Your car(s) are equal to how many months income

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities

The car(s) you drive represents how many months income ?

lump family cars and incomes together. Gross income and current value of car. e.g. Our cars are worth less than one month' gross income
71
24%
1
51
17%
2
73
25%
3
44
15%
4
25
9%
5
11
4%
6
5
2%
7
1
0%
7+
13
4%
 
Total votes: 294

madbrain
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Re: Your car(s) are equal to how many months income

Post by madbrain »

The 2011 Prius 4 is worth between 1 and 1.2x income. We own it outright.
The 2012 Nissan Leaf that is leased for a very low price due to govt subsidies would also be worth between 1x and 1.2x if one were to purchase such a vehicle used.
I rounded the total down to 2x.
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VictoriaF
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Re: Your car(s) are equal to how many months income

Post by VictoriaF »

Hector wrote:Some people buy brand new cars and keep it for more than a decade. Some keep it till car dies. Some always buy used. Some lease. Its not effective to read anything based on the pole results.
IMO something like average vehicle cost/year to average gross income/month over last 10 year pole is more effective.

The way I see, $$ paid to buy and $$ got at sell matters. Whats the point of checking your current vehicle's value if you are not going to sale it now?
There is an inverse relationship between the CAPEX and OPEX of a car. When you buy a new car, the initial expense (CAPEX) is high, but the operating expenses are low. After you keep the car for 17.5 years, it's the other way around. Thus, the dollars paid at purchase and the dollar received at sale do not tell the story of the dollars in-between.

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Rodc
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Re: Your car(s) are equal to how many months income

Post by Rodc »

Have a new car and a 5 year old car. Between one and two months gross income. I selected "2".

Ask in 5 years and you'll likely get a lower answer.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
letsgobobby
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Re: Your car(s) are equal to how many months income

Post by letsgobobby »

Rodc wrote:Have a new car and a 5 year old car. Between one and two months gross income. I selected "2".

Ask in 5 years and you'll likely get a lower answer.
for a given individual or couple this answer continually changes as a function of time. To capture 'Boglehead frugality' it would be something like the initial purchase price divided by estimated years of ownership divided by income.
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grabiner
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Re: Your car(s) are equal to how many months income

Post by grabiner »

My 8-year-old car with 87K miles is now worth less than one month's salary. When I bought it, the car was two months' salary. When it gets down to half a month's salary, I will probably replace it.
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Re: Your car(s) are equal to how many months income

Post by Professor Emeritus »

Thanks to all we will keep it open

The average age of cars on the road has been steadily increasing for decades.. It's at an all time high of 11.4 years.
So if your car is only 10 years old its newer than average.
http://www.rita.dot.gov/bts/sites/rita. ... 6.html_mfd
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Re: Your car(s) are equal to how many months income

Post by KNomad »

Our two cars combined are worth less than half of one month's gross income.

I've been contemplating buying a new car worth a little more than 2 month's income, but haven't been able to justify it in my head. I've wanted this particular type of car since I was 16, but haven't been able to make the mental leap to buy something so expensive.
madbrain
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Re: Your car(s) are equal to how many months income

Post by madbrain »

Professor Emeritus wrote:Thanks to all we will keep it open

The average age of cars on the road has been steadily increasing for decades.. It's at an all time high of 11.4 years.
So if your car is only 10 years old its newer than average.
http://www.rita.dot.gov/bts/sites/rita. ... 6.html_mfd
I'd like to see the median age rather than average age. It may be a more meaningful number.
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Re: Your car(s) are equal to how many months income

Post by hiddensee »

My bike cost 0.2 months' gross income.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

KNomad wrote:Our two cars combined are worth less than half of one month's gross income.

I've been contemplating buying a new car worth a little more than 2 month's income, but haven't been able to justify it in my head. I've wanted this particular type of car since I was 16, but haven't been able to make the mental leap to buy something so expensive.
KNomad, for you and others earlier in the thread talking about how a new car would be worth 2 months income, I am confused. Let's say, for instance, you make $120k. That is $10k/mo and thus, the new car is worth $20k. Forgive me, but that doesn't sound at all so expensive and unreasonable for a car. Sure, you could by less, but you could easily spend more (on a Tesla, any luxury make, or even the larger/premium standard makes). Obviously the other finances play a role (for instance, just graduated medical student with tons of student loans) and thus may not make sense to spend on a new car, but generally speaking, a car at 2 month's income that is your dream car wouldn't be that expensive.

Am I missing something? Is it maybe posters making $1.2 million annually worried about spending $200k on a vehicle and others making less haven't shared any concerns? Or maybe I ocerspend on my vehicles? I am just confused if anyone could share some insight. Thanks!
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Re: Your car(s) are equal to how many months income

Post by madbrain »

BrandonBogle wrote: Am I missing something?
Depreciation, I think. The cars may well be worth higher multiples of monthly income when purchased new, but since they depreciate, the multiples shrink rapidly. And of course, not everyone buys new cars.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

madbrain wrote:
BrandonBogle wrote: Am I missing something?
Depreciation, I think. The cars may well be worth higher multiples of monthly income when purchased new, but since they depreciate, the multiples shrink rapidly. And of course, not everyone buys new cars.
I completely agree there and a concern I shared about looking at this at a static moment in time earlier up thread. By upon buying, the car will cost more than its value later on (in most cases). So I still don't get it. It's not like (in most cases) you buy a car every two months. A car that only costs two month's income when purchased sounds like a steal. Buying a used Civic would cost more than that for many Americans.

Absent some insight in how this works, I'm just going to going to assume their is a bias in who is responding.
letsgobobby
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Re: Your car(s) are equal to how many months income

Post by letsgobobby »

BrandonBogle wrote:
KNomad wrote:Our two cars combined are worth less than half of one month's gross income.

I've been contemplating buying a new car worth a little more than 2 month's income, but haven't been able to justify it in my head. I've wanted this particular type of car since I was 16, but haven't been able to make the mental leap to buy something so expensive.
KNomad, for you and others earlier in the thread talking about how a new car would be worth 2 months income, I am confused. Let's say, for instance, you make $120k. That is $10k/mo and thus, the new car is worth $20k. Forgive me, but that doesn't sound at all so expensive and unreasonable for a car. Sure, you could by less, but you could easily spend more (on a Tesla, any luxury make, or even the larger/premium standard makes). Obviously the other finances play a role (for instance, just graduated medical student with tons of student loans) and thus may not make sense to spend on a new car, but generally speaking, a car at 2 month's income that is your dream car wouldn't be that expensive.

Am I missing something? Is it maybe posters making $1.2 million annually worried about spending $200k on a vehicle and others making less haven't shared any concerns? Or maybe I ocerspend on my vehicles? I am just confused if anyone could share some insight. Thanks!
I don't understand what your question is/confusion is about. 2 months income is generally enough that people think twice about spending it.
Rodc
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Re: Your car(s) are equal to how many months income

Post by Rodc »

letsgobobby wrote:
Rodc wrote:Have a new car and a 5 year old car. Between one and two months gross income. I selected "2".

Ask in 5 years and you'll likely get a lower answer.
for a given individual or couple this answer continually changes as a function of time. To capture 'Boglehead frugality' it would be something like the initial purchase price divided by estimated years of ownership divided by income.
0.0167

:)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

letsgobobby wrote:I don't understand what your question is/confusion is about. 2 months income is generally enough that people think twice about spending it.
Well, if I just need to accept it and not understand so be it. My confusion is how one can consider that a reasonable assessment. Per http://www.ssa.gov/oact/cola/AWI.html , 2013's average wage was just under $45k. That would mean that purchasing a car that is more than $7,500 is extravagant and overspending?

I personally agree that $7,500 annualized it way too much and I wouldn't consider spending 2 month's gross income annualized on a car, but 2 month's gross as the purchase price of the car just seems overly miserly to me. But like I said, if the ultimate answer is that I overspend on cars (annualized, I am 1/3 of one month's gross income for all costs of the vehicle except gas (so repairs, depreciation, insurance, tax, etc. all included)) and just cannot understand how that is reasonable, that is fine and I can chalk it up to one of the many things about life I do not understand.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

Rodc wrote:
letsgobobby wrote:
Rodc wrote:Have a new car and a 5 year old car. Between one and two months gross income. I selected "2".

Ask in 5 years and you'll likely get a lower answer.
for a given individual or couple this answer continually changes as a function of time. To capture 'Boglehead frugality' it would be something like the initial purchase price divided by estimated years of ownership divided by income.
0.0167

:)
You got me beat. Initial purchase price / estimates years ownership / income = 0.031 for me.

Now these numbers make more sense to me in understanding the Boglehead level of spending on a vehicle.
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Re: Your car(s) are equal to how many months income

Post by TradingPlaces »

I would be interested in the following question:

- what is the total cost of ownership of all the cars in your household, relative to your income, in the past 5 years.

Why 5 years? Because a single point-in-time estimate will have very high variance in a couple of cases: (a) just bought a new car, but on average, one drives a 5-year old car, and (b) I am running my car into the ground, and while it is worth zero, there is non-trivial TCO.

What would be even better is if there was a web site or an app, and people could enter the following:

1. Car Make, Model, Year,
2. Car Miles,
3. Year bought,

and the website would just compute some rough numbers: (a) current market value, (b) per-year maintenance, on average, (c) other costs such as insurance, etc. Then, users can modify this numbers to make it more precise.

If you bought a new 2005 Accord in 2005, and you are still driving it, its price could be $4K now, but the TCO per month might be much higher than what you would estimate by dividing the current price of the Accord by your salary.
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Re: Your car(s) are equal to how many months income

Post by TradingPlaces »

Let's not forget that when a car is past certain age and mileage, there are certainly costs, some of which might be hidden.

Surely, a 120K Honda or Toyota might have less maintenance need than a 120K Hyundai (or maybe not). But the truth is that a 120K Honda will definitely have more maintenance need, on average, than a 5K Honda (all numbers in this paragraph are miles).

And certainly, many of the posters here are sufficiently frugal and handy to be able to fix minor or even medium maintenance problems. But let's not forget that fixing those requires: (a) research, (b) time spent to buy parts, (c) time spent to make the repairs. And while the dollar cost of the inputs is low, the time commitment is high.

Thus, IMO, it is more accurate to estimate the total cost of ownership of a few trailing years (e.g., 5), of all the cars in the household, using an INDEPENDENT model of cost of ownership. An independent model would give a consistent cost of ownership to two different Year-2003 Honda Civics, with 155K miles on it, with perhaps some adjustment to the cost of living of the domiciled zip code.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

TradingPlaces, I would love such a website. For my own budget, I try to estimate that.

{[Purchase Price - Estimated Value (discounted to minimize bias)/Selling Price] + operating costs* (insurance, registration, taxes, repairs, routine maintenance)} / estimate length of ownership

Indirectly, you account for depreciation in this calculation. I try to keep this value less than 1/3 of one month's gross, or 3% of annual gross.


* = Gas excluded since its very variable and directly correlated to how much you drive vs. others have such direct dependence on miles/km driven
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Re: Your car(s) are equal to how many months income

Post by leonard »

Why should there be a correlation?

Buy the cheapest transportation that's reliable, that does what you need.

Just cause I can afford a $200 hammer doesn't mean I should buy it when one that is $10 does all I need.
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stonerolled
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Re: Your car(s) are equal to how many months income

Post by stonerolled »

just the car, one month, add motorcycle and scooter, 3 months,
disregard gross income, pure take home after saving, 7 months.
Last edited by stonerolled on Fri Nov 14, 2014 10:07 pm, edited 1 time in total.
letsgobobby
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Re: Your car(s) are equal to how many months income

Post by letsgobobby »

BrandonBogle wrote:
Rodc wrote:
letsgobobby wrote:
Rodc wrote:Have a new car and a 5 year old car. Between one and two months gross income. I selected "2".

Ask in 5 years and you'll likely get a lower answer.
for a given individual or couple this answer continually changes as a function of time. To capture 'Boglehead frugality' it would be something like the initial purchase price divided by estimated years of ownership divided by income.
0.0167

:)
You got me beat. Initial purchase price / estimates years ownership / income = 0.031 for me.

Now these numbers make more sense to me in understanding the Boglehead level of spending on a vehicle.
BrandonBogle, your mistake is thinking the Bogleheads are representative of the average American - we know based from prior surveys that is definitely not true. For example, in a poll 2 years ago I asked if you were a millionaire; half of all respondents replied, "Yes." Likewise boglehead income is higher than average, on average. So while $7500 isn't excessive for most, $50,000 = 2 months income of a $300,000 salary could be, even though that couple might be able to 'afford' such a vehicle. Or it might not be.

Now that we have established you are only half as frugal as Rodc, you have proven that you do, in fact, overspend on cars. Stop that now! Or we will have to revoke half your name.

OK, my calculation: 0.00742. Hah! I have just proven that I am the most frugal of the 3 of us. I shall henceforth be known as "letsgobobbybogle" and will wear my title with pride. That is, until markettimer snatches it away with his 'undefined' 0/0 calculation, without a car, and without an income. However if we include his investment income then he does in fact have a ratio of 0 and we will bow in deference to his incredibly frugal ways.
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Re: Your car(s) are equal to how many months income

Post by Rodc »

OK, my calculation: 0.00742. Hah! I have just proven that I am the most frugal of the 3 of us. I shall henceforth be known as "letsgobobbybogle" and will wear my title with pride. That is, until markettimer snatches it away with his 'undefined' 0/0 calculation, without a car, and without an income. However if we include his investment income then he does in fact have a ratio of 0 and we will bow in deference to his incredibly frugal ways.
Just imagine Buffet's ratio!

But until he weighs in "letsgobobbybogle" it is!
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

letsgobobby wrote: BrandonBogle, your mistake is thinking the Bogleheads are representative of the average American - we know based from prior surveys that is definitely not true. For example, in a poll 2 years ago I asked if you were a millionaire; half of all respondents replied, "Yes." Likewise boglehead income is higher than average, on average. So while $7500 isn't excessive for most, $50,000 = 2 months income of a $300,000 salary could be, even though that couple might be able to 'afford' such a vehicle. Or it might not be.
Thank you Bobby. That would explain it then. Bogleheads with higher incomes have been responding more to this conversation to skew that number than the entire American Boglehead population (there are threads by sub-6 figure Bogleheads annual income) or American population at large. Spelled out as you have stated here, you and I are on the same page. :)
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Re: Your car(s) are equal to how many months income

Post by TradingPlaces »

BrandonBogle wrote:TradingPlaces, I would love such a website. For my own budget, I try to estimate that.

{[Purchase Price - Estimated Value (discounted to minimize bias)/Selling Price] + operating costs* (insurance, registration, taxes, repairs, routine maintenance)} / estimate length of ownership

Indirectly, you account for depreciation in this calculation. I try to keep this value less than 1/3 of one month's gross, or 3% of annual gross.


* = Gas excluded since its very variable and directly correlated to how much you drive vs. others have such direct dependence on miles/km driven
Yes, there is such a website, and it is not perfect:

http://www.edmunds.com/tco.html

Next, I did this for a car we own (2013, Ford Edge, SE or base model, NOT 4WD):

http://www.edmunds.com/ford/edge/2013/t ... &zip=07302

http://www.edmunds.com/ford/edge/2013/t ... &zip=07302

I tried a zip code nearby, and the 5-year TCO, assuming purchased new, was $50K. Thus, about $10K a year.

A few corrections:

(a) For financing, we don't pay nearly as much: Edmunds shows $2,150 but we will pay, by the end of the 5 years, about $900,
(b) For insurance, it shows $15,600 for 5 years, but our insurance is about $1.1K a year, or only $5.5K for 5 years,
(c) For gas, over 2.5 years into ownership, we have just under 20K miles, so count 40K miles at 5 year mark. At roughly 20 MPG, and $4 gas (huge exaggeration on gas price, because gas has rarely been above $3.5 in Jersey: http://www.gasbuddy.com/gb_retail_price_chart.aspx), that's $8K (and I think actual would be closer to $6.5K), instead of $12K,
(d) Maintenance and repairs so far has been less than $200, but let's say it will be $2K by 5th year.

So to recap, adjust down:

1,190 for financing,
10,130 for insurance,
4,000 for gas,
1,800 for maint.

Total of 17,100 adjustments.

(As a side note, we don't pay for parking, but as you get closer to NYC, you might add that too. Also, as a side note, might add $200-$300 a year in tickets: parking, moving violation, etc.).

Thus, our 5-year TCO is: $50,500 - $17,100 , roughly $33,400 for 5 years, or $6,700 per year. I would say that is higher than the actual, but probably not by much.

I would be much more interested in having:

(a) people on this forum accurately estimate this number, using their cars for the past 5 years,
(b) and then report either this numbers here, or the ratio of that number to their AGI, or a more accurate measure of their income.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

I checked out Edmunds TCO before. I have found it to not be a good fit with the real-world numbers for my family. That said, it is better than nothing!
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Re: Your car(s) are equal to how many months income

Post by TradingPlaces »

BrandonBogle wrote:
letsgobobby wrote:I don't understand what your question is/confusion is about. 2 months income is generally enough that people think twice about spending it.
Well, if I just need to accept it and not understand so be it. My confusion is how one can consider that a reasonable assessment. Per http://www.ssa.gov/oact/cola/AWI.html , 2013's average wage was just under $45k. That would mean that purchasing a car that is more than $7,500 is extravagant and overspending?

I personally agree that $7,500 annualized it way too much and I wouldn't consider spending 2 month's gross income annualized on a car, but 2 month's gross as the purchase price of the car just seems overly miserly to me. But like I said, if the ultimate answer is that I overspend on cars (annualized, I am 1/3 of one month's gross income for all costs of the vehicle except gas (so repairs, depreciation, insurance, tax, etc. all included)) and just cannot understand how that is reasonable, that is fine and I can chalk it up to one of the many things about life I do not understand.
Just to add to this, I got this based on a basic google search:

"According to Kelley Blue Book, the average price of a new car or truck sold in the United States in 2013 was $32,086."

I would much rather have the median, and also have a correction for household / individual both on the income and the car.

Assuming average car is kept for 7 years, we have:

(32K / 7 years) / 45K = 10.2%
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Re: Your car(s) are equal to how many months income

Post by madbrain »

BrandonBogle wrote: Absent some insight in how this works, I'm just going to going to assume their is a bias in who is responding.
The poll clearly asks about "current value of the car" relative to income, not "original purchase price" relative to income.
I think the Bogleheads who answered it read it correctly, and this is why we see this low multiple in the response.
If the question was about the original purchase price, I expect the multiple would be much higher.

That multiple would be 5x for the purchase price including sales tax of our 2 cars bought and leased new, relative to my monthly income.
Of course, the two vehicles weren't acquired in the same year, and the second one is a lease and benefited from $10k of government incentives which significantly reduced the lease cost.
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wander
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Re: Your car(s) are equal to how many months income

Post by wander »

My car was about seven months of my income. But it was 17 years ago.
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ram
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Re: Your car(s) are equal to how many months income

Post by ram »

< 1 mo
Ram
cherijoh
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Re: Your car(s) are equal to how many months income

Post by cherijoh »

Professor Emeritus wrote:
Aptenodytes wrote:The tails aren't quite right. Left tail should be 0 and right should be 8+.

I answered but am not sure why.
The first answer is < 1 month which includes 0 and the last answer is 7+ i.e. > 7 which includes 8+
Sorry but IMO '7+' is read as '7 or more' - so I agree with Aptenodytes.
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BrandonBogle
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Re: Your car(s) are equal to how many months income

Post by BrandonBogle »

madbrain wrote:
BrandonBogle wrote: Absent some insight in how this works, I'm just going to going to assume their is a bias in who is responding.
The poll clearly asks about "current value of the car" relative to income, not "original purchase price" relative to income.
I think the Bogleheads who answered it read it correctly, and this is why we see this low multiple in the response.
If the question was about the original purchase price, I expect the multiple would be much higher.
A couple posters upthread mentioned that they have considered getting or just got vehicles at 2x monthly gross and are concerned it was expensive. In those cases, "current value" would be "original purchase price" and what I started quoting.
BrandonBogle wrote:
KNomad wrote:Our two cars combined are worth less than half of one month's gross income.

I've been contemplating buying a new car worth a little more than 2 month's income, but haven't been able to justify it in my head. I've wanted this particular type of car since I was 16, but haven't been able to make the mental leap to buy something so expensive.
KNomad, for you and others earlier in the thread talking about how a new car would be worth 2 months income, I am confused. Let's say, for instance, you make $120k. That is $10k/mo and thus, the new car is worth $20k. Forgive me, but that doesn't sound at all so expensive and unreasonable for a car. Sure, you could by less, but you could easily spend more (on a Tesla, any luxury make, or even the larger/premium standard makes). Obviously the other finances play a role (for instance, just graduated medical student with tons of student loans) and thus may not make sense to spend on a new car, but generally speaking, a car at 2 month's income that is your dream car wouldn't be that expensive.

Am I missing something? Is it maybe posters making $1.2 million annually worried about spending $200k on a vehicle and others making less haven't shared any concerns? Or maybe I ocerspend on my vehicles? I am just confused if anyone could share some insight. Thanks!
In any event, LetsGoBobby clarified that the posters upthread, including this one quoted, like have above-median incomes versus my initial impression of sub-$100k annual incomes.
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backpacker
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Re: Your car(s) are equal to how many months income

Post by backpacker »

hiddensee wrote:My bike cost 0.2 months' gross income.
Nice work! For more specificity, I think we bike owners should move the discussion towards cost of vehicles in days. All the "vehicles" in our family cost about two days gross income. :beer
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Re: Your car(s) are equal to how many months income

Post by WHL »

Hector wrote:Some people buy brand new cars and keep it for more than a decade. Some keep it till car dies. Some always buy used. Some lease. Its not effective to read anything based on the pole results.
IMO something like average vehicle cost/year to average gross income/month over last 10 year pole is more effective.

The way I see, $$ paid to buy and $$ got at sell matters. Whats the point of checking your current vehicle's value if you are not going to sale it now?
Yep. Bought my truck in 2005, still driving it today with 170k miles on it. Actually, about to make another 5k mile road trip...

It's currently worth less than one month of my income.
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LowER
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Re: Your car(s) are equal to how many months income

Post by LowER »

letsgobobby wrote:
BrandonBogle wrote:
Rodc wrote:
letsgobobby wrote:
Rodc wrote:Have a new car and a 5 year old car. Between one and two months gross income. I selected "2".

Ask in 5 years and you'll likely get a lower answer.
for a given individual or couple this answer continually changes as a function of time. To capture 'Boglehead frugality' it would be something like the initial purchase price divided by estimated years of ownership divided by income.
0.0167

:)
You got me beat. Initial purchase price / estimates years ownership / income = 0.031 for me.

Now these numbers make more sense to me in understanding the Boglehead level of spending on a vehicle.
BrandonBogle, your mistake is thinking the Bogleheads are representative of the average American - we know based from prior surveys that is definitely not true. For example, in a poll 2 years ago I asked if you were a millionaire; half of all respondents replied, "Yes." Likewise boglehead income is higher than average, on average. So while $7500 isn't excessive for most, $50,000 = 2 months income of a $300,000 salary could be, even though that couple might be able to 'afford' such a vehicle. Or it might not be.

Now that we have established you are only half as frugal as Rodc, you have proven that you do, in fact, overspend on cars. Stop that now! Or we will have to revoke half your name.

OK, my calculation: 0.00742. Hah! I have just proven that I am the most frugal of the 3 of us. I shall henceforth be known as "letsgobobbybogle" and will wear my title with pride. That is, until markettimer snatches it away with his 'undefined' 0/0 calculation, without a car, and without an income. However if we include his investment income then he does in fact have a ratio of 0 and we will bow in deference to his incredibly frugal ways.
You all have me beat: I thought I was doing well at 4 days (0.20), but 0.00742 is impressive!
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Re: Your car(s) are equal to how many months income

Post by White Coat Investor »

I can throw the boat, both cars, and everything I own with an engine into the mix and still be less than 1 month.

I have a real problem with anyone who uses a ratio of their income to determine how much car to buy. No reason to spend more just because you make more.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: Your car(s) are equal to how many months income

Post by letsgobobby »

I think we switched to annual rather than monthly income. So divide by another 90 or so...
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LowER
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Re: Your car(s) are equal to how many months income

Post by LowER »

I was guessing that your car(s) cost more than about $200.

Are you still "letsgobobbybogle?"
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Re: Your car(s) are equal to how many months income

Post by backpacker »

EmergDoc wrote: I have a real problem with anyone who uses a ratio of their income to determine how much car to buy. No reason to spend more just because you make more.
Right. It would be silly for Warren Buffett to buy a $36 million set of wheels even if that's only one day worth of income...
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LowER
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Re: Your car(s) are equal to how many months income

Post by LowER »

.....
Last edited by LowER on Sun Nov 16, 2014 10:11 am, edited 1 time in total.
KNomad
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Re: Your car(s) are equal to how many months income

Post by KNomad »

BrandonBogle wrote:
KNomad wrote:Our two cars combined are worth less than half of one month's gross income.

I've been contemplating buying a new car worth a little more than 2 month's income, but haven't been able to justify it in my head. I've wanted this particular type of car since I was 16, but haven't been able to make the mental leap to buy something so expensive.
KNomad, for you and others earlier in the thread talking about how a new car would be worth 2 months income, I am confused. Let's say, for instance, you make $120k. That is $10k/mo and thus, the new car is worth $20k. Forgive me, but that doesn't sound at all so expensive and unreasonable for a car. Sure, you could by less, but you could easily spend more (on a Tesla, any luxury make, or even the larger/premium standard makes). Obviously the other finances play a role (for instance, just graduated medical student with tons of student loans) and thus may not make sense to spend on a new car, but generally speaking, a car at 2 month's income that is your dream car wouldn't be that expensive.

Am I missing something? Is it maybe posters making $1.2 million annually worried about spending $200k on a vehicle and others making less haven't shared any concerns? Or maybe I ocerspend on my vehicles? I am just confused if anyone could share some insight. Thanks!
You're not missing anything. We're just pretty conservative financially.

Gross is $170k, plus (potentially) equity that could bring it up a bit, so not a lot by BH standards. We are both 28 were burned by the recession from a career standpoint and just don't feel secure, so we keep saving as much as possible. We spent a couple years un/under employed where anything over $1/person per meal was too expensive. Going through an experience like that leaves some scars.

We spend <8% of income on rent and don't have any debt. No monthly payments, etc. We save/invest a lot.

There's some pressure among my coworkers to buy a new car. There are people a level or two down on the org chart driving new BMWs and I'm often asked when I'm going to upgrade, but these people didn't struggle in the recession. When you've lived on the fringes, you realize just how unstable most people in the middle class (even "upper" middle class) really are.

We do certain things others might find extravagant- international travel, lots of skiing, etc. Our vehicles just aren't a priority right now in terms of spending.
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Re: Your car(s) are equal to how many months income

Post by letsgobobby »

LowER wrote:I was guessing that your car(s) cost more than about $200.

Are you still "letsgobobbybogle?"
sigh, apparently you have usurped me with your lowER Ratio... congrats!
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Kalo
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Re: Your car(s) are equal to how many months income

Post by Kalo »

Both my income and my car's value are extremely variable. I did the calculation on my current situation and came up with 3.5. But I know my job is ending soon and am not sure I'll be making the same amount after that. Also, I recently bought a new car, which I have done about every 12 years on average as an adult. So the value is about as high as it gets.

To me, steady income is nirvana, but steady work is anathema, as are car payments. I have a zero percent 36 month loan on the car, but enough in savings to make those payments. Hopefully I won't need to use any of the savings for living expenses before I can pay it off.

There is no certainty in life, only the illusion of certainty, and not much left of that.

I hope my car lasts for at least twelve years. It's a lot more fun to drive than the old one.

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.
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Re: Your car(s) are equal to how many months income

Post by gardemanger »

I have no car and no bike. I live one half block from the intersection of two major bus lines, one block from a Zipcar location (and 3-4 blocks from two other lots with Zipcars), three blocks from the grocery store, and there are cabs going by continuously. I like city life. :happy
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