Stupid car related financial advice

So I came across an article about how much you should spend on a car. I am of the camp of no more than 20% of your take home pay monthly for a daily driver and whatever on any project cars as long as you are still saving 25% plus at least 20% for retirement.

I wont link the article because it is stupid but basically the author states you should only spend 10% of your net annual income on a car...

Note this author thinks this because in 2003 he had a g wagon that he sold for like a $15k loss and bought a 97 civic for $7k from his mom and then bought a condo in San Francisco for $585k that is now worth $1.4 million thus you should invest in real estate.

Well... I think Americans gernerally overspend on both cars and housing, so he's not totally wrong.  Anecdotally, the last new car I bought matches this chart exactly for my household income.

I mean I agree that we as Americans do overspend on both, but I think 10% is too low especially after C4C decimated the used car market.

I agree that Americans generally overspend on cars, but this chart is worth less than you paid for it. Someone earning $1,000,000 a year is not stressing their income in the least to buy a $150k car. And LOL at the idea of having to earn $200k+ a year before a Honda Accord becomes a reasonable car to purchase.

My personal vehicles line up with this chart because I'm a cheapass. Err, sorry, "Frugal." But there's no reason to expect everyone to adhere to my philosophy.

MrChaos said:

I mean I agree that we as Americans do overspend on both, but I think 10% is too low especially after C4C decimated the used car market.

LOL- that had no effect on the used car market- relative the the pool of used cars, it was a tiny drop in the bucket for a very small time over 10 years ago.  It was made up by one month of production, back in 2009.

Relative to the article, I'm good with the concept of limiting what you should get.  But looking at the table, it clearly does not factor in leasing- which can very much reduce your monthly spend on a car- as the assumption of the article is that you keep spending on the car for your career.  Like right now, the lease on a F150, Escape, and Fusion are ~$200/mo.  So for their payment estimates, that's two cars/mo.  

Well, I'd say he makes a good point.  Americans do overspend for cars.  And a house is very likely to be worth more when you go to sell it.  A car?  Not ever, except in very rare cases. 

Don't forget to add costs for insurance, fuel, repairs, maintenance, property taxes.  That economy car may be costing you a lot more than you realize.

Our culture does not currently put a high value on frugality.  Perhaps it should.

Haha motorcycles listed as somehow a cost saving vehicle...

The charts says that I should have a 3-5 yr old econo car; maybe a new Mazda 3

Instead, in my driveway now I have 3 econo cars, 2 minivans, 2 luxo-barges and 1 truck but the newest is 9 years old and the oldest is 29 years old.  Either way, their total combined value is less than $25k or the price of one new average priced car (or a well equipped Mazda3.)   None of them have loans on them. 

His advice works for me.  

I can't get mad at the suggestion to spend less on depreciating assets and then spend the money saved on assets that are more likely to at least hold their value and could even appreciate. We may find it ridiculous because we like cars, but truthfully being extra conservative with spending on anything isn't going to hurt anybody's finances.

Some of the percentage rules can be modified too. If you spend a smaller percentage on transportation, perhaps it's ok to spend more on housing, travel, or food and vice versa. Car enthusiasts might be willing to spend more on what they enjoy and give up in some other areas. A normal person that considers a car an appliance might rather spend more on their home. It comes down to priorities, and most people don't really care about cars, so there's no good reason to over spend in that part of the budget.

I guess it's also worth considering that the writer's reference may be from living in the Bay Area too, where real estate and housing are super high. If his budget has more than the recommended spending on housing (not because of lack of self control, but from the generally high cost of real estate in the area), he may have to make up for that in other categories like transportation in order to maintain appropriate savings levels.

God I hate these charts. They never take in to account anything else other than the one topic at hand.

Gotta wait till you're making $100-$200k to buy a berkeleying Yaris? Really? Am I buying the top of the line brand new model at a dealer mark up in cash or something?

As long as you keep your rent/mortgage+utilities+taxes+insurance under what was it...30 or 35%, while putting away at least 15% to retirement and another 15% to rainy day fund, buy whatever you want. Just make sure you can pay your other bills and cover your daily/weekly/monthly purchases and still have some money left over.

This also doesn't assume said person has previous debt that they're trying to manage and/or pay down sooner.

MrChaos said:

So I came across an article about how much you should spend on a car. I am of the camp of no more than 20% of your take home pay monthly for a daily driver and whatever on any project cars as long as you are still saving 25% plus at least 20% for retirement.

Saving 25% PLUS 20% for retirement? I need that discipline to save 45% of my income per month!

MrChaos said:

I mean I agree that we as Americans do overspend on both, but I think 10% is too low especially after C4C decimated the used car market.

OMG seriously? C4C was a drop in the bucket of number of cars taken off the road every year and it ended over a decade ago. I think it's hilarious how many car guys cling to this idea that C4C had any meaningful impact on the used car market even in 2010 much less in 2019.

z31maniac said:

MrChaos said:

So I came across an article about how much you should spend on a car. I am of the camp of no more than 20% of your take home pay monthly for a daily driver and whatever on any project cars as long as you are still saving 25% plus at least 20% for retirement.

Saving 25% PLUS 20% for retirement? I need that discipline to save 45% of my income per month!

Yeah, that's what I was thinking.  We're almost set for retirement and we haven't been putting away that much.  Though we do net probably 10% positive every month after putting away 15%-20% for retirement.

We're not driving 3-5-year-old economy vehicles, either... though we do tend to keep cars a long time.

z31maniac said:

MrChaos said:

So I came across an article about how much you should spend on a car. I am of the camp of no more than 20% of your take home pay monthly for a daily driver and whatever on any project cars as long as you are still saving 25% plus at least 20% for retirement.

Saving 25% PLUS 20% for retirement? I need that discipline to save 45% of my income per month!

Somehow people are suggesting that others in my age bracket somehow save 45% of their take home pay for retirement. They seem to neglect the 28% of the paycheck that goes to taxes, the other 12% of annual income that goes to sales tax, the 30+ percent that goes towards rent oor a mortgage, the $3k/year utility bill average, really doesn't leave a whole Hell of a lot for saving after buying things like food and gas or taking care of the kids.

Something tells me these people have never had to choose between food to eat or gas to get to work, or ever considered shutting their power off in the summer to save a few bucks where they can.

dculberson said:

OMG seriously? C4C was a drop in the bucket of number of cars taken off the road every year and it ended over a decade ago. I think it's hilarious how many car guys cling to this idea that C4C had any meaningful impact on the used car market even in 2010 much less in 2019.

I saw *two* BMW 325ix with cash for clunker markings on them.

It made a meaningful difference if you're looking for AWD pastic bumper E30 BMWs.

1988RedT2 said:

Our culture does not currently put a high value on frugality.  Perhaps it should.

Actually, it does put a value on frugality, but it is a negative value.

Pete

Don't mistake Financial Samurai as a guideline for the masses. It targets people looking to retire early with broad spectrum advice for everybody. I'm not one to defend that website but you cannot expect a full picture with it stripped out of context.

That said, I've learned not to take financial advice from people unwilling to divulge their net worth, their income, and their age.

Finally, at 38, with a stay at home wife and four homeschooled kids, we save 37-40% of our income and we essentially have unintentionally followed this chart for the last four car purchases.

In reply to RevRico :

I honestly think retiring for the majority of our generation just won't be feasible.

So the average new car costs 37,000 which means by his logic tht the average buyer should be making 370,000$. Never mind that income is about the last thing you should use. This author has also started in the past that this can be used for payment as well. IE 10% of your take home can be used for the payment. 

.

Net worth is a much better metric for this stuff and yeah I actually agree with that 10% of your net worth in the cars you own is likely not to far off from a reasonable number not counting people on the edges of the curve.  You have 100K in assets 10K in your used civic is about right. You have 3.0 Million and you and the wife both have nice luxury cars. 

Without any other context, I agree with the chart. If I didn't like cars I wouldn't own one. Way too much hassle and cost. There's some inconvenience in taking the bus or riding a scooter, but those aren't such a huge liability when they stop working.

There's way too many variables for such a simple chart to apply to everyone but it works for me. I'd probably be in a new car at 100k but again, I like cars.

Brett_Murphy said:

dculberson said:

OMG seriously? C4C was a drop in the bucket of number of cars taken off the road every year and it ended over a decade ago. I think it's hilarious how many car guys cling to this idea that C4C had any meaningful impact on the used car market even in 2010 much less in 2019.

I saw *two* BMW 325ix with cash for clunker markings on them.

It made a meaningful difference if you're looking for AWD pastic bumper E30 BMWs.

Yet, somehow you can find a Maserati Biturbo any day of the week.  If there ever was a car that C4C should have eliminated...it was the Biturbo. 

Duke said:

z31maniac said:

MrChaos said:

So I came across an article about how much you should spend on a car. I am of the camp of no more than 20% of your take home pay monthly for a daily driver and whatever on any project cars as long as you are still saving 25% plus at least 20% for retirement.

Saving 25% PLUS 20% for retirement? I need that discipline to save 45% of my income per month!

Yeah, that's what I was thinking.  We're almost set for retirement and we haven't been putting away that much.  Though we do net probably 10% positive every month after putting away 15%-20% for retirement.

We're not driving 3-5-year-old economy vehicles, either... though we do tend to keep cars a long time.

 

If you value early retirement above all else, OK. But what about opportunity costs?  What about tax planning? 
It's kinda like that chart that says in this state a million bucks will last you 22 years but this state it will last 26 years.  Except they fail to mention crime rate or living conditions. 
 

Oklahoma is a cheap state to live in but crime is pretty high, no major league sports, poor schools medical facilities and in general poor amenities.  
If your family lives there well that's one thing, but otherwise what is the attraction? It's like Minnesota without the major league sports 20,000 lakes  I apologize  to Oklahomians, 

In reply to MrChaos :

Do you really budget 20% for cars and projects, 25% for savings, plus 20% for retirement?

Thats 65%. How do you eat, or pay for housing or insurance???

Super annoying that there are only two kinds of car advice:

1. New cars are for upper-upper middle class. If one paycheck won't cover MSRP, you're paying too much.
2. My new daily driver Maserati cost me $80! (Be sure to like and subscribe for Ten things I hate about my new daily!)

I like cars. I make a fairly decent income, all my bills are paid. I want to buy a nice car without ruining my finances. It sucks that the only advice is either "No, also sell your practical car, buy a bus pass, eat only food from unlabeled cans bought at the clearance rack. Mmmm...  pig's feet surprise." and "Leeeeroy Jeenkins!"

Where's the Grassroots enthusiast's guide to buying a fun second car that costs 20% of your annual income - the safe way?

In reply to Mike :

Make sure your daily is not only reliable and dependable, but cheap to maintain and fix. It being paid off also greatly helps.

The fun car? Go hog wild.