Country Living Series

Monday, May 21, 2018

How much car can you afford?

I stumbled across an interesting article recently entitled "Find out how much car you can afford with 20/4/10 rule." The idea, it seems, is not to spend too much on vehicles. Consider this passage:
"The 20/4/10 is a good example of one. It can help you get solid starting numbers to help your car buying decisions. Here’s how it works:

• 20% down payment on the car.
• 4-year car loan or less.
• 10% or less of your gross monthly income goes towards car expenses including gas, insurance, DMV fees, repairs, parking/speeding tickets, and interest payments.

Imagine you want to purchase a new car for $30,000 and you earn roughly $50,000 a year. That means you need to put at most a down payment of $6,000 (20% of the cost) and spend no more than $417 a month (10% of your income) on expenses for it."
I found this to be appalling advice, especially coming from a website entitled "I will teach you to be rich." How can you become rich if you "invest" (cough cough) in financially losing strategies by putting yourself in extreme debt for something that does not hold value? Hellooooo?

How's this for a concept: If you earn $50,000/year, you have no business buying a $30,000 car. New cars literally -- literally -- lose half their value the very second the wheels leave the car lot.

If you're trying to be rich, I imagine the first rule of thumb is not to spend money on things you can't afford, especially things that don't hold their value. Foolish people that we are, we buy used but reliable $2000 vehicles for cash and drive them until they fall apart.

Of course, we're not rich, so what do I know? Maybe it's better to listen to the experts.

22 comments:

  1. Last time we bought a new car was 1980. Last time we had a car payment was at least 25 years ago. Always buy used, always pay cash, only buy what you can afford. There's plenty of deals to be had, just do some research ahead of time.

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  2. I have almost always purchased new but I then drive them until they fall apart. That way I have control of the first 2000 miles of use and can make sure that is done properly. By running them until they fall apart the depreciation hit is minimised. I have paid cash for about 30 years.

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    1. Steve's reasoning is very sound. This old coot (me) has owned both new and used cars. The lowest cost/mile goes to a new bare bones el-cheapo Toyota Tercel. During this period of my life I was driving many miles/year. It proved highly dependable for 250,000 miles. I sold it to a student enrolled at a local college and she drove it (basically around town) for 4 years.
      Dock Guy

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  3. I'm also a bit suspicious about the website you mention, since they seem to have a hard time doing basic math, let alone teaching someone how to get rich. In this instance, the minimum car payment (at 0% interest) would be $500/month. ($24,000 divided by 48 months) Doesn't include anything for insurance, gas or maintenance.

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  4. We bought a Toyota pick up in 1986 and drove it for thirty years. We bought it when my husband was a rookie cop and drove it until retirement. We sold it for $2,400 less than we paid for it. It is the only time we financially did well with a new vehicle.

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  5. In 1984 I bought my first (and only) new car. I just sold it this year to a guy who wants it for parts. I think that kind of new car buying makes sense. The every two years like my father-in-law did makes no sense.

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  6. Steve and I have similar methods. Last truck I bought new and used for 16 years. 280K miles. I broke it in properly and made sure all maintenance was done at the correct time/mileage.

    Your way works because the first owner eats the early depreciation. Our way works because we amortize the depreciation over many years.

    If you buy a new car every 4 years, then yes, it is a FAIL. If you buy new and pay it off in 4 years and then save for the next 4 plus years, you are ahead of the game...then you can pay cash for the next one..... This, however, requires discipline which many folks don't have.

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  7. buy the best car you can for the cash you have on hand. find out what the car payment would be, and put that amount in a savings account. when the car you bought dies, empty the savings account and start again. one gentleman I worked with did this for over 20 years, and cashed out a $70k escalade just before he retired. his opinion was "you will never be rich as long as you are paying someone else to drive a car"




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  8. How much car can I afford? A lot less car than I would like but probably just what I need.

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  9. We have 4 vehicles. The newest one is a 2006 that we bought in 2008. We DO NOT have any car loans. If you invested $417 over 40 years you would be better off then putting it into a new car every 4 years. That author is crazy. Also how many parking speeding tickets does that person get that they want you to take that into consideration. I got 1 ticket when I was 18. Young and dumb. Never made that mistake again.

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  10. I am driving a new car that I will have paid for the early part of next year, 2 years after buying it. don't usually buy a new one but it is going to be my retirement car and if all goes to plan I will never need another one. we usually repair a vehicle until they are not fixable anymore, my husband's truck is a 1990, with only 140 thousand miles on it.

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  11. My Rule #1: Never borrow money for a car or rent (lease) a car. Always hold the title free and clear. Do not be a slave.

    Beyond that there are so many variables depending on the person/situation. And there are so many misconceptions.

    Rule #2: Do a cost study to calculate the cost per mile for the period you intend to own the vehicle for each vehicle under consideration. If you don't know how to do a cost study, seek the help of a homeschooler.

    Dock Guy

    This old coot

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  12. I'm in the camp of those who buy new and drive them until they fall apart. Maybe it is not the best strategy,but hey... if no one bought new cars there would be no used cars to buy... catch 22.

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  13. I have always purchased mature and experienced vehicles! Don't like the term 'Used Car'.

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  14. After my Dad retire (at 57) he ran into someone who worked a blue collar job all his life and retired a millionaire. The man told my Dad that ONE of his things was that he NEVER bought a car on credit. He bought what he could buy for cash and saved what he would have paid for a payment. His secret is that he never used all his savings to buy the next vehicle. Besides, prices on cars go down when you tell them you will pay cash and will leave if they don't give you a good deal.

    Kathy in Mississippi

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  15. We mostly have bought used, until our current cars. My wife needed a car in 2007 and we decided a Honda Civic would be a good reliable vehicle. We were shocked to find that the discount to buy a 3 year old Civic was only around $1000, so we bought new with financing from Honda of under 3% a year. In 2012 I needed a car and it was the same story. We still drive the now paid for 2007 and 2012 Civics which have needed close to zero repairs other than oil and filter changes, tires, and batteries. We expect that the Civics will likely last as long as we will be driving.

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  16. If we paid $2000 for a 12 passenger van it would likely be a Rusty bucket of junk that would be leaving us stranded. When you have an XL family you cannot buy cheap cars. We've looked as the husband is frugal when it comes to cars. The best deal we could find was a Toyota sienna AWD that "fit for now" with 125,XXX miles for $10,000. It's paid for but we likely will need to move to the 12 passenger. Used are over $15,000. None come in AWD which is very unfortunate and will make things more difficult come winter here. So a small family can maybe get by with a cheap car. Our commuter vehicle is a cheap car... Truck actually for now but we're paying a fortune on gas so we're buying a stick shift four door car to replace the truck from a friend for a good deal. It's hard when you have a large family and need to be able to transport them all

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  17. I read that article too; my first thought was, "Thank You, God, that I know a good rebuilder."

    My rebuilder, however, is about to retire. I'm going to have to find another one, or find a new plan, because I've never had much luck buying used cars any other way.

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  18. We bought our family vehicle in 2013 brand new right off the floor. We got it with zero APR and a 5 year loan. We paid off the loan a year early. We also plan to drive this van for at least another 10-15 years. Our first van was brand new and driven 12 years. The only reason we got a new vehicle was because our family outgrew it - not enough seats to safely travel. We also have a vehicle that we bought last year that is 26 years old. 40 plus miles per gallon which is perfect for driving as far as my husband drives each day. If we purchase another vehicle I hope it will be a truck but we will see. I may never get rid of the van. 8 seats means lots of room for the grand babies that will eventually come!

    Ouida Gabriel

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  19. Pay cash and only as much that you could afford to buy 10 at that price - this is a good rule of thumb for most asset purchases

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