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

[littleroc02us]

Just to be accurate, a car is not a liability. It is an asset. It just happens to be a depreciating asset. But so is your HDTV, your computer, your furniture and almost everything else that you own. That does not mean that you should buy the cheapest car you can. It just means that you should buy one that fits in your overall financial picture. I think you and I agree on that.

Agreed, sorry. An depreciated asset for sure, I just laugh when I hear that a car is an asset when basically every day you drive it you lose money on it and eventually you'll either get $2000 out of it in 8 years or eventually give it away as a donation. It makes it seems like its a wise investment or something.

[rj.phila]

i am personally of the mindset that a car should be bought in cash, or not at all, but that's just me....

agreed, if a 2006 car is not new enough, i'd say something is amiss there.... YMMV of course.

[greenskeeper]

Keep the 06, heck even next year it will only be 5yrs old. Still got at least 10-15 years of life left in it.

[nick__45]

I can I can swing a $60k car payment but I wouldn't think about doing that unless I win some lottery, which I don't play, or get some real estate windfall, which may happen 10-20 years from now. By that time, I don't think I want a $60k ( or $115k adjusted for inflation car) anymore. I did buy a $25k car when my salary was $45k but we were all stupid once whenever we buy brand new car as our first ever car. I am driving that one to the ground.

I don't buy cars worth more than $5k now and I don't mind dropping $2k into it for things it really need after purchase. Buying used has risks associated with with, no matter or brand or price range. Sometime you get lucky and sometime you don't. There are used vehicles out there in the $2k range that is more reliable than the much newer vehicles with less than 75k miles on on.

If I was you, I'll drove that 06 Mazda for another 10 years.

[nick__45]

Agreed, sorry. An depreciated asset for sure, I just laugh when I hear that a car is an asset when basically every day you drive it you lose money on it and eventually you'll either get $2000 out of it in 8 years or eventually give it away as a donation. It makes it seems like its a wise investment or something.

Cars can be asset and investment when they are used to get you to work safely and reliably days in days out. Without reliable transportation, you can't work; therefore, cars are essential investment vehicle in that sense. However, they don't have to purchased new and expensive unless your job calls for it. There are certain jobs that people have to drive newer or presentable cars. Realtors tend to drive newer cars but but the smart ones usually drive something durable and reliable in our weather such as a Jeep Cherokee or Grand Cherokee, Ford Explorer, something from Toyota or Honda or whatever that can get them to places comfortably and on time. My realtor was smart, he drives a used Dodge Caravan that he made she it is always washed, cleaned, and presentable even though it is a very old car. Dumb realtors buy Hummer H2 or Escalade that kills them in gas mileage showing clients around.

[Snodog]

That is a lot to pay for a car with your income. My own personal rule is if I can't pay cash I can't afford it. 100% of all car repo's had car loans.

[krantcents]

I agree!

[krantcents]

Krantscents, I noticed you post o n "The Finance Forums" as well?

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!

[yugugelizer]

Get a car with a payment that you feel you can comfortably afford over the next three to six years. I understand most people's idea that you should not take on more debt than you need, but some of us like cars. At 18, I bought a 25k+ car and have been paying 350+ a month for almost four years. Mistake? No, I love my car. Although the payment is high, I have managed to set aside money for retirement and other savings that I feel more than comfortable with at my age.

I guess the point is, if you genuinely feel you can afford it, and you are comfortable with where your retirement savings are now, and will be, go for it. Life is too short to save every cent you make; sometimes you need to spend money, although sometimes on this forum those words seem like blasphemy. Everyone has their weakness: car, house, vacation, etc. If you feel comfortable getting it, get it. It doesn't matter if everyone agrees.

[disneysteve]

Get a car with a payment that you feel you can comfortably afford over the next three to six years.

if you genuinely feel you can afford it, and you are comfortable with where your retirement savings are now, and will be, go for it. Life is too short to save every cent you make; sometimes you need to spend money, although sometimes on this forum those words seem like blasphemy.

This forum is called SAVING ADVICE, not spending advice.

OP asked what the rule of thumb is. The rule of thumb is to not finance for longer than 3 years and have a payment that doesn't exceed 10% of your monthly income. Can you spend more than that? Of course. Should you? Probably not.

[MonkeyMama]

"Life is too short to save every cent you make"

Personally, I find it much easier to enjoy life without a car payment.

[SimplySaving]

Depends on who you ask about the "rule of thumb." The "rule of thumb" that some people give you might not actually be what's best for you. If you know you are going to buy a car in 2 years, I would start saving. Spend what you've saved - you will be car payment free and won't have to pay extra for interest. Not to mention - if you bring cash to the table when buying a used car - you can probably get a pretty darn good deal. Good luck.

[disneysteve]

The "rule of thumb" that some people give you might not actually be what's best for you.

True. A rule of thumb is just a general guideline. Some people can afford to spend more. Some people should spend less. The best possible way to buy a car is with cash for sure. We paid cash for our last car purchase in 2002 and intend to pay cash for the next purchase whenever that may be. So for me personally, if I need to take out a 3-year loan to afford a car, I'm spending too much.

[PennySqueezer]

I think there are smarter people on this forum than me, but I'm pretty sure you're only supposed to spend 10-15% of your monthly income on a car. And besides, why would you want to replace a 2006? The rule of thumb with paid-off cars is, run the wheels off them. But that car payment in the bank. Its a 2006.

[disneysteve]

And besides, why would you want to replace a 2006?

Just to be clear, OP said he would be replacing that car in 2 years, so if the car was new in late 2005, it is now 5 years old and will be 7 years old then. Depending on how many miles OP drives, replacing it at that point might be reasonable. I know plenty of people who drive 20K miles/year, so after 7 years and 140,000 miles, they are looking for a replacement.