Car price ratio to NW

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daveydoo
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Re: Car price ratio to NW

Post by daveydoo » Fri Aug 03, 2018 12:17 pm

How much should I spend on a bottle of wine, as a function of my net worth? Not the right question, as others have pointed out. I want a good bottle of wine -- within my ability to discriminate -- that's also a reasonable value.

What are your minimum requirements? For decades we got the least expensive but reliable and low-maintenance vehicles that met our needs. Mostly Hondas and Toyotas. We did not look at anything luxury until we were miles from needing to post the math on a forum. Important tip from my car-guy FIL: never test-drive a car you don't intend to buy. I never knew what I was missing, and that was perfect while we were accumulating.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

johnbarry
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Re: Car price ratio to NW

Post by johnbarry » Fri Aug 03, 2018 12:29 pm

My last car purchase was under 5% of gross. I was planning to spend up to a month’s net salary, but came in 20% under that for the car I wanted. When I was younger I thought I would be car enthusiast, now that I can buy most cars I am no longer interested—just want something reliable to get the family from point A to B. Helps that we never drive more than 30-40mi in a typical week.

Ron Ronnerson
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Re: Car price ratio to NW

Post by Ron Ronnerson » Fri Aug 03, 2018 1:32 pm

KlangFool wrote:
Thu Aug 02, 2018 3:07 pm
magicrat wrote:
Thu Aug 02, 2018 1:52 pm
My car is 0.7% of my net worth.
magicrat,

I am overspending on my car. It is 2% of my net worth.

KlangFool
You are extremists. My car is 1.4% of my net worth.

stoptothink
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Re: Car price ratio to NW

Post by stoptothink » Fri Aug 03, 2018 1:53 pm

johnbarry wrote:
Fri Aug 03, 2018 12:29 pm
My last car purchase was under 5% of gross. I was planning to spend up to a month’s net salary, but came in 20% under that for the car I wanted. When I was younger I thought I would be car enthusiast, now that I can buy most cars I am no longer interested—just want something reliable to get the family from point A to B.
Similar. I remember spending ~75% of my yearly income on my first new car at 19 then having it vandalized, significantly damaged in a hit-and-run, the rims and stereo stolen, and then ultimately the entire car stolen. Great learning experience. Both my wife and I are very much car people, but just can't justify the expense even though we can easily afford almost anything. We now share one vehicle, which we brought new last year for about 1.5 months of household income. When we feel the urge, we'll just rent a really nice car for a day or we've even exchanged babysitting to borrow from my brother's constantly changing carousel of sports and luxury cars (currently including an AMG E63 and Volvo XC90).

letsgobobby
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Re: Car price ratio to NW

Post by letsgobobby » Fri Aug 03, 2018 1:56 pm

Mjar wrote:
Thu Aug 02, 2018 1:28 pm
putting it out there if someone has heard of a sound rule or what others have done......

Is there a %/ratio one can use to what is affordable in relation to their Net Worth. Not what I should buy but what is the upper limit to make a sound financial purchase like they have with the home price to income. Personal preference aside of course owning a luxury car or something flashy which I am putting aside in this discussion. I am in the market for a car soon and wanted to know what would be a good min/max price to calculate to aim for % wise so I don't limit my choices. my whole life I have been brought up in a camry/accord type of vehicle

Assume paying cash for the car, no payments.

Your take or your current situation when you bought your last car?
There doesn’t seem to be any rationale to use this ratio.

DCChak
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Re: Car price ratio to NW

Post by DCChak » Fri Aug 03, 2018 2:28 pm

Hadn't thought of this ratio before. Also not convinced of its value.

My (49) car - 0.6% of HHNW, 3.6% of Annual Income
Wife's (35) car - 1.5% of HHNW, 21% of Annual Income

For that matter:
Student loan annual payments - 1% of HHNW, 4.6% of Annual Income
Mortgage annual payments - 22% of HHNW, 15% of Annual Income

KNomad
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Re: Car price ratio to NW

Post by KNomad » Fri Aug 03, 2018 2:32 pm

Bought a new car in the past year that is about 10% of my net worth and 25% of my gross income.

I negotiated a cash purchase price (had more than enough to pay cash), then bought using credit union financing at 1.24% and then put the cast into a CD earning 2.35%.

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jharkin
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Re: Car price ratio to NW

Post by jharkin » Fri Aug 03, 2018 2:34 pm

alfaspider wrote:
Thu Aug 02, 2018 2:19 pm
The Wizard wrote:
Thu Aug 02, 2018 1:57 pm
Car price should be based on annual income, not net worth.
My last new car purchase, a 2016 F-150, was a bit less than half my annual income...
Half annual income seems like a lot unless your net worth is really high in proportion. I'm sure it can be done, but probably not the most BH purchase. Of course, a truck could also be a work tool, in which case it's a bit different.
I was going to say ... wow. Ive often heard income based rules of them (by folks like Ramsey) to keep it under 20 or 30%. My last new car purchase was 17% of household gross, and that felt expensive at the time.

4.5% of net worth, before anyone asks....

Ambition89
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Re: Car price ratio to NW

Post by Ambition89 » Fri Aug 03, 2018 2:39 pm

Financial Samurai wrote an article on this a coupe years ago

https://www.financialsamurai.com/the-11 ... st-follow/

Nate79
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Re: Car price ratio to NW

Post by Nate79 » Fri Aug 03, 2018 2:55 pm

jharkin wrote:
Fri Aug 03, 2018 2:34 pm
alfaspider wrote:
Thu Aug 02, 2018 2:19 pm
The Wizard wrote:
Thu Aug 02, 2018 1:57 pm
Car price should be based on annual income, not net worth.
My last new car purchase, a 2016 F-150, was a bit less than half my annual income...
Half annual income seems like a lot unless your net worth is really high in proportion. I'm sure it can be done, but probably not the most BH purchase. Of course, a truck could also be a work tool, in which case it's a bit different.
I was going to say ... wow. Ive often heard income based rules of them (by folks like Ramsey) to keep it under 20 or 30%. My last new car purchase was 17% of household gross, and that felt expensive at the time.

4.5% of net worth, before anyone asks....
Dave Ramsey's rule of thumb is value of all things with a motor should be less than 50% of annual income because it is a drain on the net worth as they go down in value.

Mjar
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Re: Car price ratio to NW

Post by Mjar » Fri Aug 03, 2018 3:04 pm

Thanks

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jharkin
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Re: Car price ratio to NW

Post by jharkin » Fri Aug 03, 2018 3:04 pm

Nate79 wrote:
Fri Aug 03, 2018 2:55 pm
[
Dave Ramsey's rule of thumb is value of all things with a motor should be less than 50% of annual income because it is a drain on the net worth as they go down in value.
Wow, I mis-remembered. I'm surprised his number is so high .....

DA200
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Re: Car price ratio to NW

Post by DA200 » Fri Aug 03, 2018 3:24 pm

Our current 3 cars combined have a total value less than 0.5% of our net worth. During the past 25 years we have paid anywhere from 1% to 400% of our net worth at the time for 5 new vehicles Net worth is a poor indicator.
Income might be a better choice. We have bought 5 new cars in the past 25 years and have always paid between 15% to 35% of our income. Has still allowed us to max all retirement accounts and save a bit in taxable.

JoeRetire
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Re: Car price ratio to NW

Post by JoeRetire » Fri Aug 03, 2018 3:47 pm

alfaspider wrote:
Thu Aug 02, 2018 1:50 pm
JoeRetire wrote:
Thu Aug 02, 2018 1:35 pm
Never pay more than 100% of your net worth for a car. Less is better.
There was a time I had negative net worth due to student debt but a six figure job. I paid $3,500 for a car at the time. Mistake?

Not really arguing that specific rule of thumb, but just showing that rules of thumbs in relation to net worth aren't necessarily all that useful.
Agreed. As I tried to point out sarcastically, basing a max car cost on your net worth makes no sense.

travellight
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Re: Car price ratio to NW

Post by travellight » Fri Aug 03, 2018 3:50 pm

0.008

travellight
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Re: Car price ratio to NW

Post by travellight » Fri Aug 03, 2018 3:53 pm

About 13% of income.

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vineviz
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Re: Car price ratio to NW

Post by vineviz » Fri Aug 03, 2018 3:59 pm

hightower wrote:
Fri Aug 03, 2018 12:08 pm
I go by the "Less than 20% of gross income rule" and pay CASH only
Yes.

I'm not dogmatic about the cash-only part, but cars are an expense and not an asset so they should be calculated on income and not net worth.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

n00b
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Re: Car price ratio to NW

Post by n00b » Sat Aug 04, 2018 1:41 pm

Our fleet of cars is worth about 2.7% of our net-worth and 11.7% of our gross annual income. That feels like too much to me.

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Frugal Al
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Re: Car price ratio to NW

Post by Frugal Al » Sun Aug 05, 2018 9:06 am

Definitely agree that the car price/net worth is not the metric to use for buying a vehicle. The TOTAL cost of ownership vs income over time of ownership should be considered, in conjunction with other expenses and debt. Buying an inexpensive used car just to meet some arbitrary percentage of income is not prudent either, particularly if one has to skimp so much that you're purchasing more often because of unreliability. Consider all transportation expense components including depreciation, maintenance and insurance over length of ownership. Some people have different transportation requirements than others and drive more or less than others. In my opinion there are no easy rules of thumb here other than managing one's transportation expense in context of other meeting other financial goals, including savings goals.

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