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.
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this article is ridiculous.
I’ve been a poverty level earner (__<24,000) for my entire lifespan.
I've also had a 1988 honda crx Si since I was 20 years old.
I've averaged less than 300/year on maintenance. Gas is cheap. And I even have a class 3 tow hitch, which has empowered me greatly to live a decent lifestyle despite my low income!
P.S. I bought the car with ~250,000 miles. It's now ~360K.
I'd like to slap the author with a bit of reality when they argue that I shouldn't even OWN a car. How absurd.
How long do you keep the car for? Chopping and changing every few years within the 10% rule may be more expensive than buying at more than 10% but holding for decades…
Without looking at all the replys, I would like to suggest that there are times when this rule should not be followed…
My car (bought used, paid cash for) broke down last year in January. I had to decide real fast if I wanted to spend the money and labor (I do my own auto work) to fix it, or if it was time to get something that wouldn’t break down for a while. While I was sitting on the side of the road waiting for a tow, I was scouring the internet, and found that I could lease a Nissan Leaf for $169 a month (with $3k down). This was interesting because I was currently spending an average of about $300 a month on gasoline in my current car… which would equate to my lease payment being half as much as I was previously paying for gas.
I did some more searching, and eventually ended up picking out the Chevy Spark EV. I put a minimal down payment, and got a lease of $288 a month. Now, my car payment is less than I was paying for gas, and I average about a buck and a half a day on electricity when I charge at home, and less when I charge at the many free charging stations around town. So lets say that $288+$45 ~ $333 minus public charging = a little more than I was paying for gas.
This doesn’t even factor in the cost of oil changes, which most people have to do every 3 months/3000 miles (if you listen to the lube shop) or 6 months/6000 miles (if you actually read your owners manual and don’t drive in the dust and dirt all the time). There are no oil changes for the Spark EV, or any EV for that matter… so while it cost more than a comparably equipped gasoline powered car, my costs are actually about the same as they were before I had a car payment, and now I have a car that has FAR less moving parts to worry about breaking down. There’s no transmission (and no transmission fluid to change), no belts to change (especially no timing belt…), no spark plugs to change, no air filter to clean or replace, and did I mention; I get to drive around in a quiet, comfortable, and brand new car?
People claiming they can’t get a fun car for their budget aren’t being honest just have a very narrow view on how to have fun driving. If you’re looking for a cheap sports car the answer is always Miata. You can get a running project car for around $1000 in my area or buy a solid one for $3000. You could afford have one of the best driver’s cars on a $30,000 salary. Make more money get something newer. 350z start around $6000, C5 corvette around $10,000… The list goes on. Not many legitimate excuses for overspending on transportation.
Oh yeah, the Miata is an awesome car! I’d love to own one, unfortunately even at $3,000 that’s too much for a second vehicle for me. I drive 30,000 miles/yr for business in my 2014 Focus ST. Sure I could have got a higher performance, higher mileage car for less money, but the reliability factor just wouldn’t be there.
Anything that doesn’t have to get me to clients I tend to spend less money on. For example I have three motorcycles (2009 Yamaha FZ6, 2008 Yamaha R6, 2009 Honda CRF230l) that I have acquired over the last few years, each one has been less than 1/10th my income and was paid for in cash.
Sure I could cut a lot of money out of my vehicle budget, but the thing that I always come back to is rather simple.
I’m not sure what I would do with the extra money, I honestly can’t think of a better way to spend my money. I could save 30% of my income for retirement rather than 15%, but I’m not sure that would actually bring me happiness.
Money doesn’t buy happiness, but adrenaline sure does.
It’s definitely good that you’re saving 15% for retirement. Nothing wrong with with being an adrenaline junkie ether… I just think it limits you future wealth by too much when you buy a brand new vehicle like that. The Focus ST is a pretty cool car but like you said the performance bargains found on the used market make it almost a no brainer buying used. As far a reliability goes cars like the Miata and Corvette are known for being bulletproof and lasting hundreds of thousands of miles. It’s not like you can’t have fun while being cheap as well. Instead of buying a 20k Polaris RZR like some of my coworkers I have a 2001 Honda 400EX and a 2002 CRF 450R for when I have fun in the dirt. On the street I ride 2007 Ninja 650R. All those toys were had for less than $4000.
True, the Corvette and Miata just wouldn’t work out for me, but there’s other options. I suppose I could have picked up a used Mazdaspeed3 or GTI instead of the Focus. I think next time around I’ll go that route, but for now I’m going to drive the Focus another 200,000 miles hopefully.
Next time I get a car it’ll be used for sure, but probably will still be about 20% of my income. A nice three year old MS3 with 45,000 miles on it really wouldn’t be so bad.
The thing that I always come back to though is that I put 2.5x times more miles on my car than the average driver every year. So I don’t necessarily like higher mileage vehicles.
For instance with my Focus I paid 23,000 OTD, with the 15,000 MS3 I would pay about 16-17,000 OTD. If you assume the Speed3 had 45,000 miles on it and both cars made it to 200,000 miles the price difference ends up being about 1 cent per mile. If you multiply 200,000 by 1 cent I would actually only save about $2,000 (by going with the MS3) over the course of 200,000 miles by going used, rather than the $6,000-7,000 initial price difference.
I guess what I’m getting at is that it’s important to take into consideration mileage with a used vehicle when you consider it’s total cost.
Toys are definitely an area where it’s easy to cut costs though, as there is about a million low mileage cheap motorcycles out there. I’m sure the Ninja 650 is a blast, that bike is very similar to my FZ6. Cheap to buy, cheap to maintain, and every bit as fun as a $20,000 motorcycle on the street. I ran into issues once I started doing track days with my FZ6 though, hence why I bought ended up with an R6 also.
Sorry if I’m rambling a lot.
WHY YOU SHOULD SPEND MORE THAN 10% OF GROSS ON A CAR
1) Maintenance costs:
Simple, don’t get parking tickets or traffic tickets. Insurance on a new vehicle is more, but still not that bad. Maintenance is certainly cheaper on a more expensive car (to a degree).
2) Opportunity cost.
Oh… watching assets grow, fun! Not really, now driving a car one really enjoys, that’s fun! Anyways, what’s the point of having money if your not going to spend it?
3) Stress. Paying more than 1/10th of your income for a car doesn’t make one stressed, it simply means one purchased the WRONG car.
4) Makes you want more. On the contrary, have you seen how Jay Leno dresses?
5) Makes you feel stupid. Not really, nothing beats taking a hard corner at nearly 1g and accelerating out full throttle with not the slightest concern that your vehicle is going to explode.
Attention author of the blog and all readers of the blog. You both are taking the 1/10 ratio wrong!! You can spend 10% of your annual salary on a car and have a brand new or even a pre-owned luxury car.
Take the average annual income of $50,000. 10% of that is $5,000, divided into 12 months and that’s a $500 monthly car note. Do less of an amount, if you don’t want anything that extravagant.
You’ll repeat steps 1 & 2 next year. Get it?! Why does it work, you ask? Because you are only spending 10% of your annual salary, key word annual!!!
Author please do a fact check on advises, before blogging incorrectly.
Readers use your minds once in a while. Go ahead and get that 10% annual car note. :)
This doesn’t seem like solid advice. Not sure if you’re trolling or what but 10% annually is too much. I would be in a 2015 Corvette Z06(I love corvettes) if I was unwise enough to spend 10% of my annual income on a car note… Let me guess, I need to spend 40% of my income on house payments as well?
I have read this article a number of times to digest. The first time I was appalled. After revisiting it again, I decided to trade in my Infiniti with a $480 payment for a used Civic (4k miles) for a $250 payment. Between consulting and my main job I make about $210k per year. Even though it was not a stretch on finances I relish in not having to pay for $80-$100 oil changes and $60 fillups with premium gas. Not to mention there is a certain satisfaction of driving up in your $13k car and making a decent living. I am 28, owned 10 vehicles in my lifetime, love cars, love trucks, and anything that goes fast. I get my fix when I travel and get a rental car. I’ll pay the additional $20 for the Challenger. It is fun but then I think about how it would cost $400 a month more in a car payment, $200 more per month in gas, and $100 more per month in maintenance and insurance. I ask myself, is this something that is worth $700 more per month or would I rather take my wife on two vacations to Sandals that year. Yep, i’ll drive the Civic.
Nice job! Save and invest the extra money over the years and you’ll be surprised at how much more wealth you’ll be able to accumulate.
The joy of getting to point B, but much cheaper is great. Less stress involved with a cheaper car too.
It’s all a matter of whether you want to look rich or be rich. There’s a lot of people driving around in nice cars which for the most of them, as they say in Texas “big hat no cattle”. If you can suppress many of those consumer purchases when you are young you can live a slowly increasing lifestyle when you get older. So while you may not get to “enjoy” what you’ve worked for you will later in life. It’s all about building up assets as soon as you can so that those assets will take care of you later in life.
I appreciate your thoughts as always, my man.
This post comes at a good time. We were in a car accident that cause $8k of damage to our $13k-ish valued 2007 Honda Pilot EX-L with 107k miles on it. (Couldn’t convince them to just total it. Yes, we will be seeking reimbursement for the diminished value of the vehicle, too).
With that much damage, I’m concerned about it’s integrity as a family vehicle — and I’m especially concerned about it “croaking” from some hidden damage 6 months down the road when I still have a lot of loan left on it.
So I actually found myself looking at Certified Pre-Owned Replacements. I love the fact that we will have lower repairs (the previous car averaged almost $200/month in maintenance) and that if something serious goes wrong, we will have a powertrain warranty.
But the ones I like will put us at the 27.5% mark. So. Whaa.
Anyhow, the one thing I wanted to mention is that the Cash For Clunkers program has really, really hurt the little guy. Until 2 years ago I only bought in the $1k-ish range. Prior to the 2009 program, you could get a lot of car for $1k. After they snatched up all those cars, the used car market has become really pricey, and I think we will continue to see those effects for another 2-3 years.
It’s a side effect that has really hurt, and one that is often overlooked.
You can also look up your local tax incentives to
see which option pays more in the long run. You can expect to get paid for your vehicle
in some cases on the spot during pickup or, in some cases, no later than 14 days via check.
Another question to ask is whether you need to deliver the junk car or if
they will pick it up.
Even though a new car say 26K and you are earning 60K, by the time you are done paying it you would have paid 35K in 5-6 years. If you drive 30K a year by the time its 3 years you will need to pay for your own repairs before then.
What I did when I was earning 60K was I bought a 5K car cash and earmarked about 2K for repairs for one year. I spend 1K of tha in one year. The car was 10 years old but I kept it for another 6 and spent on tires and repairs about 3K for that period. And I drove it for about 60K miles in 6 years with nothing major
Its better than buying that new car and costing me 6K in payments every year plus 800 more in insurance.
When I buy a used car I make sure it has the timing belt changed and clutch if it is manual. If not I use that as a bargaining chip.
A car is a tool and it is ridiculous that it would cost you so much per year. If you are paying 800 in payment a month and your take home is about 4K then something is very wrong
While some of your points are valid and I respect the concept behind your rule, it is a bit extreme even for most penny-pinching or otherwise conservative folks. Sure, your car’s price alone may be a significant % when compared directly to your gross salary. But a 35k dollar car on a 35k dollar net profit on salary after taxes is not a true 100% utilization of income. Unless you’re buying the car up front and in full with cash, which of course is stupid, you won’t necessarily be overburdening yourself. Financing or leasing are common and while they yield no equity or return of any monetary kind, these options may yield great personal enjoyment through the intangible. Happiness derived from car ownership is a valid justification for spending more than 10%, especially if the payments are affordable and made over a 3-5 year period of time. While the opportunity cost of leasing a car is obviously the returns from investing instead, this can’t be used as evidence supporting your theory by itself. Next, if you make 25k and buy a 2500 dollar car as a result of your theory, your maintenance cost will likely be substantial. Cheap, high-mileage used cars need parts and service and are likely not under warranty. Additionally, you can’t include parking ticket or traffic ticket costs as a likely expense if it isn’t guaranteed or consistent, even. I haven’t had a fine in 5 years. This isn’t a guaranteed expense and shouldn’t be used in support or opposition of a vehicle purchase. Only take into account the known or statistically significant variables.
I must note that while your articles are mostly excellent and validated by fact and experience, this article and theory was poorly supported in my opinion. Point 1 on maintenance was dubious as an expensive car may require none and/or have maintenance covered by the warranty. Point 2 on opportunity cost is totally valid and on point. Number 3, less stress? A cheaper car is less stressful? I think you’re reaching on that. It’s an opinion and subjective by nature, but it isn’t even well supported. 4, makes you want other nice things? What evidence can you cite? Maybe someone just wants a nice car but is content with a cheap watch or basic clothing. Having a nice car and living lavishly are not mutually exclusive. But worst of all, point 5. Makes you feel stupid? Why would I feel stupid about a decision I made that required a great deal of thought and budgeting before the paperwork was signed. Not everyone values investing or returns or cash flow streams or savings plans as singularly as another might and one may value the expensive car for its pleasurable qualities more singularly than you, since you are content with a Honda. Opinions and tastes vary, but these differences are not indicative of intelligence. Only preference. To call someone stupid for passing on a POSSIBLE investment return in order to enjoy a vehicle which is a just as much a purchase out of necessity as it is out of intangible personal benefit. A smile on my face is important to me, maybe even more so than a non-guaranteed return on a small investment. If that investment ends up losing, the better choice is clearly the one improving my life and happiness.
I love your work and admire what you’ve accomplished, but I can’t agree with your 1/10th theory and I think your points of support could use a bit more substance and objectivity rather than just personal opinion or anecdotal speculations.
Bravo and well said. A bit too opinionated/subjective of a theory, and in some instances straight-up unrealistic. How many people out there who earn $100K have purchased their vehicles for $10K or less? Hmmmm… let’s just say it’s probably 1/10th of 1/10th of 1/10th of the population. Being fiscally responsible is one thing (and a good thing), but 1/10th of one year’s salary is fairy-tale-like in nature. If this is how people actually lived almost everyone would be taking transit. Spending 10% or less of one’s income per year is probably more realistic.
I’m near six figures and I’m driving a car less than 1/10th my income. I did recently spend $500 to replace brake and rotors but besides that much less stress than my “enjoyable” performance car that was 1/10th of my take home pay. There’s a huge difference between worrying about someone hitting my car then and now. I estimate that it would of cost me $1500 to replace the Brembo rotors and pads on my performance car.
Within the next 3 months I’ll be car-less and no longer a home owner after I move locations; even less stress. Don’t get me wrong I plan on buying a fun car again but not until I can pay cash for it without thinking about it along with only using it as a weekend warrior.
I make in the $100k range, and have never bought a new car. Never. The last used car I bought was well below the $10K range.
I make >$130k and drive an 12 year old Civic I bought for $4k and now have 200k miles on it and I have a 15 year old Ram 1500 I picked up for $1200 with 175k miles for those trips to Home Depot and such things that only a truck will do. So, I have two vehicles which solves the “reliability” issue everyone complains about and I’m still under 5% of my annual income. I drive 30k miles/year (>2x national average) and budget $100/month for vehicle maintenance (which includes tires) and never go through it all.
There are two generally accepted “Rules of Thumb” for what your mortgage payment should be: <=25% of your take home pay or that the purchase price should be 3-5x your gross income (depending on down payment, 5%-20% down). Either way when you calculate it, you're looking at roughly 25-30% of your take home pay being considered a good idea. This way you can still invest, save for retirement, and have a good overall quality of life. But, when you pause and think about it, that's for something that over the long term appreciates in value, but yet people want to spend anywhere from 25-100% of their annual income on a single vehicle… and a lot of households go buy two of them and double down on their losses. (Yes, I know there's a difference of once per 5 years buying that car vs paying it every year for your house, but try paying that extra 25% towards your mortgage instead of a car and you just took a 30 year mortgage down to 10 years).
The point of the article and most like this: the more you spend on things that go down in value, the more you're sacrificing either the long term and/or the things you can enjoy now. If you haven't read The Millionaire Next Door, then you really should stop by your library and pick it up.
People with real wealth are not spending a large percentage of their yearly income on vehicles. Once you start the investment ball rolling, it grows fast and you don't have to drive cheap cars for long before you have increased your income, whereby increasing the value of the cars you can drive. Not to mention having increased your overall quality of life as well in the process. The majority of people simply "want it now" because "they can afford the payments".
Our grandparents had the right philosophy: pay yourself first, live below your means, and pay for things with cash. There are reasons it takes two incomes now to live a lower quality of life than our grandparents had. Inflation is one reason, but buying things on credit before you can afford them isn't financially smart… if it was, we wouldn't be talking about how student loans, national debt, and credit cards are crippling the future of our children.
You make some good points, but the thing that a lot of people over look is that it isn’t necessarily how much you spend solely on your car, rather it’s how much you spend on “consumables”.
Someone who buys a car that costs 25% of the annual income sure did spend a lot on that vehicle. However, if she doesn’t really buy much else in the way of consumables she could be better off than her neighbor who has a car that cost 5% of their income but goes on extravagant vacations every year.
The key is figure out how much money you want to invest each year and then figure out how much you have to spend on the consumables that make you happy.
For some people cars bring happiness, for others its vacations, fancy food, nice clothes, etc. I guess my point is it’s important to be financially responsible, but not everyone has the same passions. If you don’t like cars and only need it for basic transportation by all means abide by the 1/10th rule and spend your money else where. However, I don’t see the harm in cutting down on the food budget or clothing budget or vacation budget to spend more on vehicles if that’s what makes one happy.
Well said and spot on.
“Unless you’re buying the car up front and in full with cash, which of course is stupid”
Why is that?
Interest rates on auto loans are very low, you would make more money investing the extra cash and making payments.
If you take out a 60 month car note at 2% you will pay $361 in interest the first year. If instead you invest that money at 7% you would have earned $1446 in interest.
So if you took out that loan and invested your $20,000 your net interest income would be $1,085.
The interest earnings of $1,085 is earnings you couldn’t get if you had paid $20,000 cash for the car up front.
If your overly conservative this a great approach. Maybe for people who lack ambition in life?
Why would I want to drive around in a busted 15 yr old Lexus or drive a generic box on wheels? In life you are supposed to enjoy the things you work hard for. If your only making $40-50k per year your not going to get rich or be rich.
To say your going to risk $10-20k on stocks is also a risk and some would say a bigger risk than buying a reasonable car. I think when people fail it’s when they make $40-50k and they want to buy something beyond their means. Nobody that make $200-300k is going to drive a $20-30k vehicle very rare and I think if they are making enough they are smart enough to continue to earn at the level or earn more (because they are already doing it).
The best way is to buy a car 2-4 yrs old with low miles you get a deep discount and the car is still new. It’s also not smart to put 20% down into something that depreciates. Put little to no money down and BUDGET your money accordingly before you make a purchase.
Be realistic but don’t be a penny pincher all the time you will get no where in life. Some would if your a hard work, smart and ambitious having a few “more expensive” items will make you work harder and hustle…..
Don’t forget. When you make $45,000 a year, and purchase a $4500. car, you will definitely be putting a lot of money into the car when things go wrong with the working parts. And for $4500 purchase, DO expect break downs.
Janet,
How do you figure you’ll be expecting breakdowns? Inspect the car before you buy it and keep up on the maintenance. I’ve never been stranded.
I bought a ’99 Pontiac Grand Prix for that price in 2008. I still have it 80k miles later with 179k total. Sure things need fixed and maintained, but unless you have an ego to maintain, it’s saved me thousands upon thousands of dollars.
I agree with you Janet. I just have never bought a used car. I have no one to impress. A new car is one of my life luxuries. I just have always bought a new car that was not expensive. I bought a 2002 Chevy Cavalier and drove for 240,000 miles before I sold it in 2015 for $600. I now have a 2012 Ford Escape purchased new. This is the most expensive car the I have ever owned. It represents about 30% of my annual salary. I have a towing package on the vehicle which allows me to transport my things. I now have paid it off. I will probably keep it for a minimum of 12 years. I think however if you really want to save money you should buy a used vehicle.
your life story had almost nothing to do with this
Who are you Greg to determine that. Your input had nothing to do with it
“It’s also not smart to put 20% down into something that depreciates.”
Disagree. In my opinion, the fact that it depreciates has absolutely nothing to do with your down payment. The down payment is about borrowing less and paying less interest. The fact that it depreciates is MORE reason to pay as much as you can out of pocket. Otherwise, you are losing financially on both the vehicle’s value and in interest.
To take your line of thinking to the extreme, it’s like saying that even if you have the money, you should never pay cash for something that depreciates, that a car should always be financed.
Is there something I am missing here?
Well, typically you can get an auto loan with an interest rate 1.9% or less. It’s fairly easy to earn more interest than that on the market.
With that in mind, the less money put down the better, as long as you do something smart with your left over savings.
Personally, I put down just enough to never be upside down. If I have a financed vehicle I try to make the loan so that I could drive down to CarMax at anytime and dump my vehicle on them. This way if I run into financial troubles I won’t be stuck with a car payment.
I see what you’re saying, but an interest rate of 1.9% or better is usually a special financing offer, and only available on new cars. By using the 10% rule, you would have to be earning somewhere above $150k to find a new car that falls in line with both criteria.
Bankrate.com says that the current interest rate on new cars is closer to 4.5%, and that a 36-month used car loan is coming in above 5%.
Yeah… I have 1.9 on both of my cars through my credit union.
I don’t really abide by the 1/10th rule myself. It doesn’t accomplish anything for me. My car cost about 30% of my annual income, but if you were to add my motorcycle collection on top of the cost of my car my “transportation” expenses go well beyond 50% of my annual income.
I make a pretty decent living, put away 15% of every check for retirement, spend maybe $300/yr on clothes, I don’t go out to eat, don’t have cable, my vacations consist of camping or track days, etc, etc.
I guess what I’m getting at is there are many ways to live frugally, it’s just important to pick the areas that you don’t care about so much and cut costs there.
Me, I really enjoy machines, so that’s where most of my money goes. I could care less about fancy dinners, clothes, and other status symbols.
Luckily for us, in the United States we have such a vast system of National Parks that are easily accessible by car. Makes vacations dirt cheap, a one week vacation to Yellowstone for my girlfriend and I could be done for about $300. Not bad if you ask me.
I love exploring our country and having a awesome car or motorcycle just makes the whole experience that much better.
how did we go from talking about insurance to talking about how u dont care about fancy dinners.. wow nobody cares, nobody cares about how u live your sounds to be boring life. people just want to know what to spend on a car.
Greg,
You must not be too bright of an individual. Benji’s point was that he spends more than the 1/10th rule because he enjoys owning and operating cars and motorcycles ( it is something that is important to him)
He is able to do this BECAUSE he lives a frugal life in other areas such as not enjoying fancy dinners etc.
Just take a second to think about what the words mean before you respond to something. It is a good strategy.
I make 200-210k/yr and I ride a freaking bicycle dude. I love the newest car designs, I really do. But I also see the stupidity of spending so much money on a new car, especially when I like walking and bicycling so much. I dunno, when I see money go into my accounts I always feel like I would have more fun investing it and becoming rich than buying stuff. Don’t get me wrong, I get tempted thinking “I could buy that!” but then I think I would rather invest it. One day I’ll have a brand new car, but when I do buy it I want to buy it because I’m rich and I can buy that luxury car in cash without it even making a dent in my net worth, or even making me blink.
When I buy stuff now like groceries or my bike I recently bought, I didn’t even flinch. It’s a great feeling. I never want to feel the “ouch” of buying something like a luxury vehicle even though I can afford it on paper, even according to financial samurai’s spreadsheet. I plan on buying a car soon though, but it’ll be (according to my calculation) 2.4% of my annual income. And I feel like it’s only marginally worse than the luxury car. I’ve spent time in luxury cars before and they feel nice. But becoming rich feels WAY better. :)
I am a bit confused by the rules here. If I spend a huge 50% of my income on a flashy new Landrover Discovery but then drive it into the ground 15 years from now, am I still spending less than 10% of my income on this? $50000/15 I would love to do this, but I fear the payments.
Personally I just bought a Hyundai Santa fe with 100,000 miles on the clock for about $4,000 in the UK. If it goes for a couple of years I will be happy. People reading this thread should google “bangernomics” the rules of which dictate buying unloved classics and helping them see out their final days in glory.
No, the author is suggesting that one should only buy a car worth 10% of one’s current annual income–i.e. not 10% per year.
So to go for the $50K Landrover, one should have an annual income of $500K.
I agree, buy within your means but don’t pinch pennies. My husband and I work hard, very hard but we’re young. I make decent money for my age and qualifications (22, no degree) and my husband is military, and their pay is down right embarrassing.
Based on this 1/10th rule, we would only be in the market for one car for about $8k or 2 cars for around $4k. I can say right now, that doesn’t work for me. If I was single, I could make that work, but not with a family.
After my son was born, my car we had purchased a couple years prior, just wasn’t hacking it as a family car like we thought it would. So, we traded in my husbands car and bought a 2010 Nissan Pathfinder for about $25k. It’s an amazing vehicle, runs greats, and best yet it’s big enough for a couple more car seats and has all the safety features. (why would I shell out money for an older vehicle without air bags?).
The car has the capability to grow with us, and I will not be needing to buy another anytime soon. We’re still looking to sell my car so we can save the payment towards a down payment on a new vehicle for my husband. I’m trying to get out of this car shuffle with no more than $45k in vehicle loans. While personally, I find that amount ridiculous, it is doable at our income level. We’re all set to have all debts paid off in less than a year aside from the vehicles, school loans, and the mortgage.
My school loans are reasonable, and I consider the vehicles necessary. However, the house will be a rental property this time next year and we will be on the market for a new Forever Home. My husband’s earning potential goes up about $70k/year once he leaves the service (He’s a Reactor Operator), so the goal is for me to stay home for a few years, and still pocket the $40k extra a year that results. My mortgage is set to be paid off by the time my son is grown and fair market rent is around $1,600-$2,000 for the property at the moment.
You can live and retire comfortably without acting like a pauper. And before I get any flack about not saving for retirement, we do. lol Our house is a large part of our retirement, but it is not the only thing. Our total investment in our retire plans (401k, Government Investment Account, Savings, Real Estate) comes in around $27k/year, so about 37% of our income give or take. I consider that not bad for two 20-somethings without degrees and a growing family to care for.
And kindly… you will never be financially independent.
“Nobody that make $200-300k is going to drive a $20-30k vehicle ”
I make $300k and drive 14 years old car which I paid $12k cash twelve years ago.
Will drive it as long as nothing major breaks, then I’ll buy a car that costs around $15k.
Good for you TT… that is Financial independence!
Make 200-250 and was thinking the same thing when I was looking to replace an older car. Bought cadillac sts 2002 with 50k miles for $5500 cash.
I guess I am crazy. I make 270k per year and buy all of my vehicles in cash used (Ford Expedition. 9k- it was great shape leather etc. And they don’t change them much) same for my Harley for 6.5k that sold for 27k new-they never change. Even a 33foot sailboat at 10 cents on the dollar compared to new
You can do it easy and no car payments is great. Older clean cars are everywhere and frankly, no one cares what you drive. Most people who are driving the 80k car or even the 40k car are living nearly check to check
I’m so glad I found this page today. One of my close friends’ gross incomes is about $60K (we live in a fairly sizeable suburban area in South Carolina), and he recently decided he’s going to trade in his reasonably-priced, reliable Toyota that he’s only had for a few years and fork over $50K on a used luxury vehicle because he likes cars. I’m all for doing what you want in life, but it almost makes my stomach churn to think about what a mistake this is for him, especially since he’s only 30, single, and could be using this opportunity to save and invest for his future. I’ve been trying to talk him out of it, but he won’t listen and is getting rather fed up with my advice. Maybe I can just send him the URL for this page…
I should also mention that he only plans to put about 10-15% down on it…yikes.
You should forward this article and save him from blowing up his finances. $50K car on only a $60K income is a big mistake.
I’m just a little confused on some of the follow up advice you gave in the comments.
One person said they made 80K a year, and when they said they had $70K in cars, you suggested “just try working to make 700K a year”
Like, what kind of advice is that? How is one to, in a reasonably short amount of time, multiply their income by 8.75 times, when they are already making nearly double the national average. Ask for a 8.75X pay raise????
You can be ambitious and hard working, but lets be realistic advice. It isn’t fair of you to suggest that such an idea is so simple, that they should have thought of it before?
Everyone in the country can’t make 500K salaries. We need people for every job. Is it fair or realistic to tell the janitors and garbage men of the world who have a genuine interest in driving a car worth more than $3,000 to attempt to increase their earnings tenfold?
I am an 18 year old freshman college student pursuing a degree in mechanical engineering so I can one day start my own car company. That being said, I can certainly understand drive and ambition, but I know how hard it can be to advance in life sometimes
My parents combined make about 70K a year (Approx. 35/35 split)
Back in 2003, my mother purchased a brand new Mercury Mountaineer for approx. 33K. By your calculations, she GROSSLY spent outside of her means. She still drives it to this day and the most expensive repair she’s EVER had to get on it was an alternator. My father and I perform regular maintenance on it to save a little bit of money.
To contrast, my father only buys used cars and has been through at least 7 since the year 2000. They ranged in years from 1993-2000. He bought them from people he knew and kept them running as long as he could. He only got rid of a car when the price to fix it exceeded its original purchase price. It has caused him much stress, headache, and plenty of money to go this route.
If you plan to own your own car company, then it’s possible you could earn over $700k to buy that $70k car you are already longing for at 18. Book mark this post, and revisit it in 10 years. Dream big, but also recognize the value of the dollar.
Read this post too: https://www.financialsamurai.com/bankers-techies-and-doctors-youll-never-get-rich-working-for-someone-else/
Hi Sam – I read your article on buying a home as “Lifestyle choice”. I treat home as a place to sleep, and car as a vehicle to take me from Point A to B. But what I did find contradictory in your choice of “home vs. car” is that its an individual’s choice. What you treat as a “room with a view” is what someone else treats as “road with an experience” :-) Just like home, car, 72″ TV in basement, they are all “materialistic” to which we all attach personal importance. But at the end, all the same.
Glad to know that you are financially intelligent, but still have passions beyond money.
Thanks. I’m lucky that one of my wants to improve Lifestyle also has the ability to also grow tremendous wealth.
I am surprised to see a 50% surge in prices of properties with panoramic ocean views in San Francisco in just one year. Perhaps the three examples are anomolies. https://www.financialsamurai.com/invest-in-real-estate-for-capital-appreciation-rental-income-or-lifestyle/
What is your housing and car situation? Love to get some perspective of where commenters are coming from.
I am 45, in US since 1995. Was raised in a far more luxurious lifestyle than I live in US today, given the cheap “services of multiple servants/driver/gardener” in India, for a high official father. British mindset, unlike US’ build your own, do your own.
Aint stupid, have an MBA as well, from US.
That is where I come from.
Tonight is the first time I respond on your site, only because you came across someone who thinks and expresses like a normal person, but not an author who is writing articles to make money.
As for my “car vs. home” situation, I dont treat home as a house. Am a family man, with kids. My son’s face is sun-rise view for me, and my daughter’s a sight for mountains :-)
My point was – Lifestyle for home, is same for a car, or someone passionate about a boat.
Thanks.
Hi,
Disagree with the frugality of the rule, however agree with the principle behind it.
What about a variation of the rule…instead of spending 1/10th of your gross income on the car (MSRP) dedicate 1/7th of your annual gross income to your ANNUAL car payments.
Say you earn 100K (most of us don´t want a Ford Focus or similar) you should not allocate more than 7K to the ownership of a car per year, this translates to monthly payments of $580, which if you have a good debt to income balance should not represent a burden, and at the same time allow you to buy a car you actually like and (although it may sound superfluous) that suits your job and lifestyle.
If you dont like cars just get a honda or a toyota,,,but if you do, having a nice car is among the things that money is for
Just my opinion….
I too was one hour away from buying a new car. I read your article and it made really good sense. My car is four years old and my warranty is about out plus I am very close to buying new tires. I have decided to keep my vehicle(Buick Enclave) but I will be purchasing an extended warranty, which a lot of folks think is a no no ,but I will feel better.
Glad you aren’t buying a new car Valerie! Your wallet will thank you for it, and I think you’ll be happier. 4 years old is not an old car.
I don’t agree with this rule. Why not enjoy your money and drive the car that makes you look forward to drive it? I feel safer and I know I am safer in a BMW but I never lease or buy them new. A one or two year fully loaded model would save you 15 to 20 percent off MSRP and would still have warranty and free maintenance. Life is short. Your undeserving relatives will fight for your high net worth that they never earned when your 6 feet under. This idea seems to suggest that we are immortal or will live to be a 100. I don’t know if I’ll be alive tomorrow so I don’t stress myself out of amassing a million $ net worth in the far future. I enjoy the here and now and not worry and put all my trust in the almighty. Financially, my family is well taken cared of if I checked out tomorrow.
Carlo, while this rule is not perfect, your arguments against it are terrible.
Safety argument: IIHS only has one BMW on its list of the safest cars in 2015 and that is the BMW 2-series. If safety is really an issue then you should be opting for a Volvo XC60, Mercedes M-class Toyota Highlander etc. Or just go and get a very heavy vehicle and drive it slowly.
Enjoy your money argument: the reason this is a poor argument is that you are not a 2-year old. As an adult one generally has obligations to one’s self, family and future. The goal of this article is to ensure those obligations are fulfilled. If this were a good argument wouldn’t we all refinance our homes and buy Ferraris and Bugattis.
Die tomorrow argument: and you could live to 100. You don’t know. While we as a nation may only be 36th in terms of longevity (beaten by Lebanon, Hong Kong, Taiwan etc), men have a life expectancy of over 77 and women over 82-years. Plus if you live past the babies who die early and the young male morons who get killed in the teens and twenties one’s life expectancy is well into the 80’s. And it is getting higher. To make a financial decision based on the notion that one could die tomorrow, rather than the fact that one is likely to live to one’s 80’s is foolhardy at best.
Perhaps one doesn’t want to leave a bunch of money to relatives to fight over; but that is surely preferable to having to beg those relatives for monetary support later in life, or living off food stamps just because one wanted to drive a BMW.
You must have missed this part “I enjoy the here and now and not worry and put all my trust in the almighty. Financially, my family is well taken cared of if I checked out tomorrow. “.
There’s nothing wrong with spending as much as you want on a car as log as your finances are in order.
If your can pay your mortgage and save for retirement and still buy a car 50% of your income I don’t see the problem.
Personally I own a cheap home, I don’t really see the purpose of having a large one. But I have quiet a bit of money in my vehicles.
I’m extremely happy with this scenario.
Also, though not by a large amount, automatic provides worse fuel efficiency.
The experts, who have many years of experience in this field, often suggest junk car owners to sell out their
vehicles to charitable institutions. Venturing
to a business that involves making custom cars.
Well…had little in life and have had lots. I drove a Honda Accord for 12 years until it was falling apart. Drove it hard, too. Traded for a 64K Z71 4WD Tahoe, paid cash. Net worth 5 million. I plan on driving it a long time. I’m a taller, 40ish girl with toys to pull. According to net worth chart, could’ve bought more expensive, but I like my all-American tough truck. And my boat looks good behind it!
Sam,
Love this article and drive a ’99 Corolla for work, cost $2K. However, I have tried to follow this for the family car and have bought a 05′ Malibu and ’02 Odyssey that ended up costing 3-5k in repairs over 3 yrs each and tons of stress on my wife and kids. Even decent used vans are freaking 10-15k now….any ideas? 28yrs old Make 50k, no debt except mortgage, net worth 100k. 4 kids, 1 stay at home mom. Know that I am crazy on that front, but love it! MMM frugal.
Jonny,
Sorry to hear about your repairs. Honda cars from late 1990s, early 2000s are quite bad (late 2000s are too new and too expensive so I never considered them) especially the V6 cars (Accord, Acura TL, MDX, Odyssey etc) have had nearly universal problems with transmission. I have tried various cars from Toyota, Honda, Nissan and Mitsubishi and eventually I have become a Toyota/Lexus buyer (5-12 year old cars). Toyota Sienna is much more reliable than Odyssey and its used car value is about the same as Odyssey. We sold our 04 Sienna XLE Limited (all bells and whistles, $9k-ish) 118k miles a few years ago to put money towards our house down payment and haven’t been able to find a similar value deal on Sienna since then. We currently have a 05 Chrysler Town and Country which has given some issues ($600ish total in repairs for check engine light) but nowhere near the issues you had. Having read reviews from Odyssey owners (on KBB site and on edmunds) I would never buy an Odyssey unless they fix them for 2016 model and I read good reviews in 2025 about them being reliable in the 100-150k mile age :)
Hi Friends,
Thank you for this website, this was so helpful, wanted to ask your opinions:
I made a big mistake of buying a new Mercedes GLK350 for $45k when I was single. Now I am married and save its becoming difficult as now my car has reached 50k miles. My question was is it better to trade in (current value of benz is $21k) and get a basic camry ($20k range) with less maintenance and better mileage for next 5 years? Or is it wise to keep this car until 90k miles and then opt for a trade in that time(at that time It will be about 13k plus I would have spent on extra gas for this suv+extended warrantly of 2k + maintenances)? We may need a second car in next 1 year.
Thank you very much
Sandy
Keep your car, drive it until 200,000 miles. Shouldn’t be getting rid of a car before 100,000 miles. Barely broken in at that point.
Or you could trade it for 10,000 Camry. It would be silly to trade your depreciated Mercedes for a non depreciated Camry at 20,000. In five years the bens will still be worth more than the Camry.
Keep the car. Camry is a socially accepted misery for the sake of perceived frugality
Sandy,
I think you should get rid of it as soon as you can because the more you keep the Mercedes the more you’ll lose in depreciation. You have already paid x years of depreciation ($24k) but the car is still worth something. In another 50k miles / 4 years the car will likely lose (say) another $11k.
If you are concerned about not burning money, don’t buy a brand new car because that will bring the steepest depreciation loss. The first year is the steepest and the next few years it would still lose a lot of value. Even if you buy a Japanese car like Camry or Accord for $21k or $29k you will easily lose $2k the minute you sign that purchase paperwork and another $2k in a year. Every year that brand new car would lose $3-4k. If you buy a 4-10 years old Japanese car for $5k (Camry) or $10k (Lexus LS for example) and you ensure that you don’t get a badly maintained or a lemon car, you will lose a very small amount in depreciation on that car. You could keep it for another 4-10 years and still get some of your money back. I have never spent more than $8k on a car, always bought in cash, started with $1400 1995 Toyota Tercel with 150k miles which I bought in 2007, kept a few months, never had spent a dime on repairs and then upgraded my way over the years. I have bought many cars at 140k+ miles and almost all cars had been above 100k+ miles and I never had to pay for any major maintenance (occasional wheel hub or bearing, axle or radiator which cost a couple of hundred, not even a thousand dollars). We bought a 1997 Avalon with 140k in 2008 and had to offer it to a cousin next year at 165k because he desperately needed one, otherwise we would have kept it. He’s currently at 190k+ and the car runs as smoothly (or even better with new tires).
Those who complain about “repair costs” for older cars are just using that as an excuse to buy new shiny cars. The monthly depreciation, monthly car payment, insurance and tax amount is usually around $1000 for a new car whereas any old clunker would not require $1000 in repairs every month. My current cars are 2002 Lexus LS (more luxurious and comfy than any new $29k car, bought $8k 137k miles 1.5 years ago, now 153k miles and worth probably $7k, spent $480 on a wheel hub, $50 on a rear view mirror button, other than that just oil change and wheel balancing + alignment) and a 2005 Chrysler Town and Country van Limited (bought $5.5k 97k miles about 1.5 years ago, now 111k miles and worth probably around the same 5-5.5k, spent $600ish on a various items to remove a check engine light, this is among the highest ever spent on maintenance, still driving fine, took several 250+ mile road trips with family).
I agree and disagree with this article… What are you saving all this money for again? Are they going to stuff it in your casket? Are you saving it for your spoiled grandkids so they can get a hand out where they don’t appreciate anything? I say it’s your money, do what you want. You have one life to live. You can’t go everyday penny pinching till the cows come home. Sure use coupons at the store, and don’t buy certain items till they come on sale sure. I already invest 18% of my pay towards retirement, plus a pension, and have been for 10 years. There is this thing called “Quality of life”… Meaning your entire life. I mean once you have a house and a promising retirement that builds interest, who gives a crap how much you spend on a car? For car people, this would never fly. My car is my hobby, it gives me the happiness and the quality of life that I enjoy. This is what non-car people don’t understand. It’s what makes you happy that matters, not the price tag that’s attached. As long as everything is paid and taken care of, who cares.
I consider myself a ‘car guy’, and I didn’t buy a new car until I had my house paid off and my retirement savings well along the way.
I think once you’ve embraced the ‘saver’ mindset, buying interesting cars on a budget is just another challenge. Me, I bought old big motor Mercedes sedans. I typically paid $5,000 or less for each one – they had ~150K miles on the clock. I’d drive them for another 150K and then sell them or part them out. Did this four times over 20 years. I enjoyed the hell out of those cars, and almost universally people thought that I’d spent way more than I had. I had some repair bills, but nowhere near the cost of ownership for a new car.
Today, maybe old VW GTIs or Mazda Miatas might fill that bill (I have not done the research). Car guys tend to have fun no matter the budget.
Terrible rule, based on no analysis whatsoever. Very condescending tone as well. This magical “rule” doesn’t even make sense.
The overall idea of spending less on a money-losing investment is sound, but if you are making $50K, the LAST thing you want to do is find a $5K (or less) car. Does the author have any idea what kind of car that will buy you? A high-mileage, high-maintenance gas hog!
Better advice: (1) Buy a late-model (no more than 2 years old) used car. (2) Buy a car that gets excellent MPG (30+). (3) Buy a car good enough to last you a MINIMUM of 10 years. (4) Perform ALL scheduled maintenance.
The biggest issue isn’t the worth of the car, it’s how often you BUY a car. Buying a car incurs payments, which is what hurts people the most. Gas guzzlers (mid-size SUVs and larger) simply create bigger payments and bigger maintenance costs (larger tires cost more!).
DON’T lease; that’s as bad as renting a house.
These days, a car capable of lasting 10+ years will cost you at least $10-12K – for a late-model subcompact. If you’re too large to fit in a subcompact, lose some weight by driving less and walking more….thereby saving even more.
This makes little sense. I make $45,000 a year and previously owned a 2003 Mercedes ML350 because it was a gift. The problem was, it ate up gas, required premium fuel and needed repairs constantly. When all was said and done, it was costing me about $650 a month to own it. So I traded it in for a brand-new Toyota Camry. My car payment is $275 a month, and I pay a third of what I did for gas now that I drive a car that uses regular and gets double the gas mileage. By owning a new car, I’m saving about $250 a month over what I was paying. That car payment doesn’t make me feel dumb. On the contrary, every time I make it, I feel brilliant.
You are comparing the cost of ownership of a 13 year old high-end luxury vehicle made by MB when quality was on the decline with a brand new flagship vehicle made my the the most reliable car brand on the planet? Based on your income you should probably be in a mid 2000’s Camry instead.
Why not pay yourself by putting money in your 401k first, and then spend what you have leftover on whatever you like? If you like cars, buy a nice car and don’t spend much on other things. If you like to travel, then travel and don’t get a nice car. Cars, clothes, vacations, etc…..none of them will bring you a big return on investment. Make sure you save for the future, but also make sure you live your life.
This is absolutely ridiculous. Unless you don’t enjoy cars at any measure, or would like to add the vehicle that you drive and use every-single-day to your long list of boring frugality, then do not follow this advice. Please!
Your article makes a lot of sense, some people who aren’t financially sound should definitely follow it. I understand the art of being frugal, but not when it comes to this. How boring can you possibly be, to earn so much money on a regular yearly basis, that you can’t even treat yourself to ONE expensive item that you’ll be using almost every day. No, let’s earn 50k every year, have a little cash saved up, and buy a $5,000 rust bucket from the kid down the street who’s still in high school. What a life. What’s the point of wanting to earn money if you’re not going to enjoy that money once in a while. A vehicle isn’t an investment, it’s one of those few exceptions where you can afford to take a loss.
Saving is good, its good to save. But this article shows just how much of a tight-stingy, “no one wants to be around” type of person you are. Life is unpredictable people, one day everyone dies. Build wealth and be smart but just remember you’re not guaranteed anything. Keep waiting until your 65 and watch your money grow, maybe if you’re lucky to get to 65 (and physically able) then you can finally enjoy it. Hopefully you’re not depressed, could have easily been driving a nice newer vehicle throughout your life, but instead you opted to drive an out-dated 10-year old economical piece of transport compared to everyone else.
Some people enjoy the boring lifestyle, they’ll never truly learn to live. Follow this article only if you’re in financial trouble, then once you’re out of financial trouble, celebrate by buying a nice car, drive it and enjoy it for 10+ years.
“…you opted to drive an out-dated 10-year old economical piece of transport compared to everyone else….Some people enjoy the boring lifestyle, they’ll never truly learn to live.”
If you spend your life comparing yourself to everyone else, you’ll never be happy. It’s easy to spot an unhappy person…those who call others “boring”, “tight-stingy”, and the kind that “no one wants to be around”. Does writing this post validate yourself?
It sounds like you are one of those people who needs to spend money on material goods to enjoy life. I know a lot of such people, several of whom lost their home around 2009. Congratulations, knock yourself out. But don’t come to these web sites complaining about the high cost of health care, insurance, and other necessities that make life, as you indicate, “unpredictable.”
Did it ever occur to you that some people might enjoy saving money so they can feel more financially secure? Or pass it on to children?