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Percentage of monthly income spent on a car?

390 messages,  Last post on Mar 21, 2009 at 5:50 PM

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#41 of 390 ratios by morningglorie Jun 27, 2001 (7:43 pm)
When I was buying my first car, many, many years ago, I read some financial planning article that said most people can afford a car that's total price (not the monthly payments) is one-quarter to one-third of their gross income. Keep it closer to one-quarter if you've got kids, other debts to pay off, big mortgage and so on. Go to one-third if you've got adequate savings, no debt, mortgage payments no more than 1/4 of your income. Those ratios still make sense to me all these years later.
#42 of 390 by xfactor Jun 29, 2001 (10:37 am)
The Affordability Calculator falls short but has been programmed within the accepted industry practice. The industry practice of calculating what someone should/could spend is a joke and should never be relied on.   All the points here discuss % of income. Why not a % of net worth excluding home.   I believe that is what post #41 is getting at.
#43 of 390 income vs. net worth by morningglorie Jun 30, 2001 (8:15 pm)
No, I really meant percentage of income, not net worth. So if you have an income of $60,000, you could easily afford a car costing 15 to 20k. (total price). Income of $90K would mean a car costing up to 30k. A less-conservative buyer, or someone who is positive their income will go up in coming years, could possibly stretch further, depending on other commitments.   Your net worth really wouldn't enter into it, especially if you're like most people and most of your net worth comes from your house and your retirement plan. Because cars depreciate, obviously you wouldn't want to cash in stock, which hopefully is appreciating - or will eventually, pray God, after this last year! For most people (unless you're living off your trust fund, or were smart enough to trade in your tech stocks at their high) car payments or savings for a car come from cash flow, not appreciation of other assets, so that's why you would want to think in terms of percentage of income, not percentage of net worth.
#44 of 390 cost of new cars by gnl Jul 06, 2001 (11:28 am)
Anybody else here read Warren Brown's column in the Washington Post? He had a good one today about auto manufacturers are making fewer and fewer low-end cars, and pointed out that the average new car today costs $22,000. The median household income in the U.S. is something like $39,000, but avg. individual income is around $27,000. He wondered who is going to be buying all these new $30,000 plus cars. He's got a good point. Used to be not that difficult to pick up decent transportation for relatively small bucks, but not anymore. And thus, people get themselves into trouble financially due to lack of viable options.
#45 of 390 Well... by fladriver Jul 06, 2001 (8:10 pm)
A company that builds a certain car had better be sure the car will sell for more than it cost to make.   The Korean brands are selling more cars these days while the Big 3 are selling less, and I'm sure sticker shock has a lot to do with it.   As to who will buy the $30k cars, the car companies have their target markets identified before a car goes into production. Once it's in production, if they figure the demand is going to be less they can build less of it and still keep the prices up. For ex, BMW supposedly makes twice the average industri profit on each car sold, but then they're not out to put a BMW in every driveway. They know their audience though.
#46 of 390 gnl by michaell Jul 10, 2001 (12:36 pm)
I think the issue is that many folks are not "buying" so much as "leasing" those $30K vehicles.   BMW built over 1,000,000 cars last year. In Europe, they compete against VW (low end 3 series with 4-cyl engines) as well as MB and other luxury manufacturers on the high-end. Plus, they've got the rights to the new Mini (coming soon to only 90 BMW dealers around the country) - $18K to start.   I see the logic in the 25-33% of net income argument, I just think that most folks want to drive a bigger/faster/sportier/more luxurious car than what they can get for $15-20K.
#48 of 390 by xfactor Jul 12, 2001 (5:37 am)
The reality is many people buy used cars.
#49 of 390 I think the unhappiness that some experince in buying a car by fangio2 Jul 17, 2001 (9:34 pm)
comes from spending more then you can afford.Not profound,Iknow.People go into a dealership and blow smoke up the salesman's er rump.The salesman wants to sell as much as he can ,so he goes along. If you can afford $400 a month -spend $300 you will be happy with your car.My wife wanted a new car,I figured a Camry or Accord for around $20.000 was what she needed.She drives about 100 mile a week(a cab would be cheaper,but--).Instead,I found something cheaper-she likes the car,I like the car.Now,if the same car cost me over $20,000 I wouldnt like it so much.
#50 of 390 by drew911 Jul 22, 2001 (11:28 am)
Interesting topic. I have friends who, relative to their income, have spent ridiculously small or large amounts of money for their car. Oddly, the ones making the least spend the most, both in absolute dollars and relative to their income.   Personally, I would feel uncomfortable spending more than 15% of our monthly take home pay on a car payment. My current car payment is 5.5% of our monthly take home pay, and I hope to never go above 10%. My younger sister, against my advice, is spending 25% of her take home pay on a new car (Acura TL-S), the same car she was SOOOO excited about beforehand and doesn't even keep clean now. IMO, 25% definitely is too high.

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