How much to spend on a car as % of annual income
Discussion
So the question is, what do ph'ers think is a responsible amount to spend on a car as a percentage of annual income? I'm thinking along the same lines as when you get a mortgage, the bank caps their lending to you as a multiple of annual income.
Oh, and you're not allowed to say anything like 'whatever you can afford', thats too easy.
Oh, and you're not allowed to say anything like 'whatever you can afford', thats too easy.
I once spent 200% of my annual income on a car.
I've also spent 0.0016% of my annual income on a car.
So it depends how much you can afford at the time, and how much the car you want costs, obviously.
The thing is to pick a car, then try to find the budget.
That's what differentiates car enthusiasts from finance enthusiasts.
I've also spent 0.0016% of my annual income on a car.
So it depends how much you can afford at the time, and how much the car you want costs, obviously.
The thing is to pick a car, then try to find the budget.
That's what differentiates car enthusiasts from finance enthusiasts.
Mine has been infinite because I bought my first car in a year I that didn't have any income at all.
More recently, I think the Elise was around 40% of gross.
Purchase cost has always seemed rather irrelevant to me, though. It just determines how long I save up for before I get the car. Depreciation is the important thing and that has never been over 5% of my salary per year.
More recently, I think the Elise was around 40% of gross.
Purchase cost has always seemed rather irrelevant to me, though. It just determines how long I save up for before I get the car. Depreciation is the important thing and that has never been over 5% of my salary per year.
Edited by kambites on Thursday 27th September 09:19
dry664 said:
Oh, and you're not allowed to say anything like 'whatever you can afford', thats too easy.
But what if I inherit £100k, own my home outright and earn £15k a year? Am I allowed to buy a £70k GT3?Or what if my current salary is £150k a year and I still drive my £1k Puma? Will I be doing it wrong?
Perhaps I'll over borrow to buy a car that will appreciate but I can barely afford, or perhaps I don't like cars.
It's a stupid thread, with so many variables that it doesn't matter. Spend what you can afford and buy whatever makes you happy, if that is 10x your salary or 0.01x it is doesn't matter.
I try to spend as little as possible. Compared to my income/to my peer group at work, I drive around in pityful old bangers. I have never owned a car with a built-in satnav or which was younger than 10 years.
And I don't care - I have owned wonderful luxobarges, wafted along in faded glory, had almost no depreciation, owned cars which cost 100,000 new but paid 10,000 or less.
Would I spend 50,000 on a car? Most likely not. It is not that important to me. I don't have to keep up with the Müllers. Every new generation of cars strikes me as even more soulless. So the 1980ies and 90ies it is.
And I don't care - I have owned wonderful luxobarges, wafted along in faded glory, had almost no depreciation, owned cars which cost 100,000 new but paid 10,000 or less.
Would I spend 50,000 on a car? Most likely not. It is not that important to me. I don't have to keep up with the Müllers. Every new generation of cars strikes me as even more soulless. So the 1980ies and 90ies it is.
I think it changes with age. My first 'nice' car was a lot compared to what I was earning, more than what I'd earn in a year, at the time. But I lived at home and lived for my cars.
More recently, other priorities take up the income but if/when I get to the stage of having a home wich doesnt eat through a good chunk of the take home, I'd like to think 50+% would go on cars/car related things.
However, this again will be dependant on needs.
More recently, other priorities take up the income but if/when I get to the stage of having a home wich doesnt eat through a good chunk of the take home, I'd like to think 50+% would go on cars/car related things.
However, this again will be dependant on needs.
net or gross?
I've just purchased the most expensive motor I've ever owned at approx 20% of my gross income, terrifyingly it's a third of my net.
The payments however are just under 10% of net over 3 years.
I really had to convince myself to spend that much, and I don't think I'd be happy doing any more. Not with the economy the way it is lately.
Of course, it's all subjective, someone could debt themselves up with a high percentage of net income to pay for a new kia, yet it'll cost them buttons over years and years of ownership.
Do the same with a second hand Ferrari and you could be in trouble...
I've just purchased the most expensive motor I've ever owned at approx 20% of my gross income, terrifyingly it's a third of my net.
The payments however are just under 10% of net over 3 years.
I really had to convince myself to spend that much, and I don't think I'd be happy doing any more. Not with the economy the way it is lately.
Of course, it's all subjective, someone could debt themselves up with a high percentage of net income to pay for a new kia, yet it'll cost them buttons over years and years of ownership.
Do the same with a second hand Ferrari and you could be in trouble...
Captain Muppet said:
I once spent 200% of my annual income on a car.
I've also spent 0.0016% of my annual income on a car.
So it depends how much you can afford at the time, and how much the car you want costs, obviously.
The thing is to pick a car, then try to find the budget.
That's what differentiates car enthusiasts from finance enthusiasts.
When people mortgaged themselves up to the eyeballs 5 years ago or so in order to ride the housing ladder, were they being house enthusiasts or just irresponsible?I've also spent 0.0016% of my annual income on a car.
So it depends how much you can afford at the time, and how much the car you want costs, obviously.
The thing is to pick a car, then try to find the budget.
That's what differentiates car enthusiasts from finance enthusiasts.
How is it any different with a car?
oyster said:
When people mortgaged themselves up to the eyeballs 5 years ago or so in order to ride the housing ladder, were they being house enthusiasts or just irresponsible?
How is it any different with a car?
House enthusiasts, they turn up in fields with their 4 bed mock tudor semi and brag about how energy efficient it is. How is it any different with a car?
Hard one to answer...
What if I buy a car for £50k and sell it a year later for £50k? In my book the money 'spent' over the year was the simply adjustments for inflation / interest if one borrows.
Whereas, if I buy a car for £15k which is worth £5k 3 years later, then money spent was £278 / month in depreciation.
Plus, that is just depreciation - all the running costs need to be factored in as well (always a shocker to those who buy a £23k Golf tdi every 3 years because "they get 60 to the gallon!!!")
Then you move onto company cars which are still a large % of the new cars out there - how do you do that maths?
Then there are those of us who opt out and take an allowance to run our cars. If you run a car which costs you less than your allowance is it even a 'cost'? In my book, the answer is 'no' - so by using an opportunity cost rationale of not taking a company car, my old Passat is actually a 'cash machine which makes money'.
Hence, in my book my 'spend' is actually a negative.
What if I buy a car for £50k and sell it a year later for £50k? In my book the money 'spent' over the year was the simply adjustments for inflation / interest if one borrows.
Whereas, if I buy a car for £15k which is worth £5k 3 years later, then money spent was £278 / month in depreciation.
Plus, that is just depreciation - all the running costs need to be factored in as well (always a shocker to those who buy a £23k Golf tdi every 3 years because "they get 60 to the gallon!!!")
Then you move onto company cars which are still a large % of the new cars out there - how do you do that maths?
Then there are those of us who opt out and take an allowance to run our cars. If you run a car which costs you less than your allowance is it even a 'cost'? In my book, the answer is 'no' - so by using an opportunity cost rationale of not taking a company car, my old Passat is actually a 'cash machine which makes money'.
Hence, in my book my 'spend' is actually a negative.
oyster said:
When people mortgaged themselves up to the eyeballs 5 years ago or so in order to ride the housing ladder, were they being house enthusiasts or just irresponsible?
Neither, they were taking advantage of the increasing availability of credit on the notion that there's "no more boom and bust" and that "house prices only ever go up".Seems these very poeple are capable of believing that and not capable of looking at history.
I've never spent more than 25% of my annual salary on purchasing a car.
Running costs, at the moment, probably equate to about 10% per annum if you take into account insurance, fuel, tax, repairs etc.
I guess the more you earn the higher percentage you can spend as you have more left over after the essentials?
Running costs, at the moment, probably equate to about 10% per annum if you take into account insurance, fuel, tax, repairs etc.
I guess the more you earn the higher percentage you can spend as you have more left over after the essentials?
If the OP is talking about the purchase price of the car then it's mostly irrelevant.
Of much more relevance is how much the car actually costs you over the period of ownership against your earnings in that time.
For example take 2 people who both earn £50k a year and have no pay rises over a few years.
Person A buys a new £50k car each year, which costs £2k over that year to run. It also depreciates in year 1 by 25%.
So over 5 years they will spend £70.5k or 28% of their gross earnings.
Person B buys the same £50k car but keeps it 4 years. It costs £2k to run for years 1 and 2 and £3k per year after that. It depreciated by 70% over those 5 years.
Over the same 5 years they will spend £48k or 19% of their gross earnings.
However, if you measure it on purchase price alone then they both spend 100% of their gross earnings.
Of much more relevance is how much the car actually costs you over the period of ownership against your earnings in that time.
For example take 2 people who both earn £50k a year and have no pay rises over a few years.
Person A buys a new £50k car each year, which costs £2k over that year to run. It also depreciates in year 1 by 25%.
So over 5 years they will spend £70.5k or 28% of their gross earnings.
Person B buys the same £50k car but keeps it 4 years. It costs £2k to run for years 1 and 2 and £3k per year after that. It depreciated by 70% over those 5 years.
Over the same 5 years they will spend £48k or 19% of their gross earnings.
However, if you measure it on purchase price alone then they both spend 100% of their gross earnings.
oyster said:
Captain Muppet said:
I once spent 200% of my annual income on a car.
I've also spent 0.0016% of my annual income on a car.
So it depends how much you can afford at the time, and how much the car you want costs, obviously.
The thing is to pick a car, then try to find the budget.
That's what differentiates car enthusiasts from finance enthusiasts.
When people mortgaged themselves up to the eyeballs 5 years ago or so in order to ride the housing ladder, were they being house enthusiasts or just irresponsible?I've also spent 0.0016% of my annual income on a car.
So it depends how much you can afford at the time, and how much the car you want costs, obviously.
The thing is to pick a car, then try to find the budget.
That's what differentiates car enthusiasts from finance enthusiasts.
How is it any different with a car?
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