Frugality Check: Are You Spending 5% Of Your Net Worth Or 10% Of Your Income On Cars?

[Singuy]

Found this benchmark today and thought it is pretty interesting to test how frugal or smart with money you are.

Did you spend 5% of your net worth OR 10% of your yearly income on your car? That's 10% of your total income x1..not 10% of your monthly income. If you make 50k/year..the 10% rule puts you at a $5,000 car.

Total of 2 cars I have is 65k (purchased price).
Definitely did not fit the income rule of 10%, but barely made the 5% net worth.

[disneysteve]

Is that 10% of income for all cars in the household? That's a pretty low bar. We definitely spent more than that.

We are within the 5% of net worth figure though for both cars. I think the total for the cars was $38,000 (I don't remember exactly what we paid for DW's car. Mine was 16K). And our net worth is right around $1 million assuming they are including the house value (around 800K without the house) so that would fall under the 5% limit either way.

[MakeAStash]

Even a decent used car costs more than 10% of most people's annual income, so this rule is probably 10% of your total income since you last purchased a car.

[Nutria]

What's their justification for those numbers?

[StormRichards]

Is that 10% of income for all cars in the household? That's a pretty low bar.

I think it is an extremely low bar!

We are a one car family and the car cost 11% of our net worth at the time of purchase. Excluding our home from the net worth calculation.

The vehicle is now paid off and is valued at approximately 2% of our current net worth.

[Singuy]

This is what they used as the 10% rule. So for an annual income of 150-200k/year which puts you in the top 3% of all american earners..you finally qualify to buy a NEW Honda Civic. I see almost no one following this chart..lol. People making this kind of income are probably shopping for Range Rovers and Maserati.



This is the original link.

http://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/

They never said this is for everyone and for people without much of a net worth, the 20% income rule is more generous. But we all know that a car is the second most expensive asset we own that depreciates extremely quickly.

We sold a few used honda civics for 1400 bucks and by the looks of them..they will run another 50-100k miles without a problem(170k miles when sold).

I think my parent's first car was 200 dollars in 1990..that was a pos tho. Our second car being 1500 corolla was much more durable in 1991.

[Nutria]

This is the original link.

http://www.financialsamurai.com/the-...e-must-follow/

When you pay more than 1/10th your income for a car, you will become more stressed.

What a big, fat, steaming crock of horse hockey.

[Outdoorsygal]

We don't spend anything on cars but hubby didn't do well with a work vehicle last year. Bought it and 2 weeks later it didn't run.
2K to fix it and it has a good amount of miles on it. We'll see how he comes out

Inherited the car we are driving though I did take good care of him until his death.
Normally he buys cars from the junk yard (auto recycle place) and does any painting/fixing up that needs to be done to make it look normal
We usually make a little money off of these vehicles when we sell them.

[phantom]

In general, I'm not a fan of Financial Samurai's rules of thumb. Even keeping in mind that his target audience seems to people who really want to push themselves to be the most frugal of the frugal, I find them to be far too extreme.

The current value of our cars is currently under 10% of our income, but when we replace a car within the next year or two, I don't think that will continue to be the case.

I'm curious where the 5% of net worth suggestion comes from. I don't see it in the linked article. I don't think I care for the way that would scale. I wouldn't mind if a person under 20 had a car that was 50% of net worth. But, I wouldn't suggest $112k in cars for a retired couple with $2mil in retirement accounts, a $250k house, and no debt.

[kork13]

I think that's been confused with the advice I more commonly see (and recommend myself) of buying a car that you can afford with a 3 year loan & a payment of no more than 10% of your monthly income. It's similar, but gives more flexibility to get a car that's both affordable and meets for your needs with some desires.

With that said, I do happen to -- just barely -- meet both rules for each of our cars (my wife's car was $24k, the car I'm getting in March should be $22k-$23k).... But those rules of thumb in most cases are excessively restrictive.

[bjl584]

This is probably good advice for someone in financial peril that needs a car ASAP. But, for someone that is more savvy and established, this chart can most likely be ignored.

[GoodSteward]

This is probably good advice for someone in financial peril that needs a car ASAP. But, for someone that is more savvy and established, this chart can most likely be ignored.

Most Americans will consider themselves part of that "more savvy and established" group.

New 35k$ car on my 30K$ salary here I come!!

[StormRichards]

Most Americans will consider themselves part of that "more savvy and established" group.

New 35k$ car on my 30K$ salary here I come!!

With that big family of yours, you need to get yourself a quality minivan. Perhaps the Chrysler Pacifica Limited with a starting price of $42.5k

[GoodSteward]

With that big family of yours, you need to get yourself a quality minivan. Perhaps the Chrysler Pacifica Limited with a starting price of $42.5k

And I do deserve it because I have a job and I have good credit. That means I can drive home with 0 down even with a negative trade. I bet they even have an amazing 5% or 6% interest offer for 84 months.

This sure is tempting. Hmmm.

[Nutria]

And I do deserve it because I have a job and I have good credit. That means I can drive home with 0 down even with a negative trade. I bet they even have an amazing 5 or 6% interest offer.

This sure is tempting. Hmmm.

Seriously, though... my wife loves her 2012 Dodge Grand Caravan, with dual sliding doors and seats that fold flat into the floor. 100+k (much cheaper to drive the family from Louisiana to Nashville and Buffalo than flying, and faster to Nashville) miles with very few problems.

Any problems we did have were covered by the extended warranty (which we've had on 3 minivans, and -- in sum over the years -- are glad we've purchased).