Which Maverick SHOULD You Get?

[whatdoyouguyswannado]

I was reading up on financial advice saying a vehicle purchase price should be no more than 15% of your yearly gross income. To be able to afford the base model XL, I would have to be making $146k a year! Does anyone actually follow this advice? I know finances can be private for many people, so I'm not gonna ask people to state their income, but I'm just curious to know if people think this is good advice, or if much higher percentages can also make sense.

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[HotJombalya]

Obviously few people follow this advice if your math is right.

 

[Tyler]

They likely meant the monthly payment shouldn’t be more than 15% of your income: Divide that 146k by 3/4/5 years and that’s about how much they are suggesting you make.

 

[whatdoyouguyswannado]

They likely meant the monthly payment shouldn’t be more than 15% of your income: Divide that 146k by 3/4/5 years and that’s about how much they are suggesting you make.

No, the article I read said specifically it was the total purchase price.

 

[bbhaag]

Can you post a link to this financial advice you were reading about? Was it advice from an article that Dave Ramsey had a part in?

 

[commadorebob]

I think the article is wrong. The guidance I always saw is your total payments should not be more than 15% of your monthly gross and that your car loan totals should not be worth more than 50% of your annual income.

 

[commadorebob]

Can you post a link to this financial advice you were reading about? Was it advice from an article that Dave Ramsey had a part in?

Doubt it. He's a 0% in loans guy. So, even the 15% is still too much.

 

[Scott Asheville]

Such a loaded question. Cars are emotional identity badges for lots of people, ergo the advertising to sell you an image of the lifestyle and personality the car represents. But cars can be very utilitarian for many - although the marketers would argue you are just buying an "I am practical" automotive badge (ever wonder why economy cars don't look like Ferraris? Because that would not shout "I am practical").

If you're the practical type, maybe you should apply first principles. Do you even need a car? Many in urban areas don't and therefore don't own cars. Many young urbanites these days don't even have driver licenses. A car is a very expensive proposition, even an entry level one. Think 50 cents and more per mile for even the cheapest ICE ride - when you consider purchase, depreciation, maintenance, insurance and fuel. I think the last figures I saw were around $10,000 per year in America.

https://newsroom.aaa.com/2022/08/annual-cost-of-new-car-ownership-crosses-10k-mark/#:~:text=According to the latest research,$9,666 or $805.50 per month.

I'll offer this advice... Excel can be your best friend. It's dirt cheap as part of an Office subscription. You can model the costs for various cars you might buy and determine which best fits your personal situation, your wants and needs. Just remember to add in all the costs. Insurance. Registration. Inspections. Maintenance. Depreciation. Gasoline or electricity. You can get all these numbers pretty easily - for instance your insurer will give you online quotes for cars you're considering.

Mentally calculating what a car trip costs you is even more interesting. Are you driving an extra 10 miles to a restaurant because a meal is $10 cheaper? Might make no sense, since the trip will cost you $5 each way in total expenses at 50 cents a mile. Does the slightly higher-paying job with a 30 mile commute pay enough to compensate for the cost of driving there every day?

I used to buy loaded Kia Souls every two years until I threw them on the spreadsheet and compared to Volvo XC-40s. Turns out the luxury car cost me less per year than the economy car because of the difference in depreciation. Who woulda thought the $48,000 car was cheaper on a recurring two year purchase cycle than the $28,000 car (because of different depreciation rates)? But it was and it is.

Having given all that practical advice... I'm a car guy and I throw stupid amounts of money at new cars every two years because the pleasure they give me is worth it to me. Been doing it for 50+ years now with no regrets. But I also totally respect the folks who buy one car and drive it for 50 years. Those folks are probably living in a MUCH bigger house than me.

 

[whatdoyouguyswannado]

Here's one example. They even go as low as 10%, but also suggest that 35% is okay if you're an enthusiast. https://www.moneyunder30.com/how-much-car-can-you-afford

 

[bbhaag]

Here's one example. They even go as low as 10%, but also suggest that 35% is okay if you're an enthusiast. https://www.moneyunder30.com/how-much-car-can-you-afford

The article you linked to says 35% of your annual income not 15%. Is this the article you were referring to in your OP?

The ‘One-Size-Fits-All’ Rule: 35% of Your Income
Personal finance is personal, but everyone wants a rule to follow. So, when pressed, I would say spend up to 35% of your annual income on a car.

 

[whatdoyouguyswannado]

The article you linked to says 35% of your annual income not 15%. Is this the article you were referring to in your OP?

No, it's the article I was referring to in #9 where I acknowledge that it ranges from 10% to 35%...

 

[bbhaag]

nvm

 

[Tyler]

Here's one example. They even go as low as 10%, but also suggest that 35% is okay if you're an enthusiast. https://www.moneyunder30.com/how-much-car-can-you-afford

This article is talking about the percentage your monthly loan payments are vs your monthly income, not yearly income vs purchase price.

Well, they’re trying to at least- the wording is definitely poor in places so I can understand where you got confused.

 

[whatdoyouguyswannado]

This article is talking about the percentage your monthly loan payments are vs your monthly income, not yearly income vs purchase price.

Well, they’re trying to at least- the wording is definitely poor in places so I can understand where you got confused.

Well, if I wasn't confused before, I am now...

 

[Shay]

What kind of nonsense is that? Don't believe everything you read or hear. Do what you are comfortable with, that is what is the correct decision.

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