How Much Car You Can ACTUALLY Afford (By Income) – Not What You Think!
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THE 20/3/8 RULE:
20% Down Payment
3-Year Loan
8% Of Your Income – Maximum
These numbers are meant for people who want to prioritize paying down their loan as soon as possible, live below their means, and ensure that they have enough left over to save and invest.
THE 20/4/10 RULE:
20% Down Payment
4-Year Loan
10% Of Your Income – Maximum
This is similar to the above, but allows you to buy slightly more car by extending your loan an extra year and bumping up your payments.
THE DAVE RAMSEY METHOD:
He says: The car you can afford is the car you can buy outright, in cash. In addition to that, he practices the belief that the total value of your cars should NEVER cost more than 50% of your annual salary.
THE 10/10 METHOD:
The Financial Samurai Blogger recommends spending NO MORE than 10% of your gross income on a car that you keep for at least 10 years. Owning a reliable used car like this allows you the discretionary income to invest elsewhere, you won’t have the financial stress of being burdened by high payments, and you’ll be financially free to spend in other areas where you might get more personal enjoyment.
LENDER QUALIFICATIONS:
Most lenders DO NOT care about the above…instead, as long as you can make the monthly payments, they'll give you a loan at the most you can possibly get. Even more concerning, some lenders are willing to finance up to 125% of the cars value – so, if you bought a car for $30,000, they could give up to $37,500 to include sales tax, registration, title, and license fees.
Personally, I think if you JUST need a car for commuting – pick something that’s used, affordable, good on gas, and costs less than 10% of your gross income to pay off entirely within 3 years (if you can’t buy it outright in cash). This gives you the best value while spending as little money as possible.
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*Point increase based on observed VantageScore 3.0 changes for Kikoff customers with starting credit below 600 who made consistent, on-time payments. Current as of February 2024. Payment history & other behavioral factors can impact results. Individual results may vary.
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Graham, get an ‘All I could a’ sticker for your GT-40 and put it next to the ‘ford’ logo. That would be an ironic flex.
There’s almost no pick up truck that losing its value Graham
I think the 8% in the 20/3/8 rule applies to car payments only, from the Money Guy link on the source you shared “Your car payment should not be more than 8% of your income”.
The intro got me ! 😂😂😂
🙂
@@GrahamStephan copying Joe Roberts huh?
Graham really showcasing the quirks and features of car payments
THISSSS
Dealerships be like ‘based on your income, you can afford this $70k car!’ Meanwhile my ramen budget suggests otherwise.
😂😂😂
You can live in your car if need-be. But you can’t drive your house.
A car is not a depreciating asset…its a depreciating liability….
Did you buy European??😢
@@TheWityful no…just speaking in general about most peoples cars…there is an outlier or 2 with classics but 99.9% of cars are depreciating liabilities and you should never finance one…never ever
@@logisticspilotbankruptcy court doesn’t see it that way unfortunately.
A car is a tool. Everytime is an asset, it’s just that people don’t understand what an asset mean. A paper cup is an asset until you use it. It you have a fully paid car, you can sell it at anytime and get some cash.
What a car is not is an investment (unless you consider a business expense to be an invest, and that would only apply in cases where the car is going to used to make money, same as professional tools).
Well depends what you buy. There is always cars that will hold decent value. Now from brand new you’ll take a hit. After 4-5 years most of the depreciating has already taken place.
So if we are talking new, then yes 99.9% is true.
Talking used market? I can name so many cars that hold value long term after the usual drive off lot price hit.
I grew up with the idea of only pay cash for a car, never take out a loan. If you need a loan for the car you can’t afford it. Though I didn’t care about what I drove as long as it was somewhat reliable. This is why I have money now and can retire early. I was willing to drive a used Geo Storm in poor body shape in my 20’s a beat up mini van in my 30’s when I had kids. Living well below your means is the easiest way to not stress about money.
Only problem is now the used market has next to nothing cheap but somewhat reliable. and with the all the tech in new cars. In another 5-10 years used cars will be a minefield with the tech that could short out/break at anytime and have massive repair bills.
The funny thing is that in Louisiana making $45,000 a year that would leave you with $0 to purchase a car because the cheapest car insurance you can get is like $300 a month 😂
the 20/3/8 rule for car purchases is legit … if you cant afford it , you’re buying too much car … make more money if you wanna buy more car … never have more money in your garage/driveway than you have invested for retirement … i like cars too , but not as much as retiring at 49 while averaging a lower than median income
What’s the point of retiring early if your life sucked for the 30 years before retirement? Then you have a heart attack and all that money means nothing
@@jnmc-vx4fw Well it’s a risk reward play really.
What if they can be retired and healthy for the next 20 years?
Was it worth it?
Each person has to make that choice.
@@jnmc-vx4fwIt’s sad that you think that spending all of your money is the only way to have a good life. I’ve seen people die young and I’ve also seen people working into their 80s. While it’s certainly possible that I won’t make it to 60, considering that my parents are in their 80s and my grandparents all made it past 80, I figure that I have a good 20+ years in retirement. Not being able to retire because I spent money on things that are unimportant to me seems like a dumb move. I travel multiple times a year. I don’t spend a lot eating out and cook at home often, but when traveling, I don’t even consider the prices when eating out. Because I’m not reckless with my money, I can afford the things I want while still investing aggressively for an early retirement that will let me maintain my current lifestyle style. Actually, I expect it to improve. I’ll have a similar income with lower taxes and I won’t have to save, plus the freedom to do things on my own schedule.
@@TheCMan-987how about do both ? Live a great life now and retire wealthy
@@jnmc-vx4fw i’m a former physician who retired early (47) and life didnt suck at any time. i loved my job but dont love material things. Small house in rural america. Classic corvette (1967) and a used 1997 Land Rover as a daily driver for 17 years and plan to drive it until it falls apart. I have to keep fixing both, but fixing them is my hobby. Very middle class life for most of my life. Golden Lab to keep me company in the garage. this was the plan since the age of 11. I spend my time restoring the cars and helping people in my car club restore their cars, too. Most of the day is spent sanding, painting, disassembling, reassembling,
occasional welding, modifying, travelling, researching, and talking online with other enthusiasts about ideas. If you plan and work hard, you can achieve many, thought not all, of your goals.
My last physical exam put me at near zero risk for heart attack, but, as you know, medical disasters can strike anyone at anytime, regardless of retirement age.
Today, I learned it would be financially irresponsible of me to buy anything more expensive than a Hot Wheels car.
Me too
Well, figure out how to take public transport. If possible. Or get a bike.
Slow down there big guy. Keep it to the singles and not the multipacks.
Go on social media and make posts saying you’re looking for a cheap car. Odds are someone in your friends and family that you don’t keep up with is getting rid of a mediocre used car for cheap.
Nobody likes a bragger
Drove an 08 Kia Spectra for 6 years until it rusted out. Cost me $2900 in 2019. Replaced with an 05 Camry this year at $3500. Knowing how to work on my own car has had a fantastic ROI…
Apart from getting you a really hot girlfriend, cars look so great and are a real ego boost.
But if you can just get over that immature teenage mindset and find a nice sensible girl and a boring car.. you can stop wasting time and money on a depreciating asset and a fair-weather friend.
Understood no young man ever. ha.
There’s another metric you can use….if your car is nicer than your house you know you messed up.
The dave ramsey method is too good
Hand gesturing could use a 15% cut on this one
I follow the Ramsey method! This is what I have always done. Buy what you can afford in cash and drive it for 10 years or so. It has worked for me so far. Car payments suck!!! I don’t want to be indebted to anyone so I’ll just buy what I can do in cash. Feels freeing. Do I usually have an old/older car than most which is not perfect? Yes. Does it have the latest tech? No. But at least I’m not in debt. And my insurance for my older car is less. Invest the rest of your money in the stock market, your future self will thank you.
Well said. I used this method. Retired well off. Still drive a 10 year old car that costs nothing to drive other than consumables like gas, oil and tires. Really nice to retire with zero financial concerns. Recession? Who cares.
Weird you didn’t film this with the Ford GT in the background. “Graham, do you make $5 million a year to follow the 10% rule?” 😂
This comment cracked me up 🤣
I think he considers it to be a bit of an investment doesn’t he?
I’m 57, make low 6 figures, and am only on my 3rd car.
First car bought 1975 Honda Civic with 48K miles in 1987 for $350
Second car bought when first car died in 2007 was a 2000 Honda Accord with 55K miles for $3,400 cash.
Current car is a 2010 Toyota Yarris with 42K miles bought in 2020 for $4,200 cash. Now it has 72k miles and still going strong 🙂
wise man!
@@DailyElectricianyeah, but if you love cars; get one when you can afford 2 in cash. You’re not going to die with all your money
I genuinely cannot wrap my hand around the sheer level of ignorance required to buy a car with $1000 monthly payment. This country is so far beyond cooked
0:00 “what’s up Graham, it’s guys here” 😂
worrying about depreciation on a vehicle you intend to drive for many years isn’t worth it. it’s like the people who are worrying about housing prices when they aren’t moving.