Are there any rules of thumb for how much to spend on a vehicle purchase?

[emmafrancis]

@oursimpleife So, I make $140K per year. You are saying I can spend up to 14K on car payments?

This does not sound right to me, and I guess I am on the conservative side when it comes to debt. No way I sign up for a $1200 per month payment. No way.

 

[resjudicata]

@emmafrancis I feel like I’ve heard 10% on transportation, so that includes car payment, insurance, gas, parking, public transport, etc. it still seems really high though.

 

[emmafrancis]

@resjudicata This makes more sense, but maybe with the exception of lower incomes. I think as you go to lower incomes, you are at so much more financial risk. At some point, you probably should not have a car payment.

 

[oursimpleife]

@emmafrancis 10% of your monthly income. So about $1150 if you make $140k annually.

 

[emmafrancis]

@oursimpleife The amount of car you are saying that I can afford I would likely never buy. You are talking about somewhere around a $70K vehicle.

Don't let my wife find out about this. It's her turn for the new vehicle.

 

[oursimpleife]

@emmafrancis I mean it’s meant to be a max, not the recommended budget. When I was first out of college making $60k, they offered me a 6 year loan with $600 monthly payments with virtually nothing down. Rules of thumb like these are meant to dissuade kids buying themselves a new BMW and settle for a 3 year old Camry instead. I don’t think at $140k a car is going to make or break your finances even if your monthly payments are north of a grand.

 

[gsfaikacs]

@oursimpleife Surely it’s 10% net?

 

[thisiscrowley]

@oursimpleife 20/3/8

 

[rodjonesinchrist]

@babyishcare As little as possible to get something that is dependable and doesn’t require a bunch more money sunk into it.

It’s a depreciating asset so there’s no point in putting more in, unlike a house which can be an appreciating asset

 

[resjudicata]

@rodjonesinchrist And one for which depreciation provides no deduction.

 

[keralamatrimonial01]

@babyishcare My personal rule has been that you don’t buy a car unless you can pay in full without taking a loan plus having three months of savings. Realize it is hard for some situations. My worse situation when I started was living in Minnesota for two winters with no car and using buses toreach work and groceries. I had two young kids and we managed. Then bought a $1500 car after saving money. Doing much better now.

 

[scarestar]

@babyishcare Buy cash, buy used, buy Japanese, and buy a drink for your friend who knows more about cars than you do, and helps you find a good purchase.

 

[finnfierro]

@scarestar Buy cash? when interest rates are 2.75 percent at credit unions? Makes no sense at all.

 

[scarestar]

@finnfierro Oh, I tend to buy older used cars for cash, never financed.

 

[bc1]

@babyishcare I always put 100% down

 

[mariegmgs]

@bc1 Do you always buy used cars for a reasonable amount or new cars?

I bought new last time with 0% interest, why pay cash in that case?

 

[theguydude]

@mariegmgs If the 0% costs the dealer or manufacturer, you may be able to get a lower price in cash.

 

[emmafrancis]

@mariegmgs I don't think you can go wrong buying new or used if you are someone who drives them until they die. I prefer to buy new, but the last one we bought was 5 years old with only 18K miles. If it is used and taken care of, it will be like having a new car. I am not a fan of buying high mileage cars but I know plenty of people that do and have great success.

 

[tratxem013]

@bc1 This is the way…

Pay cash and drive it until the wheels fall off (or you have more cash saved).

 

[alyjoy]

@babyishcare We’ve always bought used cars and kept them for 10 years or so. Just bought our first new car late 30’s. Issue was the couple year old used cars didn’t offer much of a savings from the used version.

Also took 0% interest for 6 years with $0 down. I know this is a hot take but the money from trade in and DP went into the market. I’m not adverse to debt if you’re going to loan me money at 0%. Not the right strategy for everyone obviously.