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Do you follow the 1/10th rule when buying a car?
http://www.financialsamurai.com/the-...e-must-follow/
.... The 1/10th rule for car buying is simple. Spend no more than 1/10th your gross annual income on the purchase price of a car. If you make the median per capita income of ~$42,000 a year, limit your vehicle purchase price to $4,200 if you must buy one. Absolutely do not go and spend the median car price of $24,000! .... Seems like a good rule but I dont think many people follow it. |
I'm calling BS. I've never heard anyone with legitimate credentials suggest a 1/10th rule. If you follow that, even celebrities and CEO's would be outside that rule. Now maybe if the rule was 1/10 of your net worth, not 1/10th of your income, that would make sense. Many people with $100,000 incomes have a net worth much higher. There's no way your going to convince me that a surgeon or corporate lawyer making 1/2 Mil a year should only be buying a decently optioned BMW 3-series. Hell, my Nissan Maxima stickered for $39,000.
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The closest I've heard is, if you can't afford it on a 3 year note you can't afford it.
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If I can't pay cash, I can't afford it.
It's really that easy. |
I pay cash, I just do it a little at a time. For me, it's worth paying 1.9% interest to have my new car now rather than in 5 years. I pay, in total for all of my debt, about $235/mo. To me it's worth that fee to live the way I want now rather than saving all of my money in hopes that it will still be worth something when I retire. I can either keep paying $235/mo. to live comfortably or I can drive a beater, were thrift shop clothes, eat cheap processed food and rent a room in someone else's house to save money, hoping that some day it will all pay off and I can pay cash for a Tesla S and a new home. I'll take the low cost credit, thanks.
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I do still have a mortgage, because rent is REALLY throwing money away and the time it would take to save and buy a house while paying 85% of what I'm paying for my mortgage for rent didn't pencil out.
I like my vehicles, and have paid cash for the last 8 that I've bought. I'm not buying a new car ever again even if I have the cash, it's a huge waste of money in my opinion. $235/month is over $14,000 in 5 years. That's not an insane amount, but that's still $14,000. |
Yes, it is $14,000... over 5 YEARS. If I invested that $235/mo. it would be worth quite a bit in 20 years. But then, I wouldn't have all of this cool stuff now.
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