Just wondering-

If you make 30K$ per yr- what kinda car you get?
If you make 40K
50K 60K- 150K $$$etc....

I'm making 55 a year right outta college, and am happy to be driving a max at 300$ a month.

Anyone share what is good car for certain salaries?

 

Ignore the overall cost price tag on the car. Decide how long you're willing to make payments (36 months, 48, 60). Do you want to make payments for life = Lease after lease? Whatever you decide...your monthly payment should be no more than 20% of your net income. Net income = income after taxes, retirement, and social security.

Example: If you make approximatly 35K/year. You probably net just over $2K/month based on average tax rates and depending on what your state income tax is, if any. In this case, you should make no more than a $400/month car payment (after tax and interest).

20% is a solid rule, but I prefer the 10% cap on car payment AND insurance combined (and 10% is worst case), which I think is a good rule if you have the means. Feasibly for someone with, at least, better than average taste (i.e. likes nice cars)...this would require a salary of $75K/year or more depending on how high your insurance is. I say, as your salary increases, decrease the percentage of it which goes to your car instead of buying more expensive cars...live below your means...sound financial advice and although I won't quite as freely report my financial situation...I believe I've earned the right to give such advice.

There are all sorts of other things which can apply, of course. Like having dependants (children) can decrease your tax liability meaning you will have a higher net income...however, your cashflow liabilities are higher with children just due to the day-to-day expense of caring for them.

I say, however, if you're paying more than 20% of net income to your car lein-holder...you're wasting money that could be invested at medium-risk to high-risk level which is about as dangerous as owning a car but in the investment case you make money instead of sinking it.

DISCLAIMER: I am not a broker or finanancial consultant, but strongly believe everyone should have one.

 

You must also realize that cost of living in Cali is MUCH higher than most of the country. Making 55k in southwest Cali is like making 32K where I live (Kansas City). The house I bought in July cost 126K and is a 3 bedroom (~2200 sq. ft). My buddy in LA would be lucky to find a house like this for 300K (he currently lives in a apartment). He is always blown away by the difference in the cost of living.

Personally, I like to buy my cars outright. Chances are I won't ever buy a new car unless I start making some serious cash. There are too many good 1 year old cars out there that are much cheaper than new. I totally agree with Michael. If you're gonna buy new, then 10% of your net income is about right. I don't understand people who buy things they can't afford. If you have to take out a loan, then you can't afford it....that's my motto (unless you're talking about a home loan house). Where I live, there is a lot of money. People drive Bimmers, Benz's, SUVs galore, live in HUGE houses, and we a surrounded by highend strip malls. What's funny is the average person's overall debt far exceeds what they make (~85K household income for someone in their upper 30s-Johnson County, Kansas). I would much rather have fun with my car and buy whatever mods I want without having to "charge it". Plus, I would rather invest my money and retire early and buy whatever the hell I want. I put away 10% of what I make into my 401K at work (~$340 a month) plus my wife and I max out our IRAs every year.

Point is don't dump all your money into a car. It's just a car. Invest for the future. Retire early, have fun.


Dave

 

Good call on bringing up cost-of-living. I've moved between below average cost-of-living, one of the highest in the country, and a couple of places in between and it is certainly a factor in financial decisions. All of my #s are based on averages (i.e. my example with the $35K/year salary since the average household salary in the US is still around that #)

A key comment on your choice to buy cars outright. Consider, if you will, the choice of buying a $20K car outright or putting $5K down and financing $15K.

The $15K cash you had to buy the car gets invested. Any good advisor (or yourself on-line) can earn 12% interest on $15K. Invested aggresively it could earn you over 20% easily. If you consider an 8%-10% interest rate on the $15K loan you would actually more successful financially if you financed the car at a good rate and invested your cash at a higher rate.

This is not to put down buying a car for cash...always a good call!!! However, it is something to think about. The same thing should be considered when dealing with any interest accruing debt like credit cards, mortgages, etc.

 

DaveB-

I know... I am in Santa Barbara, CA and it is really expensive. When I graduate in june, I am moving to San Diego for my job. San Diego is cheaper...

I do high tech market research etc. and Have had the oppty to work in the bay area for 70-80k$ starting salary but the cost of living etc. is so high there and the job had no stability... so I took the more stable pick.

55K is average for San Diego and at 20/21 years old aint bad...

If you guys are investors- I work in the Storage Area Networking industry and can tell you they were all way oversold today... EMC, MCDT, FNSR (good pick) BRCD etc.

Stock advice on a maxima board? What what what???

 

I'd say never spend more than a few month's (3 or 4?) salary on a car.

/aac

 

..how much my wife is prepared to let me spend!
I would never pay cash outright for the entire value of the car. Under certain circumstances, a low interest loan, with factory incentives at model year end,make it worth while to take out a payment and stretch it for as long as permissable, that way keeping your money free to grow in other ways for you. From that perspective however, I think you will always have car payments all your life. Accept it I guess the way we have accepted that its gonna cost us to keep a roof over our head. there will always be rent/mortgage payments, and same goes for car payments. If you can go thre or four years without a car payment,your a lucky feller, and a rare one at that

 

Hey anthony... you know your stuff...

So if I paid 15K for my new max... that is about right... 3 months or so total income right?

Find any good deals on anything lately... seems like you know where to find stuff.

thx.

 

Yeh -- I mean, I wouldn't be too rigid -- especially if you have no other expenses. But if you've got normal expenses and are smart and put a good chunk of your money away like you should (right boys and girls?) and don't blow it all on cars and toys (right boys and girls?) I'd say keep it to 3 or 4 months salary (or income, whichever is greater).

More than that is just taking on too much debt (assuming you are going to finance -- and seems like you are -- which is fine if the rate is low and you negotiate a great price). So if you're pullin $55k I'd say $15-19k would be a good range.

/aac

 

I'd like to agree with Anthony, but...if you're basing your purchase on # of months salary...then keep in mind Net Income and not Gross Income as Anthony is using. $55K/year after taxes (for a single man/woman with no children) is low 40's after taxes meaning that your car purchase should not be more that $10K-$14K by the 3-4 months rule...meaning that nobody on this board is capable of following that rule.

At $120K/year, you pull about $7K/month after taxes...meaning $84/year net income. By Anthony's rule, if you make $120K/year, you should buy a car between $21K and $28K. If this is the rule we follow then everyone on this board must be pushing the $120K/year mark on salary.

I still say car payment <=20% of net monthly income is a good rule of thumb. To give credit to Anthony, however...following both rules, as I have done, would be ideal.

 

I meant 3-4 months gross. A quarter (a third if your expenses are low) of your annual salary. You figure if it's spread out over four years, it ought to work out to 8-12% of your net pay, maybe a little more, depending on your interest rate, down payment, etc..

What you are saying is very true. Almost no one here follows that rule. We all know most people here are not making >$120k. Lots of people -- in life, in general -- spend WAY more than they should on EVERYTHING, not just cars. Most people are just a couple paychecks away from bankruptcy. Very scary. (Trying not to preach...)

Stay cool,
/aac

 

I am fortunate to be in the >$120k cut off being described. I picked the Max because it's an awesome value in a fun to drive car. It seemed to me that you hit a point of diminishing returns by spending more. Since the car depreciates, it did not make sense to spend more. The max had everything I wanted. Just because you make more $ you don't have to spend it.

 

I dont necessarily agree with the 3-4 month thing. I only make about $2500/mo. Im single, dont have a lot of debt, I live alone and have my own place, Im about to buy a house. By that formula Id only be driving a $10,000 car, and as you can see, I dont drive KIAs...

 

It also has to do with where you live.

I live in Oklahoma and everything is cheaper here ...compared to coastal states. My $40,000 home here would easily cost at least $150,000+ in other parts of the country. Car insurance is also about half as much as I would be paying in other cities. This leaves me with a larger % of my income to spend on my vehicle.

Words of advice from me: No matter how much you make, never purchase anything on a credit card that you can't pay for when the statement arrives!

 

Well just read the last few sentences of my post above.

/aac

 

[QUOTE]Originally posted by acitrano
[I]I agree with you.. A lot of people do, but Ive never paid more than $375/mo. on any car Ive ever had.

 

buy a car that wont take more than 1/10th of your annual household income

 

I forgot to mention that I've always had valuable cars to trade-in which helped a lot with the overall cost of the car. The last two cars I bought only required me to write a check for $5000, the rest was on trade. I'm also very determined to get what I want for my trade and what I want for the new car. If I don't like it, I walk away. There will always be another. I'm not unreasonable, but most dealers are when it comes to price and trade.

Dave

 

what ive always gone by and been told is that you shold make at least 25% of the total cost of the car per year.

 

HUH??????

You should make at least 25% of the annual cost of the car?

So -- if the car is $4,000 a year, I should earn at least $1,000? Even if you meant it the other way around, I think it's incredibly bad advice, but that's just my humble opinion.

I don't get it.

/aac

 

.......scratch that one. I was thinking of something else