What is the rule of thumb for how much car you can afford?

[Mr Nice Guy]

I selected a few forums and some blogs to comment on. I am trying to drive traffic to my blog. Thank you for your interest, I guess I am starting to be noticed! I hope for the right reasons!

I checked out your site, it appears to be pretty good. I only read your blog about "dress for success" but I will read more when I get more time.

[Ima saver]

We like sports cars. I have no problem paying cash for them. Everything else we own is paid for and we are very frugal with every thing but cars.

[yugugelizer]

Disney Steve, very true - the forum is called savingadvice. I just felt this thread needed a bit less bias toward cars being "depreciating assets" and thus advice to the OP being "get something with four wheels that is cheap."

As you pointed out earlier, almost everything we own (save a house) is a depreciating asset. Being a car lover myself, telling someone with adequate savings to buy a cheap car is like me telling someone in the same situation that instead of taking a nice vacation, camp in your back yard and save the money (as vacations are expenses, not assets.)

Personally, in the OP's situation, I would probably wait to purchase the car (longer than two years.) On the other hand, he has a better understanding of where his finances are at. Two years could be good savings, and also raises may come into the equation as well.

[jpg7n16]

Disney Steve, very true - the forum is called savingadvice. I just felt this thread needed a bit less bias toward cars being "depreciating assets" and thus advice to the OP being "get something with four wheels that is cheap."

There is a very big difference between "get something with four wheels that is cheap" and "get the cheapest car that meets all your needs."

As you pointed out earlier, almost everything we own (save a house) is a depreciating asset. Being a car lover myself, telling someone with adequate savings to buy a cheap car is like me telling someone in the same situation that instead of taking a nice vacation, camp in your back yard and save the money (as vacations are expenses, not assets.)

True - but most of those depreciating assets are not losing $1000's. Soap depreciates - costs $2 over a few months. Soda can depreciate - costs $0.50 a day (can sell can back in recycling). Computer falls a couple hundred over 2-5 years. Books fall in value as soon as they're bought ($10-20 here and there).

But a needlessly expensive car can easily cost $15,000 over 2 years. I could have bought a very similar car for $27,000 - but got mine for $13k, with no sacrifice to my needs. That savings so far outweighs other depreciating assets, that it is worth the emphasis.

If you spend $100 extra on a computer - that's semi-costly, but not out of the norm. If you spend $10-20k extra on a car - that's very costly.

Personally, in the OP's situation, I would probably wait to purchase the car (longer than two years.) On the other hand, he has a better understanding of where his finances are at. Two years could be good savings, and also raises may come into the equation as well.

I agree.

[nick__45]

My thumb is small or my "affordability rule of thumb" will not suit you. I think if your car price is more than 5% of your pre-taxed income, then you're driving something you shouldn't be driving. With that in mind, you better be making $100k if you want to spend $5k on a car.

[red92s]

Financially, we are in pretty comparable spots. I make in the high 50's, but also have no debt and my spending is well under control.

I'm also planning on buying a "new to me" used car sometime in the next year.

. . . probably a 2007 Mazda3, essentially the same car you are in a hurry to replace.

[disneysteve]

Somehow, I feel left out of this as I'm driving a 1998 Toyota and don't plan to replace it until the engine drops out and the wheels fall off. This is the longest I've ever owned a car (bought it used in August 1998) and the most miles I've ever put on a car (currently around 135,000).

[I-Man]

With an income of $55k, no debt and no crazy spending habits, how much car can I afford? I am ball-parking $30k for a used car.

I'm a car nut so I can empathize with your situation :P

I had a professor who once said something to the effect of, "Buy only as much car as you can pay for with cash. If you're making car payments, you've got too much car." Grudgingly, I think he's right. The Mazda 3 may not turn heads, but it is a VERY good car.

Here in Texas we refer to lots of people in Dallas as "$30K a year millionaires" based on the cars that they drive and can't afford :P

[MaxPowers]

Thank you for the advice, and I am defiantly putting it into consideration. You guys answered my question. I have my eye on a couple models that are more reasonably priced.

Also, wouldn't I just put a large enough down payment to bring the monthly payments to a reasonable level? Not trying to justify anything, but how much down do people usually put on cars?


For those that might be curious on what I might actually do...
One thing is, some people have different priorities. Most people that save their money and are very frugal (like me) have something that they spend it on. I have my comfort. My appartment is very pleasing and comfortable, from the TV, speakers, couch ext. I also researched and deal hunt before every purchase.
I bought my car new, and paid cash back in 2006. (a mistake because had no credit at the time) It was my first car that wasn't a loaner from my parents and has done a great job. I love it but there are many things that are bothering me about it. Keeping a car for 15 years is just nuts, but it makes since. However, this mazda is not one of those cars. So I know I want to replace it. I love driving, and I love my car. I sometimes just drive around for no reason. My train of thought would be to get a nice car that I know I would love for the next 10-20 years. Something that when I am making $100k in 13 years (military promotions are predictable) I wouldn't mind hanging onto.
I could get a 20k accord, but I would much rather a luxury car, which start at 30k. I am still debating on what to do and it will most likely come down to what is available when I am ready. Also, those luxury cars don't loose value like some of the other throw away cars do. But I don't care to much because I plan on buying something I would love and keeping it for 15 years.

[krantcents]

Thank you. Hopefully, you will enjoy some other articles.

[DarkStarMagnolia]

FYI

I just bought a g37x. Great car, absolutely incredible.

I make twice as much as you do - and it was a tough call for me to decide to do it. I'm 100% fine making the payment (and I got 0% financing which made the deal even sweeter - infiniti right now has 0% financing even on used cars if your credit is good, so the 4.5% interest rate quoted is out of line) however, if I had half the income I have now, there's no way I'd be buying that car. I put 11% into retirement, I'm saving up for my first house, and I'm saving to save. The car is my ONLY splurge - I have no credit card debt. I don't shop often. I don't like to "spend" money, but I love cars, and I fell in love with that one.

My point - I was stressed about buying that car and I make twice as much as you. You need to figure out a budget for yourself THEN figure out how much car you can afford. You certainly can't afford to pay off a 30k car in 3 years with your income... unless you live in your parents basement and eat Raman noodles and don't save anything... sorry but you're not being realistic.

But... on a side note... I DO empathize with you on the car. I plan on driving my car for a very long time. You're also right that the luxury cars don't depreciate as fast as other cars do. I know I was looking at used 37x (2007) cars with around 60k miles (some I saw only had 40) that were in the mid 20k dollars. They were ex-leases. That seems to be a good way to go as well. You can get your luxury car, with very few miles on it, and pay a reasonable amount for it. I'm kind of a car freak, and was very specific on what I wanted for my car, but I still kept flip flopping on if I wanted new or used, or how "new" etc. I will tell you if you drive a lot, having the luxury car makes the driving so much more enjoyable. I love my car, like I mentioned, and I am seriously way less stressed when I get home after driving my g37. It's a joy to drive - and I get to do it every day. That in mind, I'd seriously go for a 3 year old one with very low miles. Infiniti has certified pre owned which come with a warranty - which is helpful. As far as luxury lines go, infiniti has some of the cheapest maintenance costs. One thing to consider though - gas mileage is awful. So plan on spending a lot on gas (my g averages around 20 mpg city and highway mixed driving).