Are there any rules of thumb for how much to spend on a vehicle purchase?
- Thread starter babyishcare
- Start date
@michellegen34 Honda
@babyishcare I just buy in cash and typically no more than $15-16k I don’t want a car payment and that is the range I can get a decent used car that can last me a while. I’ll probably stick to that even as my income changes. It’s less about what portion of my income the car is and what is the ideal value.
carpenternurse
New member
@babyishcare I listen to a general finance podcast called The Money Guy, and their rule is 20/3/8. Put 20% down, finance for 3 years, and don't spend more than 8% of your monthly income on the car. This is for normal cars, not luxury ones. For luxury ones they say to pay it off in 12 months or less. Another thing they say is you should invest more per month than your car payment.
@babyishcare I’ve heard you shouldn’t buy a car that cost more than half your annual income. So if you earn $60k, you should be looking at cars that cost $30k or less.
lawrence90
New member
@babyishcare As you can see by the replies, everyone has a different opinion on that.
I think it was one of the 60s civil rights icons that said to spend no more than six months' pay on buying a car.
Personally I've never spent even that much on a car. I buy them old and used and keep them 10+ years.
If you can get a car loan at a rate lower than a decent ETF, get the car loan and keep your money invested. Otherwise, pay cash.
I think it was one of the 60s civil rights icons that said to spend no more than six months' pay on buying a car.
Personally I've never spent even that much on a car. I buy them old and used and keep them 10+ years.
If you can get a car loan at a rate lower than a decent ETF, get the car loan and keep your money invested. Otherwise, pay cash.
@babyishcare I’m contemplating this too. I want to step up to luxury brand, but I here horror stories on some brands. I would never lease and I own my cars for a long time (8+ years). So it comes down to reliability and cost maintenance. Higher end cars are going to be more expensive from all aspects: insurance, maintenance (oil changes can be pricey), repairs and parts will automatically be more expensive. So I’m contemplating German vs Asian brands, bmw/Benz/audi vs Lexus/Infiniti/Acura, the latter being way more reliable. But to each his own.
@babyishcare Focus on the cost of ownership rather than the sticker price. Decide how much of your disposable income you want to spend on car ownership including depreciation, insurance, maintenance and running costs. Pick a car you like within that budget and save until you can buy it for cash.
@babyishcare For me is basically buy bellow what you can afford, 2nd hand so it looses less value, and yeah, where I live we have a special yearly insurance Wich one of the benefits is 50% discount on their inspection on the condition of the car.
I do this for buying and for the selling also so I don't get problems after selling.
Now, for me, i don't care for cars, so I buy it only for the transportation, for my bike aI broke all the rules because its not a transportation, it's basically a toy.
I do this for buying and for the selling also so I don't get problems after selling.
Now, for me, i don't care for cars, so I buy it only for the transportation, for my bike aI broke all the rules because its not a transportation, it's basically a toy.
@babyishcare 1/10th of annual gross income, cash. If you make less than $25k/yr get a bike.
1peterlight
New member
@ashleysgm So if I make $200k, I shouldn't spend more than $20k on a car? 
lipglasshoney
New member
@1peterlight $20k annually. ~$1,700 per month.
But these rules of thumb almost always break down the further you get into 6-digit income.
But these rules of thumb almost always break down the further you get into 6-digit income.
@1peterlight Correct, according to my opinion. It’s a depreciating asset and more of a liability than anything. I’d just get something that’s respectable, safe, and inexpensive. My car is 1% of my gross income this year. My sentiment is to make your car forgettable and inconsequential to your lifestyle — easier to just not even think about the thing.
resjudicata
New member
@1peterlight I make $300k and plan to spend $20-30k on a car, so I mean, yes.
@ashleysgm That’s just too low to be reasonable. By your logic nobody making under 200k could ever buy a decent used truck. And nobody under about 150k or so could every buy a certified pre owned which is a pretty sweet spot for value.
@may161965 Just depends on what you value. Our family vehicle is safe and respectable and cost mid four figures. We’re content, but I understand others wouldn’t be.
resjudicata
New member
@babyishcare I usually buy new cars - but not decked out (lately, vehicles come pretty well equipped compared to 20 years ago). My current vehicle is a Subaru Forrester that is about 5 years old and has around 41000 miles. I will probably keep this for at least 10 years total.
I only buy a car I can pay off within a 3-4 year period. I paid off my current one in about 2 years because I do not like debt.
I should start saving up for my next car and just pay cash for it. Did this once - the dealers did not like this as they are not making money from financing charges.
If you are buying new - I get prices from multiple dealer web sites. It is much easier to find the best price online. My last 3 vehicles were purchased this way.
I only buy a car I can pay off within a 3-4 year period. I paid off my current one in about 2 years because I do not like debt.
I should start saving up for my next car and just pay cash for it. Did this once - the dealers did not like this as they are not making money from financing charges.
If you are buying new - I get prices from multiple dealer web sites. It is much easier to find the best price online. My last 3 vehicles were purchased this way.
@babyishcare Not to exceed 10% value of home