Unfortunately, the very phrasing of this question carries an implicit assumption that you should buy AS MUCH car as you can afford rather than a better assumption (IMHO) you should buy only as much car as you need. Obviously "need" is a vague term but at the very least it implies that we are looking for some balance between DESIRE to own a thing and ABILITY to pay for that thing.

Automobiles are depreciating, not appreciating asset, and there are some real cash liabilities associated with owning a car: depreciation, maintenance, taxes, insurance. I think when budgeting for any expense of this type, calculating the long-run total cost should be part of the decision-making process. Luckily, the consumer auto website Edmunds.com provides what I think are reasonable estimates for what they call "Edmunds True Cost to Own" (TCO) which they describe as "proprietary data that helps you estimate the total five-year cost of buying and owning a vehicle". The components of TCO are Depreciation, Financing, Fuel, Insurance, Maintenance, Repairs, Tax Credit, and Taxes & Fees.

E.g. for 2018 Honda Accord: https://www.edmunds.com/honda/accord/20 ... st-to-own/

I looked at TCO for a pseudo-random selection of 25 new vehicles, ranging in price from a 2018 Nissan Versa 1.6 S (roughly $12k) to a 2018 Mercedes-Benz E-Class AMG E 63 S 4MATIC (roughly $124k) to explore the question at the top of this post:

**Is the price of a new car a good proxy for the expense of owning it?**

If it is, then consumers could use the cash price of a new vehicle to estimate their annual expense to decide if that annual expense is affordable to them or not.

Edmunds TCO employs a LOT of simplifying assumptions but I find them reasonable in direction and magnitude. Obviously every consumer will find themselves in a slightly different situation, but I was curious about the general relationship between initial cost and annual expense.

I found, unsurprisingly, that the annual "total" cost to own a vehicle is directly related to the initial "cash" cost. Unsurprising in part because many expenses of owning a vehicle are directly related to its value (depreciation, financing, insurance, taxes & fees) and in part because the market for automobiles is IMHO fairly efficient. Some people may object to the inclusion of financing costs since some people choose to literally pay cash for their vehicles instead of taking out a car loan. I consider financing costs to be a fairly reasonable approximation of the opportunity cost of using cash instead of a secured loan and I don't expect changing the interest/discount rate within normal bounds would make a large difference in the finding.

The simple linear trend line in the graph tends to very closely approximate the individual estimates annual expense of each vehicle. The regression for the trend line has a high r

^{2}of 0.98, an intercept of $1,622, and a slope of .20.

**That means, over the first five years of ownership, you can expect the annual expense of an automobile to be approximately $1,622 + 20% of the initial purchase price.**

Using that equation a consumer who knows their net income, their savings rate, and their other living expenses should be in a very good position to estimate their ABILITY to afford a car in a particular price class.

Imagine a person with an annual salary of $60k and net income (after taxes etc.) of $46k, which is about $3,800/month. With living expenses of $1,500/month and retirement savings of $800 per month this person has roughly $1,500 in disposable income. If they spent roughly third of that disposable income on a car, that'd be about $500 per month or $6,000 per year. Subtract the "fixed annual" auto expense of $1,600, divide the remainder by 0.20, and you get an estimated car value of $22,000 under the assumption that the person had both the DESIRE and ability to spend 33% of their disposable income on a car.

Vary that desire and you get a varied price estimate, but either way you have concrete estimate with which to begin the decision making process.