What is reasonable percent of income to spend on cars?
Discussion
What do you think is a reasonable percentage of your income to spend on cars and running cars. I would probably say maybe 15%. One business guy once said that you should have 10x the value of your cars in the bank and they should be worth no more than 2 months income, although this seems a little excessive because most people would be spending 1-3k on cars if they followed this rule. I suppose it probably applies a little more when you have a much larger net worth. Anyway... what do you think is a reasonable percentage of income to spend on cars.
Whatever makes you happy and you can afford surely?
Not sure how you would define someone's spending as not reasonable. If someone wants to spend 90% of their income keeping a Ferrari on the road and live in a run-down council estate then I don't see how that's unreasonable?
Forgive me if I've missed the point of the thread
Not sure how you would define someone's spending as not reasonable. If someone wants to spend 90% of their income keeping a Ferrari on the road and live in a run-down council estate then I don't see how that's unreasonable?
Forgive me if I've missed the point of the thread
What costs though? Total costs, incl depreication and cost of finance, feul, insurance tax etc, or just the "how much monthly payment do I make + running costs".
Lost of people take the second into account and ignore the first list. You can borrow 15k to buy a car, pay it back at £500 a month, accept and account for the interest over the period of the loan, but many forget that the £15k car they buy, is worth say £11k at the end of year one. So the full cost of the vehicle per month on equals your monthly payments where the depreciation per month equals the net amount you pay off your loan. If you pay it off quicker than it loses money, it will cost you less per month, if you dont, it is costing you more than you think. Many people miss this fact, particularly if you pay a decent deposti into the mix.
As for me, well my cars cost me less per month now than they ever have done as a % of income, and will be even less next year. And it is not because I am earnign more, it is because I am spending less, keeping them longer, doing the miles in cars that have depreciated as far as they will go and are cheaper to run, and saving the more costly ones for more occasional use.
Sign of the times it seems! And if more people worked out how much a car typiclly cost them per month over its life with them, they'd probably do the same!
PS if you dont borrow money to buy a car, there's still the cost of capital having it tied up in a car not in an ISA!
Lost of people take the second into account and ignore the first list. You can borrow 15k to buy a car, pay it back at £500 a month, accept and account for the interest over the period of the loan, but many forget that the £15k car they buy, is worth say £11k at the end of year one. So the full cost of the vehicle per month on equals your monthly payments where the depreciation per month equals the net amount you pay off your loan. If you pay it off quicker than it loses money, it will cost you less per month, if you dont, it is costing you more than you think. Many people miss this fact, particularly if you pay a decent deposti into the mix.
As for me, well my cars cost me less per month now than they ever have done as a % of income, and will be even less next year. And it is not because I am earnign more, it is because I am spending less, keeping them longer, doing the miles in cars that have depreciated as far as they will go and are cheaper to run, and saving the more costly ones for more occasional use.
Sign of the times it seems! And if more people worked out how much a car typiclly cost them per month over its life with them, they'd probably do the same!
PS if you dont borrow money to buy a car, there's still the cost of capital having it tied up in a car not in an ISA!
Edited by s3fella on Tuesday 16th March 13:24
Mr Darcy said:
1) Never finance more than 50% of the cars worth
2) Never make your monthly payment over 25% of your take home wage
3) Never buy a car that you can't afford to buy 2 of. i.e. 50% of monthly take home.
I follow these rules.
Those rules are the automotive equivalent of New Labour's banking regulation. 2) Never make your monthly payment over 25% of your take home wage
3) Never buy a car that you can't afford to buy 2 of. i.e. 50% of monthly take home.
I follow these rules.
25% of their net income on a car payment - This is only reasonable if your income is very low and must have transport, or it's very high (well into 6 figures), or you have no other debts/liabilities/kids.
5-10% of overall income.
Let's say you make 30k net.
That's 1.5-3k every year for cars.
An everyday shed is going to last say 5 years. Spend £500 on it. 7-14.5k left for a good car.
Of course, running costs and maintainance are on top of that, but that's much more dependent on the particular car in question.
Here's how I'd use my income in an ideal world:
10% car, 10% charity, 20% house, 20% living expenses. 40% rainy day. When you get enough savings you can do what you want with "excess".
Let's say you make 30k net.
That's 1.5-3k every year for cars.
An everyday shed is going to last say 5 years. Spend £500 on it. 7-14.5k left for a good car.
Of course, running costs and maintainance are on top of that, but that's much more dependent on the particular car in question.
Here's how I'd use my income in an ideal world:
10% car, 10% charity, 20% house, 20% living expenses. 40% rainy day. When you get enough savings you can do what you want with "excess".
Edited by motoroller on Tuesday 16th March 15:27
car wise my own self- imposed rule is simple. If I need to seek finance then I can't afford it. I can't be doing with HP personally.Generally speaking, I buy a car outright every 3 or so years.
Usually spend half of my annual wage. When I was earning £20k, I spent £10k. I don't really worry about depreiciation as I never buy new and rarely buy nearly new. Usually 4 or 5 years old.
Probably not completely sensible but seems about right for me.
I always try to have a years wage saved for a rainy day. Then again, I'm young with no responsibility / major outgoings.
Usually spend half of my annual wage. When I was earning £20k, I spent £10k. I don't really worry about depreiciation as I never buy new and rarely buy nearly new. Usually 4 or 5 years old.
Probably not completely sensible but seems about right for me.
I always try to have a years wage saved for a rainy day. Then again, I'm young with no responsibility / major outgoings.
v1paul said:
What do you think is a reasonable percentage of your income to spend on cars and running cars. I would probably say maybe 15%. One business guy once said that you should have 10x the value of your cars in the bank and they should be worth no more than 2 months income, although this seems a little excessive because most people would be spending 1-3k on cars if they followed this rule. I suppose it probably applies a little more when you have a much larger net worth. Anyway... what do you think is a reasonable percentage of income to spend on cars.
Think it depends on who you are and what you want.I chose not to smoke or drink really. The money I "save" on this, goes on cars instead.
Motoring is also a hobby. So instead of gym memberships, Golf clubs or spending money on stamp collecting, again it goes on motoring related things.
And only rich wealthy people will say you should have 10x your cars value in the bank. For normal people living in the real world they simply don't earn enough to do this.
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