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.
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 about $100,000 in 2023. 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.
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.
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?
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!
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) Makes 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.
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.
2) Bite the bullet and sell your car.
If you’ve spent anything more than 1/5th your gross annual income on a car, I’d sell it. It’s making you poor. Even if you have to take a little bit of a hit, I think it’s worth getting rid of your vehicle. Don’t trade it into the dealer because you’ll get railroaded. Instead, try negotiating via Craigslist.
3) Punish yourself.
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!
Recommended Cars By Income (Tastes May Differ)
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.
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.
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.
Recommendations To Build More wealth
1) Track Your Net Worth Religiously
Hopefully you are now motivated to make more money to afford the car of your dreams. Going into debt to buy a depreciating asset is unwise. As you grow your wealth through savings and investments, make sure you stay on top of your net worth.
Sign up for Empower (previously Personal Capital), the best free financial tool on the web. I’ve been using them for free since 2012 and have seen my income and net worth skyrocket. The app keeps me motivated to spend smartly and invest wisely. There is no rewind button in life. Best to get your financial life in order.
2) Invest in real estate
Instead of buying an overpriced car, invest in real estate to build more wealth. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, it’s better to invest in a diversified eREIT for exposure and risk management.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. Further, growth is potentially higher due to job growth and demographic trends. If you have a lot of capital, you can build your own best-of-the-best real estate portfolio.
I’ve personally invested $810,000 in real estate crowdfunding to diversify my exposure and earn income 100% passively. As soon as you realize the opportunity cost of buying a car, you will be more inclined to follow my car buying rule.
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 55,000+ others and sign up for my free weekly newsletter.
My guess is that this rule is for the excessively frugal individual or someone with little to no savings. There is no return on investment when talking about a car unless you’re talking about the intangible return of gratification from owning a vehicle you thoroughly enjoy or the amount of convenience it provides. You’re not going to get any money back out of it that is equal to or greater than what you paid for it and put in to it.
I bought a challenger hellcat after saving $150k while still investing in my 401k. My family was upset because I’m young (28), but the satisfaction of owning this vehicle has been well worth it. It is definitely a car I will have for the rest of my life. I only drive it about 6k miles a year and baby it.
Could my money have gone elsewhere? Sure. But I’m not going to wait until I’m old to decide I want to enjoy life. Plus I’ll probably never have a job that pays $650k (the hellcat was $65k). I still have access to first time home buyer programs and probably will keep that until I’m in my early thirties. I live in an area where houses are very expensive so that wasn’t a viable option for me. I also have no debt so that was not a burden on my shoulders when I made the purchase.
If you’re still paying loans or you don’t have much in savings then this rule is definitely something you should consider. If you have a decent amount of savings and a decent salary, maybe consider something a little less frugal. You shouldn’t spend more than you can afford even with credit. However, don’t be afraid to spend on yourself. You can plan all you want for the future, but what if the stock market crashes, what if you get sick and can’t do things you enjoy, or what if you die? Was never buying something nice that you would have enjoyed for those years worth it?
Be smart with your money, know the consequences of your actions, don’t be afraid to enjoy the finer things in life, but don’t be a fool. I may have a job that pays well and a $65k car, but I also have 2 roommates, only eat out once a week, and buy everything on Craigslist or somewhere on sale. Spending once isn’t going to ruin your financial future, but doing it on a regular basis is guaranteed failure.
Financial Samurai says
Whatever makes you happy mate. What is your net worth currently?
Check out my post: The Average Net Worth For The Above Average Person. This is the #1 article in Google when someone searches for average net worth.
My only fear is like many of us who end up working for 10-15 years, we start burning out. And when we no longer want to work, we begin to regret the overconsumption we made when young that robs us of freedom and opportunity when we are tired.
This rule does not take into account the entirety of someone’s circumstances. A single person making $50k living in a smaller town can afford alot more for a car than someone making $50k with two kids in a big city. The first person mostly likely has tons of disposable income, whereas the second most likely has none. The first person could save to buy a $30k car without even trying, whereas the second would have to pinch and save.
In addition, some people have longer commutes than others. People living in large cities can take buses, trains, etc, but people living in small towns may commute 50+ miles a day. They may be forced to spend more than 10% of their income to get something reliable that gets good gas mileage.
In addition, we all spend money on things that are personal luxuries to us. We east out at restaurants, invest in hobbies, go on vacations. For some people owning and driving is enjoyable. They may spend 20-30% of their salary on a car, but its because that car is more than just transportation. They’re willing to go out to eat less, to go on fewer vacations, because they find owning the car more enjoyable than those other things.
Its all about balance and looking at the whole picture.
Financial Samurai says
I would say a single person making $50K in a smaller town should be even MORE disciplined in saving money. If s/he starts spending aggressively now, the bad habits will cary on and really weigh down his/her wealth accumulating abilities.
But again, my 1/10th rule is just a guideline. It’s not the end all, be all rule. But it is something that I believe will help plenty of people build more wealth over time.
You are obviously not a car enthusiast.
Ranger That!!! says
I’m a weapons enthusiast. I don’t buy brand new SCARs or ACRs, and I don’t spend all my money on restored Panzers either.
I came across your site randomly, but the advice seems very sound.
currently i’m in my fellowship and training to become a cardiologist, and will be done in 2.5 years. as most people know, salary in fellowship is around 50-60K a year.
I already have $150K saved up in an account ($150,000).
I’m planning on buying a new car within the next 12 months or so. i was initially looking at a brand new lexus LS (~80K) or a lexus RX (~$60K). i would most likely pay half in cash using my savings and pay the rest in monthly installments. is that a sound decision to make or am i setting myself up for disaster? i’m asking because after reading your article i’m starting to have second thoughts. and yes, currently my salary is around 50-60K but when i’m done in 2.5 years my salary will be $250K at the absolute lowest (i believe median salary is around 300-400K and rising).
First off, I wouldn’t buy a car based off the salary I HOPE to receive. I’ve known several people who went to school to become doctors and either didn’t like it and had to quit or couldn’t find a job. Wait until you get a job to see what payments you can afford.
Secondly, assuming you buy the car regardless, I think how much you put down depends on the interest rate you can get. It looks like Lexus offers a 0.9% interest on most of their vehicles. If you can get that rate I would put down AS LITTLE AS POSSIBLE and invest the rest of your money somewhere low risk where you can get a minimum of 5% return. That means you’ll be making 4% per year return on that money.
Forget projected future earnings. You don’t buy a $30k car just because you may be making $300k+ *someday*. You make $50-$60k *now*, you buy a $5k-$6k car *now*. And a $60k – $80k Lexus?! That’s 100%+ of your GROSS EARNINGS IN A YEAR. That is foolish.
Do you have any debt (especially med school debt, which I know can be high)? If you have no debt, then congratulations! You now get to buy a car based on 5% of your net worth. 5% * $150k = $7,500.
Too many people think they have the right answer for how much car you buy, or how much house you buy, or how much you should spend on an engagement ring, or how much to spend on an annual family vacation and they are all wrong… It’s how much car AND house AND ring AND vacation you can afford. Let me explain…
I created a promise to my wife and myself shortly after graduating college and getting my first job. I swore that I would never have a monthly mortgage payment greater than 15% of my gross income. If we need a bigger/more expensive house I will have to wait. Because my saary has increased since buying my home I still make payments equal to 15% of my income so that I’m paying off more of the principle.
For a car I made the commitment to never buy a car unless I have the money in the bank to pay it off. We will probably be buying my wife a car late 2015 and plan to spend about $30k but I aready have that in the bank and Toyota and Honda usually have .9% interest rates, meaning I will still be making money off my money (my investments averaged 13.5% this year, so whil making car payments I anticipate about 12.5%)
My final rule is around saving money. Between 401k, 401k employer match, IRA, general long term emergency savings, etc. I need to save a minimum of 25% of my gross income.
Banks will tell you it’s okay to have debt to income ratios of 55%, but that will just buy you a poor life. My current DTI is about 14% and I couldn’t be happier!!
Financial Samurai says
I like the thought process of all that stuff! That’s thinking holistically. Good work.
Holistic thinking is one of the key cornerstones of Personal Capital, where I manage my wealth for free. It’s all about looking at one’s worth from a top down perspective and then making decisions to optimize one’s finances. You should check it out. My net worth has really taken a turn for the better once I started tracking it online.
I don’t like this 1/10th rule. It does nothing to account for how long you hold the vehicle. If Chuck earns $50k/yr and buys a car for $5k every three years but Steve earns $40k/yr and buys a car for $10k and keeps it for 10 years, who is the winner here?
Why are you assuming that a $5k car only lasts 3 years, but a $10k car lasts 10 years? Seems like convenient math.
Bud Mor says
Seems like convenient math to conclude either way.
Please re-read the comment. I’m assuming you keep any car, be it $1k or $100k for 10 years. The point was that the amount you spend on a car should not be a percentage of your annual income but the best ROI. I drive my cars for 10 years. I spend a higher percentage than the article recommends yet over a 10 year span spend less than someone who could be following this guidance..
Bud Mor says
Actually Jake, you should probably re-read your own comment. You did actually say that the $5K car would only be kept for 3-years while the $10K car would last 10-years; not both for 10-years.
And I think you raise a very fair question, but I’m not sure how one can answer it. I’m sure there must be the information out there that can estimate the life of a good $5K car compared to a good $10K car.
I did hear somewhere (maybe here) that the sweet spot in terms of age and depreciation is to buy a car that is 4-years old. Autotrader.com has over 500 cars for sale nationally that are 2010 or more recent, with fewer than 30K miles, costing $10K or less.
I completely agree. The idea behind this rule is good, but the rule itself is overly simplistic. If I’m being honest I’d say this is actually poor advice.
1) He factors in parking tickets and traffic tickets, which doesn’t make sense as you can simply stop speeding and parking in handicap spots if you want to eliminate those cost.
2) He uses maintenance as an argument against a new car when it’s really an argument against a used car. A heavily used car will be out of warranty, and will be getting to the point where expensive things need to be replaced (timing belt, etc). A newer car will cost you much less in maintenance.
3) Insurance cost is definitely a factor, but my wife purchased a new car and our insurance went down.
4) He completely leaves out the most important factor which is the need to replace your used car. If you buy a new car you can bet that it will last at least 10 years, probably more like 20. If properly cared for something like a Toyota or Honda will definitely run over 200k miles before it NEEDS to be replaced. If you buy a heavily used car you are already well into the lifespan of the vehicle, and you will need to purchase more cars throughout your life.
5) The argument that you should have put $25k into the stock market in 2009 instead of buying a car is a good one…..except that most people finance their cars and don’t drop $25k in cash on one. So realistically that $25k in 2009 was more like a $5k down payment. That would be around $10k by now….just in time to buy another heavily used car to replace the one you bought in 09 that doesn’t work anymore and has cost you a bunch of money in repairs.
6) He mentions the stress related to car payments, but what about the stress related to not knowing if your car is going to get you to work?
You should almost always buy a used car over a brand new one, but something certified pre-owned, or a couple years old that’s already taken it’s major depreciation hit. However, using a 1/10th rule is frankly a little absurd. That would mean my wife and I would have a total of slightly over $8,000 to spend on 2 cars. What are you going to get for $4,000 a car? You may get lucky, but you’re most likely getting a car with over 100,000 miles, that you don’t know how it was cared for previously, that will require maintenance, and will need to be replaced sooner rather than later.
I bought a used car that cost $6,000. I owned it for 4 years. It cost $6,000 in maintenance and I had to give it away because it was so broken down. I bought a used car a couple years ago for $16k (well over 10% of my income at the time) I’ve yet to have to do any real maintenance on it.
So yes people. Buy a used car, but don’t buy an old piece of crap that costs 1/10th of what you make in a year.
Preach!!! Thanks! I absolutely needed to read this.
All in all, wonderful site. I’m turning 24 next month, have just over $10,000 in the bank. I’m getting antsy as to what to do about my money/lack of money. Your blog is really helping. :)
$10k is a good start but I hope you’ve been investing it not just leaving it in a bank account losing value every year. You’re young enough that you can manage the risks of the market. Put it into an S&P 500 index fund, ideally Vanguard since they have the lowest load (fees). That $10k may very well become about $500k by 65 years old. I assume you are in the 10% or 15% tax brackets, if so a Roth IRA would be perfect.
Buying awesome used cars is another art of being cheap. I drive a lexus LS, according to that chart I should make half to a million a year. But I bought a 12 year old one in great shape with reasonable miles for $5200 from a lexus dealership. That’s my second Lexus V8 and I’m in my mid 20’s. Blows the doors off buying a brand new piece of junk, and more reliable. You are taking a much greater risk with the German makes as they are much less reliable. Most people looking for a cheap reliable car buys civics, corollas hyundais etc, so there are no deals on them and in my opinion are excessively expensive used.
Deals on larger luxury vehicles that burn a bit more fuel are a dime a dozen compared to small cars, and the gas difference between my car and a civic is negligible (IMO).
Just like anything else, if you know the car market, you will always drive a great car as deals are ubiquitous.
Other than ignorance, I’ve never understood why the average joe would want a new car, spend $18000 on a new kia rio or he could buy a 6 year old LS460 that cost like $80000+ just a few years before, and will outlast the newer car 9 times out of ten.
Because a 6 year old LS460 will have more expensive problems sooner “9 times out of 10” than a brand new Kia Rio that will carry a warranty for at least the next few years.
Buying used luxury cars is a great idea if you want the feeling of luxury without the price tag imo. But don’t try to make the argument that a 6-year old luxury car is more reliable than brand new car because that simply isn’t true.
And also one thing that never changes is the cost of maintenance/repairs on luxury cars. It will always cost more to fix a car with an $80k MSRP than a car with an $18k MSRP.
Not Drew Thank God says
9/10 tims, Drew has no idea what he is talking about.
Ask anyone familiar with Lexus, and they will tell you they, even though they are luxury vehicles with big V8 engines, are more reliable than alot, if not most cars out on the road.
Mass produced, plastic junk like Kia Rio’s don’t hold up for nothing. You can scour the classifieds and find tons of high mileage Lexus LS’s and GS’s, but how many high mileage Kia Rio’s and the like will you find?
That “warranty” also isn’t as reliable as it seems, as everyone who’s been to a dealership knows what to expect when they start going in there for the service work, and for serious problems that “should” be covered on the warranty. If you don’t mind playing phone tag with the service and dealership managers, mechanics, regional headquarters, all to just get what you thought the warranty would give you effortlessly, then go right ahead and play the games every dealership plays.
They don’t make money on the sales of new cars. They make it by bleeding you every time you step into their service centers from then on out. The manufacturer already has your money they need once you pull it out the lot.
Unless you are completely financially secure for years to come, there is NO reason to buy a brand new or within 2 year old car from the manufacturer’s dealership. It’s nothing but never ending hassles and games with them, and you automatically literally lose 10-25% of the value driving it off the lot.
this is ridiculous. a person can easily own a 5 series bmw by spending approx 1-4k in the first months to have it more solidified, newer cooling systems/hoses, etc. their engines will run to 500k with proper bmw maintenance schedules. dont expect a luxury german car to run like a camry, they just dont work like that period.
German Driver says
I for one did not follow the 1/10 rule, I never heard of it before and since I keep my cars forever how does this factor into the rule?
I believe in spending a little more to get something nice and I know will last longer. In the long run you are saving money when you don’t have to replace or repair it as you do with cheap made items (this is my mindset with everything). Also never pay interest on anything, do without and save until you can buy what you want. Using this idea since a young age I was able to build a new home and be totally debt free in my mid 30’s. I see it all the time with people around me, my one expensive item outlast 3-4 of their budget items, after several year they are spending 2-3x more and still have a cheap item they will need to replace again.
Back to the cars, Don’t be afraid of old German cars. I have been driving German cars for over 20 years and still have the first one I ever bought. They have all been problem free, you just have to take care of them and do all the maintenance as recommended. Also wash, wax and detail them often, inside and out, including the motor, trunk and wheel areas, all my cars look like they just came off the showroom floor. Also if you are a DIY type of person you will find they are some of the easiest cars to work on. Doing your own maintenance on any car or around the home will save you money. For parts only use OEM or brand name performance part, prices are less then most domestic cars.
As for how long will they last. I currently own 5 German models, sport and luxury, I bought them all used and paid cash for all of them. I have a car from the mid 80’s that get over 40 mpg, 2 from the 70’s that start and run like new (yes they were fuel injected in the 70′) as for our daily drivers my wife has a 2001 VW with over 300k miles (said she is excited to be on the way to 500k) and I drive a 1999 Audi with over 200k miles.
If you keep your car is in great shape you might not have that feeling of wanting something different. If you do you can upgrade the radio, get a new set of wheels or change the color with a vinyl wrap for very little cost.
An added plus of keeping your cars and keeping them nice is that my 70’s and 80’s models are worth 2-3x what I paid for them. That’s an investment you can enjoy!
While i think that many of FS’s nuggets of wisdom are right, I think this car rule thing, especially buying the used car suggestion is ‘soul deadening’. I have bought both new cars and used cars in my 25years of working and now that I am 50, I can say with a few years of wisdom under my grey hair that the joy of buying a new car is like falling in love. Yes it may last only for 3 months but those 3 months are worth it. Buy a new car I’d say even if you need to tighten up on other things for a few months BUT use it till it becomes 10% of your annual income as he says.
Financial Samurai says
It’s not the new car or used car that’s the point, as I recently leased a new car, but sticking with the 1/10th rule to avoid financial blowups.
Why not make more?
It’s easier to say “go for it” if you are financially well off at 50. But the key is to get to that stage first.
I bought two new vehicles in six months and traded the first one in on the second and did’nt too bad. I actually did fairly well but both vehicles just made me sick. I’d open the garage door (from the house) and curse, cry or both. I did’nt need another car (especially new), I already had one that I bought new but was about 8-9 years old at the time. I had a POS live in girlfriend with no job and no vehicle amd I wanted her to her a job. No excuses about transportation.
Second one I got because I could barely get in and out of it it was so low. I’m not tall amd I’m not fat. Second one I knew before I got it I would be putting $5K in it to get it where it is now. Can’t buy em’ like this. I found this article because I want both vehicles gone and I may have just been talked into fixing up the older one and selling the newer one. I would lose $5K on it but again, it’s too small.
I find this solid advice. You may be able to go 15% with no kids and things going well at work. Most people should probably not exceed the 10% rule. I’m very long-wave bi-polar. Meaning I get depressed a few times a year and manic a few times a year, about twice each annually. I KNOW HOW TO PISS $ AWAY!
I know more than one retired millionaire under 50 years old that will not buy a new car. They say it’s the worst investment you can make. They have boats and second and third homes but refuse to buy a new car. A clean, newer, low mileage vehicle is the way to go.
Thanks for the article! I bookmarked your site and already sent my brother and sisters a link to this article.
I was about to buy a used BMW xdrive 535 for about 35k but i accidentally read your article(the night before going to the dealer) and followed your advice and instead bought a used accord for 16k and the remaining money is sitting pretty in my 401k.
Financial Samurai says
Awesome! You’re going to love your choice!
If you are in Minnesota, put a max price of $2000 to $5000 dollars in to “cars and trucks” search in Craigslist. Find a car below 70,000 miles with little to no rust and some kind of fuel injection. If you find something older that is carbureted but is almost mint (you will find one), make sure you know how to start it in all weather. Older people drive Crown Vics, Caprices, Continentals, Acclaims, Shadows, Spirits, etc., and they tend to put few miles on their cars and baby them. Do the math on your annual mileage and fuel use to see if a low mileage yet safe V6 or V8 is feasible. Foreign cars tend to be way too expensive for the mileage.
While I’m also glad you didn’t spend 35k on a used BMW… please tell me you did not take a loan out of your 401k. Your comment suggested that you were going to pull money out to buy a car which is not a great way to save for retirement.
That’s not how I read it at all. I think he means that the money he didn’t spend on the Bimmer ($35k – $16k = $19k) is going INTO his 401k.
buying I new car for $30000 and keeping it for 10 years cost $3000 per year, so I only need to make $30000/yr to afford it? or am I way off?
Nah bro, it is 30,000 times 10 so you need 300,000 gross income a year
Sounds like a great decision!
This article is just excellent: a car purchase is the worst investment one can make.
300,000 to get a 30k car haha. I am in the military and make around 1,500 a month after taxes. I’m financing a 40k car and paying around 700 a month. I’m living pretty good. You dont have to be rich to own a nice car. You just have to know your budget!
Financial Samurai says
Do you think that’s wise to spend almost 50% of your after tax income on a car? What do you do for food and savings?
I’m not sure what everyone is complaining about… either there are people on this thread with absolutely no sense of knowing a good deal when they see one, or they’re attempting to convince themselves that they made the right choice of buying that new BMW when they got their promotion.
When I got to college my Saturn was consistently breaking down on me. I saw a 2000 Monte Carlo SS with 130,000 miles our local Chevy dealer and stopped to ask about it. The price listed on the window was $7,000. I asked if they would take $3,500 plus my Saturn (worth at most $700) and they agreed to it. Simple as that. I kept that car for several years after graduation, which with my $40,000 salary, would have placed me in the 1/10th rule. I will admit that when I got my first job making $60k a year, I went out and bought a used 2008 Tahoe LTZ for around $20k… but that was prior to reading this article and I convinced myself of its value because “I earned it.” Since reading this, I’ve decided to sell it and shoot for a used pick up (we have pretty bad winters) that I can pick up for $5-8k.
Financial Samurai says
Good stuff Ken. I hope that new used Tahoe treats you well. Those are beasts!
This is interesting advice, and quite short-sighted and situational. My wife and I are 49 with a 10 year old daughter. We have net worth $1.6M with over $1.1 in cash assets. Only bill we have is our mortgage on our new house of which we have 60% equity. I’m a senior engineer and my wife is a stay-at-home mom (former professional). We’ll easily semi-retire at age 56 and that is the plan. So, we have always been financially prudent, but we do enjoy life. About 5 years ago we go the stupid idea to get away from our new Lexus vehicles (RX 350 and GS 350) in order to “save money.” So, I sold the RX 350 (which we planned on trading in for new) for a great price (same what a trade-in would have gotten us) and bought a used BMW 3-series sedan with low miles. Within a few months that BMW left me stranded on the side of the road, the sunroof got stuck open more than once, and a few other issues. I spent several thousand dollars in repairs and dealt with a whole lot of nonsense in the process. Not to mention my wife and daughter hated the car due to tight suspension, tight steering, and cramped back seat (I actually liked the car). Within 3 months I turned around and bought another new Lexus (which we were going to do anyway had we not had the stupid idea to “save money”). We are on our 4th Lexus now, absolutely trouble-free. Everyone is comfortable, these cars have 10 airbags each, and are just a joy to drive. Lexus even gives me a loaner if I just get my oil changed – so there is zero down time with the Lexus and just no hassles. So, trying to save money on something that you use every single day of your life, within reason, is a losing proposition. Get a nice car that you can afford. Only you can decide what you can actually afford, but in the end, you only live once – I get a tremendous ear-to-ear smile on my face every time I drive my GS 350 – it is fun, safe, and most importantly, reliable. We have spend $0 on repairs on any of our Lexus cars in 6 years. The same applies to a house – we built our 3rd house new, very high end quality but low-bling (Sub-zero, quartz counters, copper (not plastic) plumbing. Why, because we put $150K into our previous $250K house in repairs and renovations – what a waste of time (we did make a lot of money on that house when we sold it, however). We have been in our new house for over 6 years – zero issues, low utility bills because of all the efficiencies we put into it. We come home, we relax, we enjoy. I have been to Home Depot zero times! Let me say that again, I have been to Home Depot zero times! In contrast, in my last house we lived at Home Depot and it really sucked a lot of time and money out of our lives – it would have been cheaper just to build a new house and be done with it. Gee, how much money did I spend just in gas money going back and forth to Home Depot every other day?? Again, look before you leap – as many astute folks on this forum have pointed out, the cost of maintenance and upkeep on old cars (and houses) will devastate your time and money portfolio. We like to spend our time on family, vacations, and entertaining – not waiting for tow trucks, rental cars, and car repairs. Lesson learned, do the life cycle math on any purchase. Buy solid wood furniture – not engineered wood. Buy any new Toyota or Honda over any used BMW, Audi, or Mercedes. Let me give you specific example. Most Lexus cars (and Toyota) use “normal sized” tires that cost about $1K to change and last about 40,000 miles. A typical Mercedes uses tires that cost about $2500 to change and only last about 20,000 miles. So you can do the lifecycle math on that. I stress, however, that if you like the Mercedes, then buy it, as long as you know the lifecycle costs of that car. If you don’t enjoy the car, then you are wasting your money. Leasing gets a generic bad wrap – I never lease, but I did lease my last Lexus (a demo with 6K miles) because it was mathematically cheaper to lease the car than to buy it outright (due to zero money factor and low capitalized cost due to demo). In fact, I bought it at lease end because the residual value was about $5K less than what the car would cost to replace used! The answer to all these discussion are that the right answer depends on the specifics of each situation. But don’t buy yourself into a maintenance and time-sucking disaster.
Finally, everything that we buy is disposable, but for some reason we focus on cars. Perspective? A pair of $70 jeans at the Gap is worth $0 the day you take the tag off and will probably last a few years. If you tear them or spill wine on them, they are a throw-away item. Now THAT is depreciation! In contrast, you can drive a new $70K Lexus for 5 years and it will still be worth $35K in 5 years and STILL be under warranty! Oh, and it is a repairable item, of course. Which purchase makes more sense? It is nonsensical to compare these two, yet both are “purchases.”
I appreciate any advice to be frugal, live simply, and be happy. The 1/10 rule is actually a good starting point for dialogue, but beyond that it is purely situational. Sorry for rambling, but my experience and practical sense tells me to buy a few quality new items over a bunch of used junk whenever possible. You also have to look at the type of item. For example, I play electric guitar. Used guitars are a great deal. Used guitars are either in working order or not and there is really very little to break- so you’d have to be completely out of touch to not know the difference. You basically can’t lose. Buy solid wood furniture – it WILL last forever. Buy particle board garbage and it will last, well, a few years at best. Want proof? Drive down a low income street on bulk garbage pick-up day – what do you see? A bunch of particle-board wall units, dressers, and other plastic engineered crap – poor people are poor because they get sucked into the cheaper syndrome. So, they buy a new particle board bookcase every other year instead of buying a solid wood bookcase once. We switched to all Apple products 3 years ago. My Macbook Air works exactly like the day I bought it. We have nearly $10K of Apple products in our home and they all work flawlessly. I cannot say that for the PC-based computers and peripherals I bought over the years (I threw away too many to count). Measure twice, cut once. Look before you leap! All good thoughts.
I wish everyone happiness and success in whatever form makes you happy. Enjoy.
Financial Samurai says
Well, this article isn’t directed at those with $1.1 million in cash. This article is here to help folks looking to build their financial nut and get to where you are.
If it pleases you, as it has pleased a lot of other wealthier folks, follow my Net Worth Rule For Car Buying. It’s for folks father a long the financial journey.
Why is the Tesla in the 250k-500k category? That doesn’t match the 1/10 rule, is that due to lower maintenance and gas savings?
Chris K says
I think I agree with most commenters in that there is obviously good advice covered in generalities here. Interest rates on the loan must have a place in the conversation. For example: I bought my car (2012 VW, 20k, about 25% of my yearly) with 0%, $0 down. In my situation, this had two directly financial benefits, 1) I was able to use my savings as the necessary down payment on my house, and 2) any 0% loan is free money, no? Why not take it and use the saved interest towards other higher interest things (like the new house).
Just discovered the site. Will be following.
This rule is not accurate at all…
Lol… I worked a part time job and purchased a $16,000 dollar 99 honda civic Si Coupe when I was a teenager. I paid it off in 5 years. After my wife and I got married in 2009 we purchased a 2005 Honda Civic Sedan. We paid it off in 5 years. Stuggle free… We paid $80 bi-weekly… It was like chump change you would spend on buying lottery tickets and booze every friday lol… So I disagree with theory. My orthodontist makes about 200,000-400,000 a year and drives a Audi R8 and hes only 30. I just got layed off but my wife is working hard to keep us going and she wants a new Mercedes. You know what life is too short to keep all that money because your dead and gone where does that money go!!! “you get my drift” So enjoy life while you can and screw the automobile, gas companies… Enjoy Life!!!
Financial Samurai says
That’s a pretty bullish sign that even thought you just got laid off you guys plan to buy a mercedes.
No wonder why the stock market and property prices keep going up. I hope you guys continue to spend and never run out of money!
Bud Mor says
The whole world nearly came apart just 6-years ago because of thinking like this. Have we learned nothing?
I think there are problems with the 1/10 rule as laid out; but it is a much better plan than a family buying a Merc after a layoff.
There are plenty of people enjoying life without a Mercedes.
I’m just going to disregard this rule as nonsense, here’s why: Buying a car has many variables such as maintenance cost, fuel efficiency, resale value, etc etc. A wise investment in a car comes from a lot of research into those factors. Like it or not, a car is a status symbol. I make $60k gross a year. If i were to roll up to a client meeting in a beater car I bought for $6k, they wouldn’t want to do business with me because they would think I am not successful enough to buy a respectable vehicle. Lets also discuss the length of ownership. A $30k car can be a wise investment if you drive it for 15 years, but a terrible idea if you keep trading up every 2 years.
The nice thing about the American car market is that there are options for every need level. If your needs are a reliable vehicle, than anything under 10k is a bust. If you need a truck or van for your work/life than you’re spending at least $20k on something reliable. If all you need is a ride to get you to and from your POS min wage job, go for the clunker.
I feel like $30k is the line between practical vehicle and luxury purchase. No average person should spend more than $30k unless they can justify it as a hobby or interest and account for it accordingly.
In conclusion, i don’t believe that a simple rule does car buying justice. You would be doing a better service encouraging people to evaluate their needs and not succumb to the glitz of a luxury vehicle, making a sound purchase.
Financial Samurai says
Ryan, if you feel you can afford a $30,000 on a $60,000 a year salary (less than $50,000 a year after tax), then more power to you.
Take a look at theses post for more reading:
The Average Net Worth For The Above Average Person
The Recommended Net Worth Allocation By Age Or Work Experience
How Much Should I Have In My 401k By Age
But that’s just the thing, is that the rule takes nothing else into account. 60k is a lot to me when I’m a single guy with no kids or debts, decent E fund, and 20% contributing to my 401k. I live on about $18k/year.
Now, say I had 3 kids and a wife. My expenses would be significantly higher and would definitely justify a more conservative purchase.
Also, in my part of the country a truck is necessary to handle the rural lifestyle. I’m not gonna dump 45k-50k into a new one, but I can get a decent used one for under 30k.
Financial Samurai says
Ryan, it’s whatever you think is best and makes you happy. This rule is my simple guide based on my experience. Each person is different.
Fun in the Sun says
Great blog, I recently started reading it, and you provide financial literacy which really should be taught in middle school.
I moved to the US 10 years ago, and was just shocked at how much the average person spent on a car. Being in my early 20’s at the time, I had no peers in Australia with new cars, but suddenly many here who earned as little as $20k, had brand new cars.
I have only owned a car when I needed to commute to work in a car. I sat down about 2 years ago, when I owned a car and wasn’t using it to commute to work. I discovered that I had effectively spent $500 per time I had driven the car over a 6 month period. The average distance of each trip had been 15 miles. I quickly sold the car, bought another investment property, and haven’t needed another car since. With property booming at the time, those dumb 6 months cost me in excess of $30k in net worth.
The 1/10th rule is a fantastic starting point, but I think it could be expanded upon. A car depreciates every year, especially in the first 1-3 years. This is probably the largest cost involved in owning a car. A brand new civic/corolla at $20k, will cost more in the first 3 years, than a 3yr old BMW at $20k. I think the true cost of a car is the sum of;
Car depreciation for current year (you can sell your car at any time, it is an asset, but is depreciating).
+ parking costs (or what you could let your parking space for)
+ car payment / lost investment cost (ie I would consider a $20k paid cash car, to cost $1500k per year in lost investment opportunities).
What proportion of annual income do you recommend spending on using the above cost formula? I think anything over 1/15th of gross income is excessive unless you consider it a hobby.
Saying you will own a car bought new today for 10+ years, just means you are paying today’s money, to subsidize your costs in 10 years time. On a $30k car bought new today, compared to a $100k investment property ($20k deposit, financed 80% for 30yr loan and buy $10k car with change), you are close to $100k better off with the property in 10 years time.
If you are like most NORMAL people and are in the $100K-$200K income bracket, you can easily afford a mid-level Audi or BMW and still invest plenty for retirement if you have the ability to set priorities and exercise a bit of self-discipline in other areas of your life.
I’m 47 and make $110K per year (not counting my wife’s income). I have been investing at least $2000 per month for 12 years and just passed the $500K mark. I also have more than $60,000 in personal savings (including my wife’s savings).
Here’s a typical budget for me.
Monthly Income: $6850
Monthly House Payment/Escrow: $1700
Monthly Utilities and Insurance: $720
Monthly Groceries (for 3 people): $700
Monthly Spending Allowance: $1000 (usually less)
Auto Fuel/Oil/Maintenance: $500
Monthly Investments: $2230 (usually more)
By the time I retire, I will have well over $1 million, and I will be able to draw an annual pension of around $70,000. My wife should have more than $600,000 and will draw an annual pension of around $60,000.
I am buying a new Acura TLX next month. After taxes, it should set me back around $52,000.
Financial Samurai says
Normal people don’t have $70,000 a year pensions.
Check out: https://www.financialsamurai.com/the-average-net-worth-for-the-above-average-person/
This doesn’t makes sense without considering operating costs. I have ALWAYS followed this rule, and the most expensive car I have ever bought was $4K after being out of school for several years. But I can’t count how many cars I’ve bought and run into the ground because they were a cheap POS. Focusing soley on purchase price is leaving out a huge portion of the equation. I followed this advice before ever reading it and I agree with most of the comments on here that it does not work in most cases. 1/10 of your YEARLY income to OWN/OPERATE (purchase, maintain, insure, gas is too much of a variable to include) a vehicle makes way more sense (and is also quite frugal if you ask me). If it exceeds that, sell it and figure out how to make it work.
I like the concept, but this idea only works in a vacuum.
Getting rid of my $20K sports car and buying a car only worth $5K last year was one of the best things I ever did. I finally crossed over into a positive net worth just this month for the first time since being an adult. Not only that but my stress levels have nearly disappeared by getting rid of the performance car and other useless consuming debts/bills like cable.
It is amazing how reliable a $5k can be, all I have to do is gas her up and change the oil a every so often.
Bud Mor says
This strategy makes more sense to me than the 1/10th rule. You can get a runner for under $5K, but if you want a decent car that is versatile in its abilities and uses (e.g. commuting 30 miles a day, plus the odd 400 mile trip) then you probably ought to be looking at the $5K cars.
Buy $5K cars until you are rich, then up the price somewhat.
So I have a question. I fully agree that the sole purpose of a vehicle (at least for me), is to “take you reliably from Point A to point B”. Yes if you make over lets say 150,000K a year then it is reasonably easy to find a reliable car for 10% of your income but anything under that and it gets harder. You can definitely get reliable used cars for under 10K but at some point there is a trade off between the original price of the car and the amount you end up paying in repairs and how quickly after purchase you begin making those repairs. For example, someone making the national average income of 42,000, spends 4200 on a car. If they are really lucky they might get 18 mnths- 2 yrs without having to put too much money into it but after that it quickly becomes a sinkhole. On the other hand if they spent lets say 10K on a car (~ 25%), they could probably get something used with a decent warranty and have a least a few years of relative reliability (dependent on make/model of course!). I really don’t know that much about cars so my numbers are probably off but you get the point. I think there is a case to be made for paying more than 10% so that you can save in the, sometimes not so distant, future on maintenance costs. I always buy used cars but am confronted with this dilemma every time. Is it financially more advantageous to buy cheap but end up paying more in maintenance sooner or buy more expensive and pay less in maintenance. I’ve tried to come up with some magic number of what is the optimal price to spend on a car. (Assuming you really don’t give crap what it looks like and just want to spend as little as possible)
Financial Samurai says
Hi E, I’m not sure what your question is.
But I drive a $2,500 car and make much more than $25,000 a year. He’s been great for 10 years now, and he’s 14 years old. Go Moose!
So your saying I have to make between $150-$200 thousand a year to drive a Civic? You are a blooming fool I will say don’t buy more than you can afford but that’s just insane.
Financial Samurai says
Indeed. What’s wrong with making $150-200K first or buying a second hand Civic for $5,000-$7,000? Their reliability is legendary.
I may be a fool, but at least I don’t have to work any longer for money. Freedom is priceless and the 1/10th rule is one of the things I’ve discovered to share with others who want financial freedom sooner, rather than later.
I live in Colorado, and a Civic is not even going to get me out of the driveway in January.
Also, if you have a vehicle with less than 200 horsepower, and you plan to drive it on Interstates where speed limits are 75 mph (and actual speeds are about 85 mph) – then you are taking your life into your hands with a cheap vehicle.
If you make less than $200,000 per year, but you still value your personal safety, and you want reliable transportation and a modicum of comfort – then you need to find a old, used car that has new tires, new brakes, a new timing belt, a new water pump, a new fuel pump, a new power steering pump, a new air conditioner condenser, a new transmission, a new catalytic converter, and a new muffler.
Or you could just spend a reasonable amount of money ($20,000-$30,000) and get something that is going to fit your needs and will last much longer.
Tim Frohlick says
Zane, Getting a new car for around $25,000 every ten to fifteen years is a great idea. If one is retired then it is possible to put under 2000 miles a year on the vehicle. Most of my buddies keep a car for 50,000 miles and then trade it in. They have realized that car repair is for dummies. The ten percent of income is something I did in my youth. If you have a net worth of one to three million dollars and expect to live only another twenty to thirty years, then splurge. TJF
this article hit one of my hobby horses – my net worth is over $3M, increased last year by over $700k – and I drive a 1991 Honda Civic worth about $1k – guess that means my car rule is 1/700 at the moment.
Bought second-hand in as-new condition in 2003 for $5k which I thought was top dollar back then, it needs brake seals sometime but is otherwise perfectly maintained and runs sweet as a top.
People driving shiny new cars can feel free to mock my choice, but I recall from working in real estate sales that most guys in suits and shiny new cars had car loans, no money in the bank, and net worth in minus figures.
I’ve been frugal in my lifestyle, and as a result the other day when I worked out a new thing I read about – Investment Wealth Ratio (income-earning assets on total assets) – or how much of my assets were earning an income – recommended to be above 55% – mine worked out to be 84% – which may be why my net worth increased 27% last year.
I like a tip I gave to a work colleague when he was thinking of buying a car – ‘buy the cheapest car your ego can afford’ …
otherwise – “We spend money that we do not have, on things we do not need, to impress people who do not care.” – Will Smith
I think ‘keeping up with the Joneses’ has generally been found to be a cause of hedonic treadmill dissatisfaction and never quite having enough.
I like the story – ‘At a party given by a billionaire on Shelter Island, Kurt Vonnegut tells his friend, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history.
Heller said, “Yes, but I have something he will never have: Enough.” ‘
Financial Samurai says
‘buy the cheapest car your ego can afford’ …
I’m new to the site and I just wanted to say that, thus far, I love what I’ve read. I agree with the premise of this article. I’ve seen far too many of my friends and family finish college or grad school, get their first job paying decent money and immediately lock themselves down to a $400/month car payment for the next 5-6 years, failing to realize how little return they get on that investment, besides the status of having a new car.
With that being said, I do identify with some of the comments above that the 10% rule, as a hard and fast guidelines, may be too restrictive. I lived off of graduate stipends for several years after college and was constantly juggling car repairs. I bought a “new” car in the $5000 range two years ago, which did fall in line with the 10% rule as I make right around $50,000, but was still constantly paying for $300-400 repairs in addition to maintenance associated with a car that has 100,000 miles.
From this perspective, it’s been a great stress relief to buy a new car and not have to worry about constant maintenance and repair bills. I stuck with a modest car, a 2012 Hyundai with 25,000 miles that cost $13,000. I had saved up to pay cash for the car and hope to get 7-10 years out of it. Based on the 10% rule, I almost tripled what I should spend, but the car will likely last 3-4 times as long, with likely less maintenance/repairs, than another $5000 car would. I totally agree that people spend way too much money on cars that is a terrible investment, but I fear that sticking to such a restrictive percentage, on a modest income, would leave people like me buying a car every few years and perpetually having unexpected breakdowns and repairs to deal with.
Can you translate that 1/10th rule to a per annum rule instead? Buying a new car every year that’s 1/10th my income is the same as buying a car costing my full income lasting 10 years.
Also, for a family making $200K/yr with $400K in assets, are we considered well off (wife is 26 and I’m 30)? If so, can I afford a used 4 series bimmer ($60K after tax)?? :)
If your sister puts $1000 to $1200 into maintenance per year, that is only 3 months worth of new car payments. What does your sister do with the other $3,600 she saves by not having a car payment. I think having an extra $3,600 in your pocket per year would eliminate at least as many stressors as a moderately reliable car.
So, analyze this one: I make $80K/yr. drive my vehicles for 13-15 years, have a commute of 85 miles per day, and have NO credit debt except a mortgage and my car payment. I feel I can justify buying a new car that gets 15 mpg more (remember LONG COMMUTE) and has no more maintenance issues, rather than 10% I jumped to 20%. I’d like your feedback.
Thanks and thanks for the great website.
This is not realistic.
If you make less than $25,000, but you work in an area that does not have reliable public transportation or bicycle lanes (which is most places in the U.S.), how are you going to get to work every day so you can keep your $25K job? You’re going to buy a car. Carpools aren’t always feasible either, since poor people often know other poor people who don’t have cars and/or they can’t rely on another person’s goodwill to drive them to work every day.
I mean, I can understand the concept – we probably don’t need to buy as much car as we buy, on average. But suggesting that low-income people try to make do without a car just compounds the problems they already have.
Financial Samurai says
How much do you recommend someone making $25,000 spend on a car without exacerbating their finances then? Let’s discuss solutions.
After reading the post and most comments along with input from friends and family I’m stuck in a dilemma .
Right now I drive a 93′ BMW which I love and is very reliable I spend about 200+ IN regular maintenance a year and it hasn’t given any problems I’ve had it for 2 years bought it for a little under 2k. I am starting to notice that the clutch is starting to give out and I suspect that it still has the original one since the mileage is 118k, the previous owner kept documentation and clutch isn’t mentioned at all. the parts and labor for when it does give out will be approx half the value of the car. Also since I’m 21 with the attention span of an ant I’m bored and want a new car.
Just recently I’ve set my sights on a car that is around 10K everyone says that I can afford it and woud be a good way to build credit. I recently started a job making 25k a year with promising ways to get raises quickly but not in any substantial form (2-4k raise in the first year) and have very low financial responsibility.
I don’t know what to do with my money and putting all my eggs in one basket or investing and losing because the people I gave the money to weren’t on their toes sounds risky to me . If I buy the car I know I’ll have a hell of a lot of fun in it, and I’ll thuroughly enjoy every penny. I feel like if I buy a pos car as my next onr I’ll go crazy from having to deal with the mentality that I have a pos car.
Might seem like an easy choice to some of you but growing up in the situation where I didn’t get anything I wanted is, for some reason or another, making this decision tougher than I’d like it to be.
Any input is appreciated. Sorry for the huge wall of txt
Have you considered replacing the clutch yourself, maybe with help from a more-skilled friend? Saves money, increases your understanding (and interest) in your BMW.
That’s a typical activity for a low-ish income car enthusiast. Keeps it interesting, gets you involved in the enthusiast community, and you didn’t drop half your income on a car.