Cost of car compared to Gross Income

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Atilla
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Re: Cost of car compared to Gross Income

Post by Atilla » Sat Apr 29, 2017 5:33 pm

Hit the nail right on the head - just bought a low mileage 5 year old M37X that came to 9.8% of gross annual income. Didn't even know about the 10% rule for buying a car.

My financial lizard brain told me not to spend any more. Who knew I was so smart? :P
The Village Idiot - here for your entertainment.

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CyclingDuo
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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Sun Apr 30, 2017 8:14 am

Atilla wrote:Hit the nail right on the head - just bought a low mileage 5 year old M37X that came to 9.8% of gross annual income. Didn't even know about the 10% rule for buying a car.

My financial lizard brain told me not to spend any more. Who knew I was so smart? :P
Now you know how smart you are. :D :moneybag

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grabiner
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Re: Cost of car compared to Gross Income

Post by grabiner » Sun Apr 30, 2017 10:20 am

Annualized cost makes more sense than total cost.

If you buy a new car for $21,000, drive it for eight years, and trade it in for $5000, the car cost you $2000 per year. If you buy a three-year-old car for $14,000, drive it for five years, and trade it in for $5000, that cost you $1800 per year, which isn't much difference; the actual difference may even be less because the new car has lower maintenance costs and may be better in other ways.

Another example of annual cost is in the cost of operating the car; paying extra for a hybrid will pay for itself in gas savings if you keep the car long enough.

The best way to lower your annual cost is to keep your car (whether bought used or new) in good order and drive it for a long time. If you lease a new car for three years at a time, or buy a new car and sell it after three years, you are paying for the biggest part of the depreciation, and paying transaction costs. If you buy a new car and keep it for ten years or longer, you have plenty of time to save up for your next car.

Putting all of this together makes a hybrid a great deal if you plan to keep it a long time, despite the high price. If you can get 50 MPG from a Toyota Prius versus 30 MPG from a typical small car, and you drive 150,000 miles, that is 2000 gallons of gas saved, which is $5000 at current prices;
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CyclingDuo
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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Sun Apr 30, 2017 11:01 am

grabiner wrote:Annualized cost makes more sense than total cost.

If you buy a new car for $21,000, drive it for eight years, and trade it in for $5000, the car cost you $2000 per year. If you buy a three-year-old car for $14,000, drive it for five years, and trade it in for $5000, that cost you $1800 per year, which isn't much difference; the actual difference may even be less because the new car has lower maintenance costs and may be better in other ways.

Another example of annual cost is in the cost of operating the car; paying extra for a hybrid will pay for itself in gas savings if you keep the car long enough.

The best way to lower your annual cost is to keep your car (whether bought used or new) in good order and drive it for a long time. If you lease a new car for three years at a time, or buy a new car and sell it after three years, you are paying for the biggest part of the depreciation, and paying transaction costs. If you buy a new car and keep it for ten years or longer, you have plenty of time to save up for your next car.

Putting all of this together makes a hybrid a great deal if you plan to keep it a long time, despite the high price. If you can get 50 MPG from a Toyota Prius versus 30 MPG from a typical small car, and you drive 150,000 miles, that is 2000 gallons of gas saved, which is $5000 at current prices;
Yup. Purchase price is one item only. And as you say, you have to average it out for the entire life of that vehicle's ownership. We also own a Honda Insight (bought it used for $16K) which gets incredible mileage compared to our other vehicle. Cost of ownership has been really low thus far over the past 4 years. In addition, the driver of this vehicle is reimbursed from the employer for mileage based on a pre-set per mile cost that is not based on a hybrid :D , so that means extra income from the reimbursed mileage can be applied to other costs of the car.

Keeping it all 1/10th of your annual gross income - is still not a bad yardstick for helping achieve financial freedom as the FSamurai suggests. The debate, as has been wisely raised, is why he suggests the purchase price itself be 1/10th compared to the side of the debate of annual expense being 1/10th or less for the life of the car? It's much easier to find other financial gurus using other formulas including 1/10th per month of gross to 1/15th per month of gross for all costs, to Dave Ramsey's formula of not exceeding 50% of your annual income for the purchase price.

This website agrees in keeping the expense (And not let your total monthly vehicle expense, including principal, interest and insurance, exceed 10% of your gross income): http://www.interest.com/auto/news/how-m ... nd-on-car/

True cost of car ownership:

https://www.moneyunder30.com/true-cost-of-owning-a-car

Insurance/Fuel/Maintenance&Tires/TaxTitleRegistration/Depreciation/FinanceCharges(for those who finance) all add up for the true cost of transportation.

Nerd Wallet claims the average annual cost is $8698 per year if one drives 15K miles per year:

https://www.nerdwallet.com/blog/loans/t ... wning-car/

Regardless, it certainly remains one of the three pillars well worth reviewing and focusing on that can hold up the financial house, or make it collapse (housing, transportation, food).

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Re: Cost of car compared to Gross Income

Post by grabiner » Sun Apr 30, 2017 11:24 am

CyclingDuo wrote:This website agrees in keeping the expense (And not let your total monthly vehicle expense, including principal, interest and insurance, exceed 10% of your gross income): http://www.interest.com/auto/news/how-m ... nd-on-car/

True cost of car ownership:

https://www.moneyunder30.com/true-cost-of-owning-a-car

Insurance/Fuel/Maintenance&Tires/TaxTitleRegistration/Depreciation/FinanceCharges(for those who finance) all add up for the true cost of transportation.

Nerd Wallet claims the average annual cost is $8698 per year if one drives 15K miles per year:

https://www.nerdwallet.com/blog/loans/t ... wning-car/
This is consistent with the IRS mileage rate, which allows for depreciation. The current standard is 53.5 cents per mile, which would be $7995 for 15,000 miles. The numbers come from AAA, which added $669 in finance charges (not deductible); this would make the total cost $8664.

Costs do go down for older cars. There is less depreciation, no finance charge (unless you bought the used car with a loan, and it would then be a small loan), and you can drop collision and comprehensive coverage. But maintenance costs do go up, and you can choose new cars which better gas mileage.
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CyclingDuo
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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Sun Apr 30, 2017 11:50 am

grabiner wrote:
CyclingDuo wrote:This website agrees in keeping the expense (And not let your total monthly vehicle expense, including principal, interest and insurance, exceed 10% of your gross income): http://www.interest.com/auto/news/how-m ... nd-on-car/

True cost of car ownership:

https://www.moneyunder30.com/true-cost-of-owning-a-car

Insurance/Fuel/Maintenance&Tires/TaxTitleRegistration/Depreciation/FinanceCharges(for those who finance) all add up for the true cost of transportation.

Nerd Wallet claims the average annual cost is $8698 per year if one drives 15K miles per year:

https://www.nerdwallet.com/blog/loans/t ... wning-car/
This is consistent with the IRS mileage rate, which allows for depreciation. The current standard is 53.5 cents per mile, which would be $7995 for 15,000 miles. The numbers come from AAA, which added $669 in finance charges (not deductible); this would make the total cost $8664.

Costs do go down for older cars. There is less depreciation, no finance charge (unless you bought the used car with a loan, and it would then be a small loan), and you can drop collision and comprehensive coverage. But maintenance costs do go up, and you can choose new cars which better gas mileage.
The second link (MoneyUnder30) did a nice job of the costs for the older cars once you get out to 10 years and beyond. They attempted to take on the.... And we settle an old debate: Should you trade in before your car gets too old or should you drive it into the ground?

I'm at 211K in a 12 year old Honda, and seemingly confronted that debate earlier this year as we had to get a new windshield, new alternator, new battery, and new brake calipers all at once. It was the confluence of events all at once that made me question sinking :dollar's into such an old car, but still within reason for the lifespan and overall expenses we have paid over the past 12 years of ownership on that vehicle.

Lowered the insurance coverage years ago as the car aged and I raised the deductible, dropped comprehensive, etc... . Agree on the improved gas mileage as a possible draw for lowering costs from my current 23-25 mpg that driving a square box with a 4 cylinder gets. Based on my annual mileage, if I had a vehicle that met my needs (hauling bikes, brush, dogs, camping, good on gravel roads, and on snow) that got 35 mpg, it would be 264 gallons less per year than I currently buy. I burn the cheap stuff which averages about $2.19 a gallon where I live - so that would be savings of $578 per year if and when I begin to look for a replacement.

In the meantime, it's mechanically sound and still ticking from point A to point B in all types of weather so I see no "need" to move to another vehicle at this time. I know the time will arrive, and this thread will certainly have me dive into the research to be prepared.

If we go with the formula of total annual costs for the life of a car being 1/10th - 1/15th of annual income, both of our vehicles added together still come in and meet the criteria. So I guess that is a good thing....

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Re: Cost of car compared to Gross Income

Post by blessed » Sun Apr 30, 2017 2:40 pm

I haven't used a % of gross income guideline, but if I look back at recent vehicle purchases they ended up being right around 10% of our gross income. We buy nice vehicles and pay cash, but we don't buy them very often.

I am currently considering buying a vehicle that is 20% of our gross income, but we're using a different guideline. We're going with the idea that we'll be comfortable with the payment as long as we're putting at least 10x the payment amount into our retirement and investment accounts each month. With the interest rate I'm being offered it makes more sense for us to finance the vehicle. This might not work for everybody but we're comfortable with it. We have a very high income with our only debt being a mortgage, all major planned expenses behind us, and very stable jobs. We keep our cars for a long time.

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Re: Cost of car compared to Gross Income

Post by bigdav160 » Sun Apr 30, 2017 4:44 pm

Apparently I've been going about purchasing cars all wrong.

I buy one needing work (cheap!). I have an eye for ones I think would sell easily. Do the repairs myself and usually turn a profit a one/two/three years down the road. A few I like so much; I kept. that would explain the chrome bumpered Corvettes and Z28 Camaro in the garage. I've never felt the need for "safety items" beyond seat belts. I love the way old cars drive.

Shrug, but that's me.

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Re: Cost of car compared to Gross Income

Post by NYCguy » Sun Apr 30, 2017 6:23 pm

I have always had three rules of thumb for how much car to buy.

Less than 10% annual gross income

Less than 10% the of net worth

Only pay cash.

I LOVE cars.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: Cost of car compared to Gross Income

Post by Ged » Sun Apr 30, 2017 7:38 pm

cbr shadow wrote:
schwarm wrote:
cbr shadow wrote:I feel like a lot of people here are living in a bit of a dreamland based on some of the comments above..
$30k for the average car? That might be true in some places in the US, but definitely not typical. I guess it depends on how you take that statistic though.

Report: Average price of new car hits record in August ($31,252)

http://www.usatoday.com/story/money/car ... t/2761341/

That's the average cost for a NEW car, not the average cost of a car. There's a significant difference, considering many people never purchase a new car at all (myself and all immediate family included).
It seems to me car costs would have a long tail. Medians would be a lot more useful.

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CyclingDuo
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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Sun Apr 30, 2017 7:44 pm

NYCguy wrote:I have always had three rules of thumb for how much car to buy.

Less than 10% annual gross income

Less than 10% the of net worth

Only pay cash.

I LOVE cars.
For most of us, the difference between 10% of net worth, and 10% of annual gross income is vastly - nay, wildly different. Using those parameters...

On the one hand, many of us could afford a $200K - 500K car - and on the other hand only a $10 - 30K car. :confused

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Re: Cost of car compared to Gross Income

Post by NYCguy » Sun Apr 30, 2017 8:10 pm

CyclingDuo wrote:
NYCguy wrote:I have always had three rules of thumb for how much car to buy.

Less than 10% annual gross income

Less than 10% the of net worth

Only pay cash.

I LOVE cars.
For most of us, the difference between 10% of net worth, and 10% of annual gross income is vastly - nay, wildly different. Using those parameters...

On the one hand, many of us could afford a $200K - 500K car - and on the other hand only a $10 - 30K car. :confused
You make an excellent point I only considered it through the lens of someone younger and working. Someone who is in retirement with $5 million in assets and a $200,000 per year income I wouldn't limit necessarily to a $20,000 car. I'm not sure what the right number would be in that circumstance but it is probably more than $20,000 in less than $200,000.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: Cost of car compared to Gross Income

Post by LarryAllen » Sun Apr 30, 2017 8:16 pm

10% of gross seems like a silly rule. So if I make $600k this year my wife and I should each drive about a $30k car!? Then if we drive them 5, 6, 8, 10 years when does that factor in!? Seems like a stupid rule to me. I still have a 10 year old car and it's going strong so hopefully I can buy more than a $30k car eventually!

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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Sun Apr 30, 2017 8:25 pm

LarryAllen wrote:10% of gross seems like a silly rule. So if I make $600k this year my wife and I should each drive about a $30k car!? Then if we drive them 5, 6, 8, 10 years when does that factor in!? Seems like a stupid rule to me. I still have a 10 year old car and it's going strong so hopefully I can buy more than a $30k car eventually!
Need vs. want. Do you need more than a $30K car?

Serious question....

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Re: Cost of car compared to Gross Income

Post by NYCguy » Sun Apr 30, 2017 8:34 pm

LarryAllen wrote:10% of gross seems like a silly rule. So if I make $600k this year my wife and I should each drive about a $30k car!? Then if we drive them 5, 6, 8, 10 years when does that factor in!? Seems like a stupid rule to me. I still have a 10 year old car and it's going strong so hopefully I can buy more than a $30k car eventually!
I think the reason why people focus on cars is that they are such a depreciating asset. I agree that if you're going to hold your car for 8 to 10 years you might bump up the percentage. If you're making $600,000 a year you and your wife could spend $120,000 for cars and you could "afford it". That said, I think it would be imprudent if you're serious about accumulating wealth.

I have walked the walk and enjoy some nice cars.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: Cost of car compared to Gross Income

Post by midareff » Sun Apr 30, 2017 8:36 pm

CyclingDuo wrote:
LarryAllen wrote:10% of gross seems like a silly rule. So if I make $600k this year my wife and I should each drive about a $30k car!? Then if we drive them 5, 6, 8, 10 years when does that factor in!? Seems like a stupid rule to me. I still have a 10 year old car and it's going strong so hopefully I can buy more than a $30k car eventually!
Need vs. want. Do you need more than a $30K car?

Serious question....

Retired and drive < 5K miles annually. Cabs would be cheaper than owning a car + insurance + maintenance + depreciation + gas so there is no need. Want is a bit different and am planning to cross off a bucket list item end of the year. It's a serious answer.

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Re: Cost of car compared to Gross Income

Post by 2tall4economy » Mon May 01, 2017 1:15 am

There is no one size fits all for this. Are you a car person? Do you save in other areas of your life? Feel free to spend more. Are you debt laden and poor with money? You probably won't even get financed (I recall trying to obtain a loan for a $71,000 car I bought when I was 25 was a nightmare even though I made $115,000 at the time, rented, was single, had no debt and ate ramen noodles so I could easily cash flow it.

One rule of thumb approach is the 10% rule or whatever, another is the loan payment is no more than 8% of your monthly gross (this is based on the logic that your mortgage should be no more than 28% of monthly gross and total debt no more than 36% - so if you have no other debt then 8% is left for cars.

Personally, rules of thumb are just that. Assess your situation and understand your plan and figure out what car budget fits in there, combing both your wants and needs. all the other aspects of my plan are on track / ahead and I don't spend much money on much else, so I go a bit hog wild.
You can do anything you want in life. The rub is that there are consequences.

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Re: Cost of car compared to Gross Income

Post by cantos » Mon May 01, 2017 8:30 am

JoeJohnson wrote:It's a good rule if you want to protect people from overspending, but as far as me driving a $5,000 car to work everyday? No thanks! The safety features alone would make it worthwhile to get something a little nicer.
Exactly this. A car that is well-built safety-wise, with options like blind spot detection, adaptive cruise, collision warning, tiredness warning, lane keeping, etc. will typically cost way more than $5k. I think the point of diminishing returns is around $20-$25k.

As with all things, there is cheap, and there is value. I like to think Bogleheaders are value hogs in addition to wealth hogs. You can have both, and in fact the two probably go hand in hand.

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Re: Cost of car compared to Gross Income

Post by michaeljc70 » Mon May 01, 2017 8:33 am

Though I think cars can certainly wreak havoc on your long term finances, the idea of someone making $100k having to drive a $10k car strikes me as kind of silly. Now if they could want/bring themselves to/be happy driving a $10k, it would be great financially.

Doesn't it matter how long you keep the car for? This "rule" seems like it will push some people into clunkers and others into buses/public transportation that may not exist.
Last edited by michaeljc70 on Mon May 01, 2017 8:39 am, edited 1 time in total.

cantos
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Re: Cost of car compared to Gross Income

Post by cantos » Mon May 01, 2017 8:36 am

<double post pls delete>
Last edited by cantos on Mon May 01, 2017 8:42 am, edited 1 time in total.

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Re: Cost of car compared to Gross Income

Post by cantos » Mon May 01, 2017 8:38 am

cbr shadow wrote: What are some of the safety features that you think are worth spending the extra money on? The US has strict safety requirements, so I think we're splitting hairs with some of the extras like "Blind spot detection" and the new Mercedes that brakes for you if you come up on someone too fast on the highway. At what point are there diminishing returns? I guess it depends on where you draw the line.. if those features only came in cars that were $70k would you still argue that "The safety of my family is worth it"?
Here's an article I liked.
http://www.mrmoneymustache.com/2011/10/ ... commuting/
Sounds to me like you are speculating there. "Extras" like blind spot detection and collision warning that the new Merc has can be had in older, used, cars, like the 2013 Ford Fusion Titanium, which is around $20k. This includes auto parallel parking (not needed but cool), lane keeping, auto dimming rear view mirrors, the "Merc" collision warning system, etc (see my post 2 posts up).

No need to exaggerate at $70k. You can, if you look for it, easily get an affordable car with all the safety options, top of the line trim, for $20k.

As for money mustache - I can't take him seriously - he retired by working on a blog. I prefer to retire by retiring from working.

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Re: Cost of car compared to Gross Income

Post by cantos » Mon May 01, 2017 8:45 am

bigdav160 wrote: A few I like so much; I kept. that would explain the chrome bumpered Corvettes and Z28 Camaro in the garage. I've never felt the need for "safety items" beyond seat belts. I love the way old cars drive.
Shrug, but that's me.
Hey - I love old cars too. My favourite was a 1985 Maserati Biturbo coupe - for those who don't know, it was a wreck of a car that tried and failed to compete w the BMW, but had one hell of a beautiful low roar. It had the Italian car vibe - suede roof lining, leather seats and a back leather seat like a sofa. Needless to say it provided many good times and attracted the wrong kinda girls, which, for me, was the right kinda girls, at the time.

But that was for years gone by - as I'm in insurance now and more practically minded, I have to reply by saying the numbers are the numbers. Modern cars are safer by orders of magnitude. Certain cars and several SUVs have zero death rate, unheard of!

http://www.iihs.org/iihs/topics/driver-death-rates

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Re: Cost of car compared to Gross Income

Post by LarryAllen » Mon May 01, 2017 9:07 am

CyclingDuo wrote:
LarryAllen wrote:10% of gross seems like a silly rule. So if I make $600k this year my wife and I should each drive about a $30k car!? Then if we drive them 5, 6, 8, 10 years when does that factor in!? Seems like a stupid rule to me. I still have a 10 year old car and it's going strong so hopefully I can buy more than a $30k car eventually!
Need vs. want. Do you need more than a $30K car?

Serious question....

Since I am still very happily driving my 10 year old car it's a moot point for me but you are right I do not need more than a $30k car but does anybody!? Mine was more a rhetorical question just pointing out the formula seemed a bit arbitrary.

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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Mon May 01, 2017 10:03 am

LarryAllen wrote:
CyclingDuo wrote:
LarryAllen wrote:10% of gross seems like a silly rule. So if I make $600k this year my wife and I should each drive about a $30k car!? Then if we drive them 5, 6, 8, 10 years when does that factor in!? Seems like a stupid rule to me. I still have a 10 year old car and it's going strong so hopefully I can buy more than a $30k car eventually!
Need vs. want. Do you need more than a $30K car?

Serious question....

Since I am still very happily driving my 10 year old car it's a moot point for me but you are right I do not need more than a $30k car but does anybody!? Mine was more a rhetorical question just pointing out the formula seemed a bit arbitrary.
We're at the moot point as well with a 12 year old car and a 7 year old car that are both still going strong.

Likewise, we don't think anyone is telling you, or anyone in particular that they can or cannot purchase a vehicle at a higher cost no matter what their income happens to be. The formulas are simply budgeting guidance to make prudent, and in some instances, frugal choices that will allow one to accumulate wealth when they factor in their debt, housing, transportation, and food.

We've recently been going over the formula with one of our children who enters a working career this Summer in a major US city with a high cost of living. Housing, transportation, and food - getting all of the percentages correct - will either make or break their financial health and wealth.

Obviously, this entire thread illustrates various formulas and situations that one can accept or reject. For the low income earner who is also interested in accumulating wealth - and there is an entire thread on how many low income household earners did it (most on that thread have household earnings of under $100K) - being as frugal as possible with home/transportation/food is a known strategy to build wealth. So the Financial Samurai's suggestion, or the MoneyUnder30.com's suggestion of 1/10th of yearly income represents the frugal formula that may appeal to many. If that frugality leads a particular household to accumulate wealth as a result - it deserves a serious round of applause, high fives, and encouragement when compared to the same household who may be overspending on the transportation portion of their monthly/annual budget which ends up in halting their wealth accumulation process.

MoneyUnder30.com, and some other formulas go above the 10% and suggest a 10-15% monthly/annual portion of gross income going to transportation. That might still seem rather frugal for many, but again - if it helps households accumulate wealth as a result - more power to them for driving a $5K - $15K car.

Edmunds.com talks about the formula of not to exceed 20% of one's pre-tax income when it comes to car/gas/insurance as a benchmark, as well as mentioning the financial gurus frugal formula of 10-15%.

Wisebread.com also mentions the frugal formula whether one is financing a car purchase, or outright buying a car with cash.

If we think of younger workers entering the work force with student debt, plus they are going to have rent to pay that when combined together may not give them much wiggle room for transportation. Ditto on households with lower incomes. The frugal formula will go a long way to help.

For high income households, as long as debt is under control, and any overspend on housing/transportation/food is not preventing wealth accumulation - that is a personal choice of each individual if they want to exceed the frugal formula, or the step above the frugal formula, be it 10, 15, 20%, or more. Not everyone has that luxury in life.

There are obviously people on these boards of all income levels, and all levels of wealth accumulation, and all ages, so we should all take care in tempering blanket statements that a particular formula is silly - or wise.

We just found it interesting to view the various formulas and the thought processes of achieving those formulas. Knowing that the automobile industry's PR Departments will always continue to try and convince all of us that we need more bells and whistles, fancier, bigger, faster, sleeker, foreign, domestic, or whatever transportation is one trap many will have to contend with as they make major financial decisions.

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Re: Cost of car compared to Gross Income

Post by nova1968 » Tue May 02, 2017 9:24 am

I know its a matter of values and preference but one would have to be pretty frugal to purchase a car worth 10% of their annual salary. Its not likely someone earning 150K a year is going to buy a used Toyota corolla nor should they. Being thrifty to a certain extent is good but not everyone wants to look like a peasant. Another cost efficient option would be to hold onto a car for at least 10 years. A car that is properly maintained, detailed and preferably garaged can still look good and close to new after 10 years.

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Re: Cost of car compared to Gross Income

Post by stoptothink » Tue May 02, 2017 9:45 am

nova1968 wrote:I know its a matter of values and preference but one would have to be pretty frugal to purchase a car worth 10% of their annual salary. Its not likely someone earning 150K a year is going to buy a used Toyota corolla nor should they. Being thrifty to a certain extent is good but not everyone wants to look like a peasant.
While I agree, your language is pretty offensive. Why shouldn't someone who is successful drive a non-luxury vehicle? Do I "look like a peasant" because I walk to work (and pretty much everywhere else)? Pretty sure my employees who honk at me on my walking commute (probably my favorite <10min of the day) are aware that I make several times what they do (not that it matters). FWIW, we make a little over $200k/yr combined and until February shared a single car that I bought 7yrs ago for $8k. Wife wanted something bigger for the family (we have two kids, other car is a 2-door subcompact), so we spent $13k on a new jetta. I don't judge anyone who chooses to buy a more expensive vehicle, but if they look down on me because I choose to save instead, the joke is on them.

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Re: Cost of car compared to Gross Income

Post by flamesabers » Tue May 02, 2017 10:14 am

When I bought a 2007 Chevrolet Cobalt in 2008, it was probably about 50% of my gross income. I was on active duty in the army at the time. My expenses were minimal: I lived in the barracks, I ate at the dining facility most of the time and I wasn't the type to go off-post and spend a bunch of money during the weekends. I had accumulated enough savings over the last three years to pay for the vehicle in cash without putting a huge hole in my savings account. I'm still driving the car to this day.

The next time I purchase a vehicle I would compare the cost of it to my net worth instead of my gross income as I would pay for it in cash rather then finance it over x number of years. The price range I would look for would probably be between $10k-$20k, which is less then 10% of my net worth.

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Re: Cost of car compared to Gross Income

Post by Spirit Rider » Tue May 02, 2017 10:22 am

I hardly think the reply is offensive. There are some threads that are about topics such as tax matters that are entirely factual. Then there are threads like this that are entirely opinion. There is no right answer.

This forum does tend to find very divergent views. Personally, I disagree with the entire basis of this thread. I am in the camp that the one time cost of a car is not the correct metric. We don't judge our savings rate by the year we contributed the highest percentage. What really matters is what is your average cost not counting consumables.

This is the Bogleheads, so we tend to drive to the bottom, but I believe anybody who keeps their average cost <= 5% of their gross income is being reasonably frugal. I am probably 1/2 of that, but don't begrudge people who spends less than me or 2-3 times as much as me.

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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Tue May 02, 2017 10:37 am

stoptothink wrote:
nova1968 wrote:Being thrifty to a certain extent is good but not everyone wants to look like a peasant.
While I agree, your language is pretty offensive. Why shouldn't someone who is successful drive a non-luxury vehicle? Do I "look like a peasant" because I walk to work (and pretty much everywhere else)? Pretty sure my employees who honk at me on my walking commute (probably my favorite <10min of the day) are aware that I make several times what they do (not that it matters). FWIW, we make a little over $200k/yr combined and until February shared a single car that I bought 7yrs ago for $8k. Wife wanted something bigger for the family (we have two kids, other car is a 2-door subcompact), so we spent $13k on a new jetta. I don't judge anyone who chooses to buy a more expensive vehicle, but if they look down on me because I choose to save instead, the joke is on them.
You see how ingrained it is in our society that the idea of what price/model of a car someone drives is somehow equivalent to wealth?

:oops:

In the meantime, this was just released a few days ago. 11 new cars that qualified as the "Best New Cars Under $15,000":

https://cars.usnews.com/cars-trucks/bes ... nder-15000

Those concerned about being mistaken as a "peasant", could type in $15K for used cars in their area on CarMax or other sites and will see plenty of vehicles that would not be mistaken by the public.

Best Used Cars Under $15000:

https://cars.usnews.com/cars-trucks/bes ... nder-15000

It's fun to see what some of these peasants drive...

http://www.vorply.com/celebrity/list/su ... ple-drive/

What do wealthy people really drive?

https://www.daveramsey.com/blog/cars-we ... ople-drive

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Re: Cost of car compared to Gross Income

Post by Miriam2 » Tue May 02, 2017 1:09 pm

nova1968 wrote:I know its a matter of values and preference but one would have to be pretty frugal to purchase a car worth 10% of their annual salary. Its not likely someone earning 150K a year is going to buy a used Toyota corolla nor should they. Being thrifty to a certain extent is good but not everyone wants to look like a peasant.
I enjoyed the description and took it as light-hearted and not judgmental :happy We have many Boglehead threads on different lifestyles, such as the ladies' purses and shoes thread :happy We are what we wear and clothes make the man and all that. Life is too short to drive a car you really don't feel comfortable in.

I drive an 8-year-old basic Suburban because I need the seating and cargo space and love the smooth quiet ride in the city and on the highway, like driving on butter. Plus other drivers don't mess with me :P

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Re: Cost of car compared to Gross Income

Post by bubbly » Tue May 02, 2017 1:22 pm

My first car was slightly over 50% of my gross income. I was earning over 72k at the time. I had just landed and worked my first job out of college and wanted something nice to show for it, as a reminder that hard work pays off. I had paid off my student loans due to a 3 month long work trip where I had 0 expenses, thanks to the company paying for food, car, gas, hotel. The rate on the car was 1.49% and I asked for a 3 year plan so I could pay it off as fast as possible (Total interest paid I believe was 700 dollars) When I moved back, I rented from a friend with 3 other people in a house, reducing my rent to 350 a month. It was definitely more expensive than necessary but I don't regret it for a second. It also shows that if you want to splurge on a certain item, you need to cut back on other things, either voluntarily (taking on 3 roommates) or just by happenstance (work trip). Prioritizing your expense will allow you to get the most enjoyment out of your spending. I still get enjoyment and comfort out of that car as my daily driver to this day.

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Re: Cost of car compared to Gross Income

Post by inbox788 » Tue May 02, 2017 7:38 pm

Miriam2 wrote:
nova1968 wrote:I know its a matter of values and preference but one would have to be pretty frugal to purchase a car worth 10% of their annual salary. Its not likely someone earning 150K a year is going to buy a used Toyota corolla nor should they. Being thrifty to a certain extent is good but not everyone wants to look like a peasant.
I enjoyed the description and took it as light-hearted and not judgmental :happy We have many Boglehead threads on different lifestyles, such as the ladies' purses and shoes thread :happy We are what we wear and clothes make the man and all that. Life is too short to drive a car you really don't feel comfortable in.

I drive an 8-year-old basic Suburban because I need the seating and cargo space and love the smooth quiet ride in the city and on the highway, like driving on butter. Plus other drivers don't mess with me :P
I took it as a light-hearted comment as well, and then I noticed the username and wondered if nova1968 was referring to himself frugal or thrifty. I imagined a beater at first. I had to educate myself about the collectible status of the car that didn't do well in Spanish speaking countries because it didn't go. At some point, it's like watches that tell time, where you're not buying a car for transportation, but as a decoration.

Image
Image

http://www.snopes.com/business/misxlate/nova.asp

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Re: Cost of car compared to Gross Income

Post by Miriam2 » Tue May 02, 2017 11:01 pm

inbox788 wrote:I took it as a light-hearted comment as well, and then I noticed the username and wondered if nova1968 was referring to himself frugal or thrifty. I imagined a beater at first. I had to educate myself about the collectible status of the car that didn't do well in Spanish speaking countries because it didn't go. At some point, it's like watches that tell time, where you're not buying a car for transportation, but as a decoration.
Nice photos! I would kinda sorta hafta admit that the first car is vintage peasant and resembles my college car, back in my peasant days 8-) The second car is very pretty, looks similar to a Mustang; perhaps nova1968 is a classic car fan :happy although I've been told that that hobby puts a dent in your budget.

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Re: Cost of car compared to Gross Income

Post by sunny_socal » Tue May 02, 2017 11:15 pm

stoptothink wrote: While I agree, your language is pretty offensive. Why shouldn't someone who is successful drive a non-luxury vehicle? Do I "look like a peasant" because I walk to work (and pretty much everywhere else)? Pretty sure my employees who honk at me on my walking commute (probably my favorite <10min of the day) are aware that I make several times what they do (not that it matters). FWIW, we make a little over $200k/yr combined and until February shared a single car that I bought 7yrs ago for $8k. Wife wanted something bigger for the family (we have two kids, other car is a 2-door subcompact), so we spent $13k on a new jetta. I don't judge anyone who chooses to buy a more expensive vehicle, but if they look down on me because I choose to save instead, the joke is on them.
Maybe you should have spent more :wink:

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Re: Cost of car compared to Gross Income

Post by nova1968 » Wed May 03, 2017 7:27 am

inbox788 wrote:
Miriam2 wrote:
nova1968 wrote:I know its a matter of values and preference but one would have to be pretty frugal to purchase a car worth 10% of their annual salary. Its not likely someone earning 150K a year is going to buy a used Toyota corolla nor should they. Being thrifty to a certain extent is good but not everyone wants to look like a peasant.
I enjoyed the description and took it as light-hearted and not judgmental :happy We have many Boglehead threads on different lifestyles, such as the ladies' purses and shoes thread :happy We are what we wear and clothes make the man and all that. Life is too short to drive a car you really don't feel comfortable in.

I drive an 8-year-old basic Suburban because I need the seating and cargo space and love the smooth quiet ride in the city and on the highway, like driving on butter. Plus other drivers don't mess with me :P
I took it as a light-hearted comment as well, and then I noticed the username and wondered if nova1968 was referring to himself frugal or thrifty. I imagined a beater at first. I had to educate myself about the collectible status of the car that didn't do well in Spanish speaking countries because it didn't go. At some point, it's like watches that tell time, where you're not buying a car for transportation, but as a decoration.

Image
Image

http://www.snopes.com/business/misxlate/nova.asp
Actually nova1968 is the car I drove in high school in the 70s. I got tired of walking to school so I purchased it for 2k making minimum wage of $2.65 an hour which was more than 100% of my annual wages. I disagree with OP stating low income earners should ride bikes, walk or use public transportation. The purchase of my 1968 Nova was my biggest accomplishment in my pre adult years.

Considering the value and nostalgia of todays muscle cars I wish I had kept it.

By the way, No offense to peasants I was one myself for many years, the comment was made in good humor.

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Re: Cost of car compared to Gross Income

Post by lightheir » Wed May 03, 2017 8:30 am

When I bought my car, it was over 60% of my income at the time. And it was for a average-spec Prius, not a luxury car.

I suspect the majority of people I know did the exact same thing, contrary to all the "10%-15%" figures being thrown about above like it's average.

I am also highly skeptical of any folks who say learning to 'wrench' your car will save you money. I just learned to 'wrench' my road and triathlon bicycles which are pricey for bikes but <10% what a typical car costs (for BOTH bikes together) and I can say with absolute certainty that I'm not saving any money at all after I include the cost for tools and parts, and I'm not even beginning to get into factoring in the intangibles such as labor time and allocated space. I learned a LOT, and sure, now that I'm up to speed I can def save money in the areas I'm familiar with, but I'd be lying through my teeth to say that I saved a lot of money in the process. And that's for a measly BICYCLE with all easily understood nonmotorized parts, not a modern car. (At this point, some fancy car restoration person will want to regale me with stories about how they saved tons of money restoring their own fancy custom cars as opposed to paying a pro to do that custom restoration work, and then I'll say - compared to buying a Honda Fit and calling it a day?)

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Re: Cost of car compared to Gross Income

Post by alfaspider » Wed May 03, 2017 9:19 am

nova1968 wrote:
inbox788 wrote:
Miriam2 wrote:
nova1968 wrote:I know its a matter of values and preference but one would have to be pretty frugal to purchase a car worth 10% of their annual salary. Its not likely someone earning 150K a year is going to buy a used Toyota corolla nor should they. Being thrifty to a certain extent is good but not everyone wants to look like a peasant.
I enjoyed the description and took it as light-hearted and not judgmental :happy We have many Boglehead threads on different lifestyles, such as the ladies' purses and shoes thread :happy We are what we wear and clothes make the man and all that. Life is too short to drive a car you really don't feel comfortable in.

I drive an 8-year-old basic Suburban because I need the seating and cargo space and love the smooth quiet ride in the city and on the highway, like driving on butter. Plus other drivers don't mess with me :P
I took it as a light-hearted comment as well, and then I noticed the username and wondered if nova1968 was referring to himself frugal or thrifty. I imagined a beater at first. I had to educate myself about the collectible status of the car that didn't do well in Spanish speaking countries because it didn't go. At some point, it's like watches that tell time, where you're not buying a car for transportation, but as a decoration.

Image
Image

http://www.snopes.com/business/misxlate/nova.asp
Actually nova1968 is the car I drove in high school in the 70s. I got tired of walking to school so I purchased it for 2k making minimum wage of $2.65 an hour which was more than 100% of my annual wages. I disagree with OP stating low income earners should ride bikes, walk or use public transportation. The purchase of my 1968 Nova was my biggest accomplishment in my pre adult years.

Considering the value and nostalgia of todays muscle cars I wish I had kept it.

By the way, No offense to peasants I was one myself for many years, the comment was made in good humor.
Don't kick yourself too hard. You can buy a non-SS nova in decent condition for $10-$15k, which incidentally works out to about $2k in 1968 dollars. The SS models can be had for $20k (probably also about the same, inflation adjusted). The only classics that tend to greatly appreciate in real terms were cars that were rare when new and usually out of reach by the average person.

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Re: Cost of car compared to Gross Income

Post by CyclingDuo » Wed May 03, 2017 6:31 pm

lightheir wrote:When I bought my car, it was over 60% of my income at the time. And it was for a average-spec Prius, not a luxury car.

I suspect the majority of people I know did the exact same thing, contrary to all the "10%-15%" figures being thrown about above like it's average.

I am also highly skeptical of any folks who say learning to 'wrench' your car will save you money. I just learned to 'wrench' my road and triathlon bicycles which are pricey for bikes but <10% what a typical car costs (for BOTH bikes together) and I can say with absolute certainty that I'm not saving any money at all after I include the cost for tools and parts, and I'm not even beginning to get into factoring in the intangibles such as labor time and allocated space. I learned a LOT, and sure, now that I'm up to speed I can def save money in the areas I'm familiar with, but I'd be lying through my teeth to say that I saved a lot of money in the process. And that's for a measly BICYCLE with all easily understood nonmotorized parts, not a modern car. (At this point, some fancy car restoration person will want to regale me with stories about how they saved tons of money restoring their own fancy custom cars as opposed to paying a pro to do that custom restoration work, and then I'll say - compared to buying a Honda Fit and calling it a day?)
I wrench all of our bikes (road, cross, and mountain). Forks, brakes, drivetrain, BB's, hydraulics, hubs, wheel truing, pivots, tubeless tire - I do it all. Piece of cake, and I've been doing it for 20 years.

I usually do our own oil change, spark plugs, wipers, rear differential, fluids, battery, all exterior and interior lights - the easy stuff. Local oil change currently is $42 (ran out of time last weekend and it was cold/pouring rain so I gave in and had it done at the quick lube shop). I can do it for the price of the oil (which I buy by the case) and filter on my own and 20 minutes time for a fraction of the cost. Disposing of the old oil is the tough part, but I keep it in a jug and take to the hazardous waste city drop off (no charge) two times a year.

Most of this is done for the enjoyment, but the cost savings is also enjoyable. :mrgreen:

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Re: Cost of car compared to Gross Income

Post by KyleAAA » Thu May 11, 2017 1:36 pm

My current car was about 13% of my then-household income a few years ago (income is significantly higher, these days). Wife also bought a car around the same time for roughly 10% of household income. So in total, about 23-25% at the time of purchase, I'd say. Plan to drive both of them for 10 years if all goes well.

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