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

[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.

[VictoriaF]

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.

Victoria

[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.

[letsgobobby]

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.

[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.

[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

[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]

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.

[hiddensee]

My bike cost 0.2 months' gross income.

[BrandonBogle]

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!

[madbrain]

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.

[BrandonBogle]

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]

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]

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

[BrandonBogle]

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.

[BrandonBogle]

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.

[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.

[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.

[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

[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.

[stonerolled]

just the car, one month, add motorcycle and scooter, 3 months,
disregard gross income, pure take home after saving, 7 months.

[letsgobobby]

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.

[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!

[BrandonBogle]

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.

[TradingPlaces]

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.

[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!

[TradingPlaces]

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%

[madbrain]

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.

[wander]

My car was about seven months of my income. But it was 17 years ago.

[ram]

< 1 mo

[cherijoh]

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.

[BrandonBogle]

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.

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.

[backpacker]

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.

[WHL]

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.

[LowER]

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!

[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.

[letsgobobby]

I think we switched to annual rather than monthly income. So divide by another 90 or so...

[LowER]

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

Are you still "letsgobobbybogle?"

[backpacker]

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...

[LowER]

.....

[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.

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.

[letsgobobby]

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!

[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

[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.