How much should i spend on a car as a percentage of my yearly salary?

Question

How much should one spend on a vehicle (total purchase price) as a percentage of their yearly income?

I am not including recurring expenses such as insurance, gas, etc, just the purchase of the car (e.g. 28k for a TSX)

FYI i earn 80k/year. I have heard 50% of yearly salary is a good figure. Should i spend 40k on a car? or is that too much? Please advise

Answer 1

Purely speaking from an economic sense, you should spend as little as possible. A car is a liability. It's a depreciating asset and it does not earn you money, it costs you money to own it.
You should spend the least amount of money you can to get a car that will best suit your needs. Obviosuly there are other issues such as quality of life and disposable income. Perhaps you like cars and are willing to spend more on one simply because it brings you happiness. That part is a personal decision.

However, Spending 50% of your salary on a car is insane, in my opinion.

I would basicaly make up a monthly budget. Compare how much money you are actually taking home after taxes, and then subtract all of your expenses. Mortgage or Rent, groceries, utilities, phone, savings, etc. once you are left with disposable income, determine how much you want to spend on a car and how much you want to have available for other things like going on vacation, and spending money.

Once you havea figure you are comfortable with, go with it and begin doing some research on cars in that price bracket.

Answer 2

I prefer 0%. Save for a big down payment, pay it off in 2 years and drive with a clear title until it dies. Of course the car dealership (or lender) has a figure which is as much as you can afford without getting the car reposed.

I have always wondered why people want cars that can do 150 mph or more, or a big truck that they will never use to carry anything in. Of course I want these things too, but I still don't know why. Spend $20,000 on a used foreign car and put the rest in savings.

Answer 3

Conservative financial advisors would suggest that the value of all vehicles owned should be no more than 50% of your yearly household income. This would exclude vehicles owned by a business, or antique/classic vehicles bought as an investment.

Answer 4

Most people say to spend about 10 percent of you net monthly income for a car. So in your case, after taking approximately 20,000 away for income tax, you're probably making around 5000 dollars per month so you should be making about 500 dollar payments... which is around a 30k car.

Answer 5

I would say it's a sliding scale. If you earn 6 digits then the percentage would be less than if you only made 20k/yr. The main thing is to get dependable transportation that looks good. If you are into cars then get something that excites you and that you enjoy, or than that just dependable transportation.

Answer 6

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Answer 7

400%

You only live once!