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

[GoodSteward]

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).

I have an 07 Sienna. Bought it with 80k in 2013, has 165k on it now. 0 problems outside of normal maintenance. We love it.

[clatoden99]

It depends on one's motivation.

If the motivation is to "look good in front of the neighbours", then 30% is probably about right.

If, however, the motivation is to build up enough wealth to have an enjoyable retirement, then the ideal figure is 0%.

My current main car cost me roughly 2% of my annual income.

[StormRichards]

It depends on one's motivation.

If the motivation is to "look good in front of the neighbours", then 30% is probably about right.

If, however, the motivation is to build up enough wealth to have an enjoyable retirement, then the ideal figure is 0%.

My current main car cost me roughly 2% of my annual income.

You do realize that there are people that live in areas where a car is an absolute necessity for getting to work, right? 0% suggests spending no money to buy a car. Not realistic for many.

And there are many levels in between wanting to look good for the neighbor and riding a Schwinn.

[GoodSteward]

You do realize that there are people that live in areas where a car is an absolute necessity for getting to work, right? 0% suggests spending no money to buy a car. Not realistic for many.

And there are many levels in between wanting to look good for the neighbor and riding a Schwinn.

The saying I've read on here is true. Everybody is either saving or paying for a car. Stupid things lol

[StormRichards]

The saying I've read on here is true. Everybody is either saving or paying for a car. Stupid things lol

Not quite everybody, but darn close.

[feh]

I have no idea why what you spend on a vehicle should be proportional to your net worth.

non sequitur

[GoodSteward]

I have no idea why what you spend on a vehicle should be proportional to your net worth.

non sequitur

I wondered the same thing, which is why I didn't really answer the OP.

[MonkeyMama]

I'd say that we are fairly extreme/frugal on the car purchases, but 10% is not realistic by any measure. (Unless you have a huge income??) As others have already said, the 10% rule is usually in reference as to what you spend on a car over time.

We've personally never increased this line item in our budget. When I was 16 it took me a year to save up for a $1,200-ish vehicle. Since then, we just save $100/month/each for next car. Every time we can buy a significantly newer and more luxurious car, since we generally always buy a newer car that lasts longer (and gives us more time to save). We didn't even spend the full amount (that we had saved) when we replaced our last car. We were able to get a low-miles/loaded vehicle that fit all of our needs (and came with a lot of extras that we didn't care about).

[97guns]

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.

according to the chart i should be driving a bmw m3 or porsche 911 but im living 5 notches below my means and driving the equivalent of a 5 year old corolla or ford taurus

[Nutria]

I have no idea why what you spend on a vehicle should be proportional to your net worth.

Presumably: if most of your net worth is (relatively) liquid, then you could pay cash for it and not suffer a large long term hit to your NW.

[Singuy]

I am actually beginning to like the net worth chart since it teaches a pretty valuable behavioral lesson.

It's saying that you shouldn't even consider looking at a new car until you have at least 400k net worth. This kind of mentality maybe a little extreme, but definitely goes against the conventional thinking of how one "deserves a NEW car" because of how hard this individual have worked.

This chart pretty much is saying "it doesn't matter how hard you worked, but is about how much you accumulated..if you wasted every penny you made on booze and nonsense, then you don't deserve a thing".

How many people do we know bought a NEW car just for getting a job? Almost 1/3 of all new cars are now leases...mostly by millennial. How many of these millennial have a negative net worth from student loans?

This chart almost illustrates that until you have "FU money"..you shouldn't even consider a new car. Purchasing a NEW car is the worst investment one can make. So I agree! If you don't have FU money, then you don't have the 10-20k to waste on depreciation....that's a club membership only for the big ballers.

[feh]

Presumably: if most of your net worth is (relatively) liquid, then you could pay cash for it and not suffer a large long term hit to your NW.

Still not seeing it. And I don't understand why paying cash would make any difference.

[feh]

This chart almost illustrates that until you have "FU money"..you shouldn't even consider a new car. Purchasing a NEW car is the worst investment one can make. So I agree! If you don't have FU money, then you don't have the 10-20k to waste on depreciation....that's a club membership only for the big ballers.

I disagree. There's nothing wrong w/ buying a new car, if you own it for a long time.

Between 1988 and 2016, I've purchased 6 cars, each of them new. They were all reasonably priced ($9K in 1988 and $22K in 2016), and all were/will be driven 10+ years.

Buying the new car in 1988 when I had negative net worth right out of school probably wasn't the right thing to do, but in the end that car was a great value (12 years, 160K miles).

So, still not seeing the relationship between net worth and purchase price. If one cannot pay cash for the car, I could understand a rule of thumb based on income, but not net worth.

[GoodSteward]

I'd say that we are fairly extreme/frugal on the car purchases, but 10% is not realistic by any measure. (Unless you have a huge income??) As others have already said, the 10% rule is usually in reference as to what you spend on a car over time.

We've personally never increased this line item in our budget. When I was 16 it took me a year to save up for a $1,200-ish vehicle. Since then, we just save $100/month/each for next car. Every time we can buy a significantly newer and more luxurious car, since we generally always buy a newer car that lasts longer (and gives us more time to save). We didn't even spend the full amount (that we had saved) when we replaced our last car. We were able to get a low-miles/loaded vehicle that fit all of our needs (and came with a lot of extras that we didn't care about).

I like that. I bet that was a good feeling walking in there and just writing that check after saving for so long. This gets an A+ in my book!

[Singuy]

I disagree. There's nothing wrong w/ buying a new car, if you own it for a long time.

Between 1988 and 2016, I've purchased 6 cars, each of them new. They were all reasonably priced ($9K in 1988 and $22K in 2016), and all were/will be driven 10+ years.

Buying the new car in 1988 when I had negative net worth right out of school probably wasn't the right thing to do, but in the end that car was a great value (12 years, 160K miles).

So, still not seeing the relationship between net worth and purchase price. If one cannot pay cash for the car, I could understand a rule of thumb based on income, but not net worth.

Keeping the car a very long time doesn't fully justify for overpaying.

Car A. Brand new Toyota Camry fully loaded out the door for 33k
Car B. 3 Year old fully loaded Camry with 30k miles for 20k

You keep both cars for 12 years. Assuming the life of this car is 250k miles(most likely being a Toyota).

Car A. 2750/year
Car B. 1666/year

So you are paying more than 1k/year just for that initial new car smell. Sounds like a luxury premium to me. If you have a negative or a small net worth, I don't think you have 1k/year to waste on a new car smell.