What % of your income should you spend on a car?

[1998Volvo]

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So what is the rule of thumb for responsible car spending?

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I'd say "as little as possible" and "certainly no more than 10-20% of net income".

At least a few years ago the most popular new vehicle purchased by millionaires was the Ford F-Series pickup truck .

I doubt things have changed too much, except maybe they're buying Toyota Tundras now. That would probably fit into the 10-20% rule-of-thumb pretty well. (Do I think the majority of people actually DO this? No!)

If you can find a car for $200 that fits your needs, that's even better than 10-20%!

 

[Norm Olt]

In the example budget from Aldaris the lack of any retirement contributions or savings illustrates the real problem behind the question: is instantaneous gratification something we all should feel we are entitled?

What do you do when you get a raise? Many have spent it before they ever see it...

 

[rjundi]

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I'm surprised that I haven't seen anyone address the intangibles of owning a car. Especially with all of the

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The truth is you can buy into these intangibles in nearly all prices ranges. The original poster never mentioned used vs new. I agree it gets a little bit harder if new car purchase.

 

[Tornado Red]

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Here is a rule of thumb. Get a good car and then never buy another car ever again. Repairing an old car over the lifetime of what would have been its replacement is cheaper than replacing it.

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This is one of the better bits of advice offered in this thread. But... it is hard to find a car that you will still love after twenty years.

The major costs of ownership are depreciation and repairs. If you buy a car and keep it forever, then depreciation doesn't enter into the equation, only repairs. If you trade every three years for a new car, depreciation kills you but repairs are minimal.

The purpose of the car is also relevant. I use my car for work, I get paid mileage on almost every mile I drive. So the longer I can keep it on the road, the cheaper will be my average cost per mile. I don't really care about depreciation.

Instead of calculating purchase price versus income, you should calculate (depreciation + repairs) versus income, assuming other variables like fuel costs and insurance are roughly the same for the vehicles being considered. A more-expensive car that depreciated slowly could be cheaper to own in the long run.

 

[oilcan]

I don't know what percentage is right. But I pay $1000-$4000 for my trucks. I bought a Dodge D250 360, 4sp, 3:54 gears with a closed Utility box for $1200. It had 95,000 miles on it. I spent about $1500 to get it into top condition. It now has 120,000 miles runs great. So I believe for me buy cheap as I can fix it up and drive it. Older cars cheap insurance, cheap licenses, parts are cheaper.

 

[moribundman]

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So what is the rule of thumb for responsible car spending?

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In case of a car, like with anything else, if I can't pay in full I don't buy it. I've never financed a car and I don't intend to ever do so. A financed car would be to me nothing but a rental until it's paid off. I don't care for that one bit.

 

[1998Volvo]

There is a lot of common-sense advice on this thread.

The following data is from, I think, BMW marketing.

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Total median family pre-tax income, $

BMW 5 Series -- 162,501

Audi A6 -- 164,102

Jaguar S-Type -- 133,334

Lexus GS -- 127,633

Mercedes Benz E-Class -- 145,854

Volvo S80 -- 139,202

Mid-Luxury Segment 140,818

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If the average buyer (lessee?) of a Jaguar S-Type has a household income of $133,334, I don't think it necessarily follows that the average household with an income of $133,334 leases a Jaguar S-Type. (My guess is they more likely buy a Toyota Tundra, see above.)

My first car cost $180, and represented less than 20% of my annual income, even back then.

 

[HM12460]

as little as possible.

 

[ShiningArcanine]

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I will be going to a few dealerships' sales departments tomorrow to help my mother buy a new car as my Avalon used to be hers. Having experience visiting them from previous attempts, I have realized that there are few things in the world that are more horrifying than a visit to a dealership's sales department. Therefore it is best to deal with them once to get a car and then to avoid them for the rest of your life.

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Why would you not negotiate the entire deal on the internet via the internet salesman? I've been told by car sales guys that internet sales is a whole different beast and they expect that 95% of customers will not buy unless they get a very competitive offer. They also expect internet buyers to have more information and be more savvy.. So they are generally willing to go lower and give you quotes. Plus, they can't pressure you face-to-face. My mom lives in Missouri and I negotiated a lease on a BMW X3 for my mom and we hammered out the details through email exchange. All my mom had to do was walk in and sign the papers. They also faxed me the transaction sheet so that I can make sure there were no hidden costs. On the other hand, walking into a dealer cold-turkey is asking for trouble. The motto for floor salesman is "if you let the customer leave, they don't come back."

I've also had good and bad experiences with dealers. The BMW guy and my VW salesman were very easy to deal with. No pressure, answered all my questions, and gave me straightforward answers that other salespeople might not give (like dealer market support from the manufacturer, # days the car has been on the lot, etc.). On the other hand, my Toyota experience has been horrific. Four out of the five Columbus dealers were high pressure, do not give straight answers, and/or won't give quotes. So you have to do some research on your local dealerships. Check out:

wwww.dealerrater.com

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Thanks for the tip. I did it and I managed to get what the dealer called the invoice price. They said that they were losing money on the deal (I had gotten the quote from another dealership and they were matching it). I will post a new thread about this later so this one does not go off-topic.

 

[gedcruise]

Myself, I like to buy a vehicle at a price that makes the dealer cry, and run it out.
However, classical economics assumes that we are all utility maximizers, so it follows tht whatever we decide to spend our money on is the optimal choice for us.
I take great pleasure in buying a vehicle, caring for it, and running it well beyond 100K, while others need to lease a new (flash car of your choice) every three years.
It is, after all, your money. You can spend it on a car, or you can spend it on great vacations, your childrens' education, and your own retirement.
That new BMW really isn't that important, to me.

 

[VeeDubb]

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Thanks for the tip. I did it and I managed to get what the dealer called the invoice price. They said that they were losing money on the deal (I had gotten the quote from another dealership and they were matching it). I will post a new thread about this later so this one does not go off-topic.

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Good deal

Couple more things to watch out for when you go to the dealership (some crooked dealers have learned how to scam the internet customer):

1. Make sure there are no additional add-on fees. The only fee you should see besides taxes is something called a document fee. That fee is fairly standard but should not exceed a couple hundred dollars at most.

2. Make sure you know the tax rate for your county and check the rate on the transaction sheet.

3. If you are financing, make sure they tell you the interest rate (you should do some research on the market interest rate right now) and length of loan. Don't let them talk you into a particular monthly payment without revealing the interest rate and loan length before signing. They can always lengthen the term to make your monthly payment look while giving you worse rates.

4. Negotiate your trade-in separately rather than lumping it together into the "price" of the new car separately. Sometimes, they'll give you a good price on the new car and low ball you on the trade-in to make their profit. I'd even go to Carmax to get an appraisal before going to the dealer. That way if the dealer low-balls you, you can still sell your car to Carmax. (BTW, one advantage to selling it to the dealer is they will subtract the price of your trade-in from price of new car before calculating taxes. So you'll save some tax $$$. So all else equal, I'd still prefer to trade it in to the dealer unless their offer is a complete joke.)

5. Even at invoice, they still make money. There is something called dealer hold-back that is never publicized. I'm not saying you should try to squeeze every cent out of the dealer because they have families to feed too. On the other hand, you are getting a fair price at invoice and don't let them make you feel guilty like you are taking money away from their kids.

Good luck.

 

[Al]

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So what is the rule of thumb for responsible car spending?

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In case of a car, like with anything else, if I can't pay in full I don't buy it. I've never financed a car and I don't intend to ever do so. A financed car would be to me nothing but a rental until it's paid off. I don't care for that one bit.

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Exactly. If you can't afford cash, it might be wise to postpone it. There are exceptions, like when a car is needed for one's livelihood. But for most people paying cash would be the smartest move. Both my wife and I owned our own cars outright coming into the marriage. We bought all our cars cash except one time. We financed bc the loan interest was absurdly low.

Also now we are retired and on paper our income is low. So in our case its not income its our net worth that would be relevant.

But Garry (as usual) summed it up best.."As little as your wants and needs allow".

 

[psudaytona]

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A vehicle worth HALF your annual income?? That's insane... WAY too much money to be putting into a QUICKLY depreciating asset. I can understand that most people NEED better vehicles than my old beaters (as they either can't or don't want to fix them on occasion)... but you can buy a perfectly good and reliable vehicle for 10k- one that will last you for many MANY years if properly maintained. IMO, unless you have need for a 3/4 ton truck, anything over $10k is a luxury item. Nothing wrong with that... just pointing out that it's far from neccesary.

Maintanence costs included, I've averaged less than $1000 per year in vehicle costs since I was a kid. Cheapest vehicle I've owned was an '85 F-150. Paid $1000 for it, drove it for 6 years and put about $300 in parts into it over those years. That's about $217 per year. Sure, it's ugly as sin... but it's still sitting in front of the house ready to go.

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Hey! A man just like me!

I am a broke college guy and just needed a cheap vehicle to use. Picked up a 92 Daytona back in Nov of 05 for 1200.00. I had to put new tires on right at the beginning and a few other repairs(all of which total to less than 600.00).

Car looks "decent" for one this age and mileage. Got it rearended in April of this year, mostly sheet metal damage. Got a 900.00 settlement from the girls insurance. So I really paid very little for this car. Yeah, I would like to have a nicer car, but hey, it runs cheap and looks okay. I enjoy not having a car payment and higher insurance. My friend is struggling with 3 jobs to pay for his new GTI. He has to work tons of hours to make the payments and his insurance premiums.

I have 3 jobs(Teaching Assistant, Research Assistant, and Landscaping), but they are based on what I enjoy doing NOT just to pound the hours to get the money I need.

I figure when I get a good job after college I will be able to afford that "nicer" car. Until then I just pay my dues.

 

[ShiningArcanine]

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Thanks for the tip. I did it and I managed to get what the dealer called the invoice price. They said that they were losing money on the deal (I had gotten the quote from another dealership and they were matching it). I will post a new thread about this later so this one does not go off-topic.

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Good deal

Couple more things to watch out for when you go to the dealership (some crooked dealers have learned how to scam the internet customer):

1. Make sure there are no additional add-on fees. The only fee you should see besides taxes is something called a document fee. That fee is fairly standard but should not exceed a couple hundred dollars at most.

2. Make sure you know the tax rate for your county and check the rate on the transaction sheet.

3. If you are financing, make sure they tell you the interest rate (you should do some research on the market interest rate right now) and length of loan. Don't let them talk you into a particular monthly payment without revealing the interest rate and loan length before signing. They can always lengthen the term to make your monthly payment look while giving you worse rates.

4. Negotiate your trade-in separately rather than lumping it together into the "price" of the new car separately. Sometimes, they'll give you a good price on the new car and low ball you on the trade-in to make their profit. I'd even go to Carmax to get an appraisal before going to the dealer. That way if the dealer low-balls you, you can still sell your car to Carmax. (BTW, one advantage to selling it to the dealer is they will subtract the price of your trade-in from price of new car before calculating taxes. So you'll save some tax $$$. So all else equal, I'd still prefer to trade it in to the dealer unless their offer is a complete joke.)

5. Even at invoice, they still make money. There is something called dealer hold-back that is never publicized. I'm not saying you should try to squeeze every cent out of the dealer because they have families to feed too. On the other hand, you are getting a fair price at invoice and don't let them make you feel guilty like you are taking money away from their kids.

Good luck.

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I am aware of the dealer holdback funds. According to my calculations, they are making anywhere from $1000 to $1500 off the transaction, dealer holdback included. I have had one salesman at a dealership start making threats to coercise my mother and I into buying the car (this was a month ago; he also tried to convince us that paying more for the car from him was better than paying less elsewhere) and another tried everything he could to make us not think about the price and then upon seeing it, consider it to be reasonable. I really wanted to squeeze as much of their margins out of them as a I could because I did not want to do a car dealership any favors, but my mother wanted to buy the car quickly, so there was only so much I could do. My mother agreed to purchase the car for $884 below Edmund's TMV price, so I guess the deal is not bad. Despite that, the dealership wants her Social Security number (citing some sort of law that went into effect after 9/11) and she does not want to give it to them. She called a relative in law enforcement and he informed her that there was no law requiring the dealership to collect her Social Security number. I am not quite sure what to make of the situation. Social Security numbers, as is stated on the Social Security cards, are not to be used for identification purposes; there is no reason for a car dealership to request anyone's Social Security number.

 

[Aldaris]

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My friend is struggling with 3 jobs to pay for his new GTI. He has to work tons of hours to make the payments and his insurance premiums.

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Sounds like that car owns him.

 

[Kestas]

Some time ago on another forum a girl posted that her car needed a brake job and that she couldn't afford to have the brakes done, nor could she afford a new car. She was asking what she could do on the cheap.

I told her she couldn't afford to drive. Driving a car is a privilege for the people that can afford a car and have the ability to drive. It bothers me that some people feel that they're automatically entitled to own and drive a car with no responsibility on their part.

 

[GROUCHO MARX]

"What % of your income should you spend on a car"
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The correct answer is the smallest % possible for all income levels.

 

[1998Volvo]

With an average income of $140,818, quick, back of the napkin arithmetic suggests that the average person driving a car in the "Mid-Luxury Segment" should be buying a Camry with cloth seats, not leasing a Mercedes.

If most Americans did what they should do, the German economy would probably collapse!

 

[crw]

A key support of the "Art of Cheap Transportation" is based upon the ability to do routine maintenance and basic repairs on older vehicles. This I can do, but...

I think about my mother at 65 years old. Dad passed away several years ago. She doesn't have the option to drive old beaters. I wish I lived closer so I could help with this stuff. Anyway, for many of us the pursuit of cheap transportation is a worthwhile and valuable endeavor. For others, this is hardly an option.

But then again, she does have a good retirement that Dad worked so hard to provide all of those years!

 

[biomed_eng_2000]

My friend's grandfather drives a 1997 Ford Ranger. His grandfather is worth $500 million.