Quote:
Originally Posted by SpeedyATL
Related question to the OP:
What rules of thumb do people use when determining how much you can spend on a new/used car.
I'm as frugal as the day is long but am trying to convince myself that i can easily afford my target preferred car and at 54 it's time to drive what i want, not what my cheap ass dictates.....
The one i heard not too long ago that stuck with me is that the purchase price of all vehicles in your garage should add up to be no more than half your annual income....
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The most common by far you will find on the internet and what everyone hails as the "gold standard" is the 20/4/10 rule
1.) Atleast 20% down payment on car
2.) No more than 4 years car loan
3.) Total monthly cost of vehicle (payment, insurance, gas, and repairs) is no more than 10% of monthly income
It's not a bad rule if you are trying to be frugal and/or are already in a precarious situation financially, but after that, it kind of falls off.
The average latest US new car price sale is 48,000. The average latest US used car price sale is 33,000.
Those numbers say most Americans aren't giving a crap about the 20/4/10 rule, unless suddenly now everyone is making 200,000+, which most are not.
If everyone followed the 20/4/10 rule, or even a large minority, you'd see a LOT less fancy SUVs and trucks on the road and a LOT more Honda civics.
The rule tries to make a generic guideline based on assuming other expenses, assuming the need to prioritize retirement savings over buying a car, and to dissuade buying high price vehicles due to it being a depreciating asset.
It's not a bad rule, but it's not really a rule, it's a commonly suggested generic financial guidance, based on buying cars being really bad financial investments due to depreciation. Why this matters is many people don't have a big emergency savings, so if things go south, with car depreciation, it's REALLY easy to end up upside down on the car.
A guideline to consider, but not a rule if you know what you are doing.