $5K car; not a $20K car that you pay $5K on each year.

      And if you want to change car in the 2nd year; then you sell the now $4K car and get another $5K car.

      1. I think you missed the point of how cars are paid for, and if you say that you pay for it with 95% of your salary in one year, that would be incorrect as cars are financed and paid for over a period of time at typically pretty low rates

        you would need to add up the income you made over those 5 years and then divide the car into that, simple math bud

        1. Ah, I see what you are doing; yes very simple math.

          Now tell us, how you are going to pay for your retirement with no money? Using the simple math perhaps?

          1. Bud,

            The author tried to compare apples to giraffes, and I just pointed out his mistake. Mistakes happen, but since you asked:

            I will pay for retirement by using the other 90% of my income, that i have saved over the 5 years (the other 10% went to paying off my new car, remember).

            Then, i will drive my new car until it no longer runs while putting all of my income (other than my house payments and basic food/budgeted expenses) into long term undervalued stocks with low P/E ratios and growth potential, and most importantly not ever taking that money out of the market – even after market declines, and making sure to match the maximum that my employer contributes into my roth IRA (as that is free money I would be a fool to pass up).

            More or less using the simple power of compounding returns on investments is how i plan on retiring.

            1. Assumptions:
              1) income starts at $50k and increases by 3% per year
              2) used cars lose 20% of current value every year

              Scenario one: buy a used car for exactly 10% of your income, drive for a year, sell and repeat for 10 total years.

              In total, I spent $57319 on cars, got back $40636 when selling the first nine and I’m now driving a car worth $5219. I can sell that last car, and be car-less, and for ten years the total is -$11464

              Scenario 2: buy a used car for more than 10% with the intention of driving it for 10 years. If I buy a $12843 car and it loses 20% per year I get it being worth $1379 after 10 years. If I sell it, and again now car-less, my total spent is the exact same -$11464

              Lets call these the extremes, the first one by definition was exactly 10%, the second was 26% of income. How about some mid-points [should have used 12 years with more divisors :)]

              Scenario 3: buy a car for 5 years, then buy another for five years, selling at end with same ~$11500 cost; 15.8% of income.

              Scenario 4: buy a five cars, every other year, selling at end with same ~$11500 cost; 11.3% of income.

              Using those four data points I get a less catchy, “number of expected cars per 10 years to the -0.4 power… and uhh, divide that by four percent of income” rule.


              Eric, I believe you’re missing a few pieces of the equation, mainly opportunity cost and compound interest. First, selling and buying another vehicle every year will destroy wealth quickly because you’ve compounded your 20% loss by buying at X, selling at X-20% and the buying at X+3%.

              Given your initial assumptions, that’s a $5k vehicle. If you sell that vehicle and buy a vehicle worth 10% of your current income(3% raise) every year. At the end of 3 years, you’ll have a $4243.60 vehicle to show for it.

              Alternatively, the $5k vehicle should easily last 3 years and you could otherwise invest that 20% loss and 3% raise each year and earn 8% on it. At the end of 3 years: Your vehicle is worth $2560 but you have investments worth $3339.70. Your net result is $5899.70.

              That’s a $1656.10 difference in your net worth in only 3 years.

  125. Wish I read this sooner. Already traded in my 04 Corolla with 140k miles for a new Corolla. Nice car, especially with the standard safety features (pre collision warning braking, etc) but now got a 4 year loan to pay off. My reasoning is because of the things I would have to fix. Check engine light (bad cat or sensors), front suspension, power window motors, a/c, water pump, power steering leak, new brake master cylinder, and it was eating oil. Interior lighting wasn’t working either. I loved this car but felt it was time to move on. Love your website!

  126. I applaud Sam for writing such a great article, but I am afraid that it tries to “chew” on a topic that is just too broad and diverse to be addressed by one universal “rule”. A car is arguably one of the most common “big” assets we buy, yet it can be used in a million different ways; there are just too many variables: how much do you drive, where do you live, what does a car mean to you, what do you use it for – the list is endless. I would say that this is a great advice for anybody who needs a daily driver that will see plenty of mileage. For everybody else a “one size fits all” advice doesn’t help much, which is why the topic is still generating so much controversy years after its release. I live in Tokyo, where even people with 200K+ incomes don’t buy cars as they are unnecessary, yet I bought a used sports car that, at the time of the purchase, set me back 50% of my annual income. It’s a 15 years old collectors item that has tripled in price over the past 10 years. The car costed me 70,000USD, I paid in cash. I roughly save 45% of my annual net income and it took me a bit over a year to get the money back. I drive once a month and I have met countless amount of people and friends thanks to my car; I have found new hobbies and even inexpensive ways to kill time as many weekends I just meet with friends over coffee at car meets and the whole Sunday costs me 5 bucks. I even booked more business at work as one of my clients is an amateur racing driver. It pushes me to do better at work, keeps me positive and motivated and is a great relaxing hobby: I could literally go on for hours listing the amount of benefits and relationships that I built over the past two years thanks to my car and, all in all, in the bigger equation of life, these where the best spent 70,000$ of my life.

  127. Nowadays, 10% of above-average salary won’t buy you a even third-hand car. Might as well not buy a car at all!

  128. Our family has always owned used cars, which were actually hand me downs from more well to do family members who were trading up. Over the years that has saved us quite a bit, but we also had to invest in substantial repair costs, and suffer the occasional break down. Rural living requires having a reliable means of transportation, and older cars require expensive repairs. Now we are older and don’t want to risk breaking down in the middle of the winter. For that reason, when we needed a new car at year’s end, we purchased last year’s model, new Honda Accord w 0% financing, and we plan to keep it well maintained. I’d have to be young and living in a city to be able to follow your 1/10 advice at this point.