There are all sorts of rules of thumb about how much you should spend on a home, but what about that other major expense in your life — your vehicle? Have you ever wondered how much to spend on a car?
I've thought about this question before, but never really considered that there might be an answer. (Well, no answer other than “as little as possible.”) But the folks over at BeFrugal have put together a car calculator that lets users figure out how much it makes sense to spend on wheels.
You enter the amount of time you spend at home, the amount of time you spend driving, and the amount you spend on your house (or apartment). The calculator spits out a figure that tells you how much (proportionally) you could spend on a car.
BeFrugal offers these caveats regarding their calculator:
This calculator assumes that you get equal satisfaction from having a nice car as that you get from a nice home. It only takes into account the information that you filled in above. Here are some things that are *not* taken into account:
- Since we are only calculating how much you should spend on the car, and not the house, this calculator assumes that you have made a good (and frugal!) choice with your home.
- A newer or more expensive car is likely to be safer in an accident.
- A newer or more expensive car is less likely to leave you stranded.
- A hobby car cannot be evaluated using this calculator, as the purchase is based on enjoyment value, not utility.
How useful is this? I don't know. I still think the best advice is to determine which model (or models) suits your needs and then shop for a good used vehicle.
As for myself, I'm happy with my used Mini. It's one of the best purchases I've ever made. Still, I know it can't last forever, so I'm diligently setting money aside in my Mini Replacement Fund so that I can buy a new Mini when this one dies. (Except that I did raid my Mini Replacement Fund to pay for next year's trip to Africa. Time will tell whether that was smart or stupid.)
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
I can’t get to the calculator from work but look forward to seeing what it spits out when I get home. Since I only drive about 8000 miles a year, I’ll probably limit myself to inexpensive subcompacts. I just can’t justify nice cars…
It told me $3,096.82 which I think is a little low! I wouldn’t spend less than $10,000 on a car because it’s not going to be worth it in terms of years of usable life left. I wonder what they’re doing to calculate the results…
Fun stuff! I either don’t need a car (which is probably true; though I hope my car didn’t overhear me type that) or I did something wrong on the website…the calculator suggested I spend $460 on a car.
(Hmmm…just tried it again and now it keeps getting stuck at $1,220 no matter what other numbers I put in.) 🙂
I drive an A-train. Let me know if you’re ever in New York City and need a ride. I’ll have to charge you $2.25 each way, though.
Suggested Car Value: $29,783.30
Thats for a new car kept for 5 years.
I drive too much. But I am a car nut, so I guess it makes sense.
According to the dealers and most new car buyers, you are asking the wrong question. Sadly, to them the relevant question is “how large will my payment be?”
Ha, that was awesome. It says I should have a car worth about $1189. My 6-year-old low-mileage car worth 3k is a luxury model for my needs! 🙂
Actually I like that calculator a lot, it’s great to look at how much time you spend at home, work, and in the car to see how you value your vehicle. Running & paid-for is exactly right for me.
Huh – a car calculator? That’s a new one.. have to check it out. Wish they’d put that out there a few months ago before we purchased.
I’m not sure what I did wrong, but…
My car value: $581,384.47
Not really sure I agree with its car value equivalent to house value… especially given differences in cost of living, income etc.
hm…I’m not sure about this calculator. How much you spend on a car has everything to do with your income and monthly budget – and this calculator takes neither of those into account. Although the idea of taking the time spent in your car into account is very interesting!
I bought a truck a little over a year ago, and asked myself how much ‘car’ could I really afford? I just recently wrote about my personal truck shopping account on DailyWorth.com: http://www.dailyworth.com/blog/509-how-i-bought-my-new-used-truck
I’m with David, although I don’t drive the train. I also have a bike; in one of those funny quirks, it cost a couple of decimal points more than a subway ride: $225. The helmet was extra.
If I *were* to get a car, though, it would be a Mini. They are just so cute! But not nearly as cool as a trip to Africa.
$142,125 for a car.
Well, that was worthless..heh. 🙂
I really didn’t get the point of this at all. It told me I should only spend $3000 on a brand new car that I would be keeping for 12 years. Ummm…. Tell me where I can buy a new car that will last 12 years, for only $3000? (And no, it wasn’t 30,000–I looked at it several times.)
LOL it said $73,482 and change. AS IF!! That’s house money, not car money.
I’m holding onto my 1995 Accord until I can pay cash for a CR-Z. And with any luck I can get late-model used and not pay more than $16K. Which is high (to me) but acceptable since the car would certainly last at least 16 years.
I find that calculator bizarre because it doesn’t take into account your finances/budget, etc. To me, that is one of the most important factors of the equation.
Cars have never been a status symbol to me, just a means to get from point A to point B when necessary. I’ve always driven economic second hand vehicles without lots of bells & whistles, and think I always will. Maybe I’m overly practical, but buyers remorse would probably kick me in the butt if I ever did otherwise! I don’t want my vehicle to ever own me.
It told me a total of $201.25. I thought it meant *per month* and thought, wow then I got a kickass bargain on my beloved “new” car (2007, 33 mpg). Then I realized it meant *period.* I’m frugal all right, but not quite that frugal.
It said I should pay $13,500 for a car. That is kind of funny actually because the last car we bought (4 years ago) we paid $12,000 for (1 year old Mazda 3 sport). So…that is pretty much in line with what we thought we could afford to spend.
The rule of thumb for a car price which makes a lot of sense to me is: Your car should not cost more than your two months take-home income.
Spend no more than 5% of your Net Worth for ALL your possessions (incl. car) http://tinyurl.com/2bwt974
Ideally, that would mean 2.5% of your net Worth should sit in your car, leaving 2.5% for all the rest of your stuff.
Remember, though, that your possessions depreciate, while your Net Worth SHOULD appreciate, meaning that you should be able to afford to trade-up from time to time …
$3,492.40? What? It looks like this calculator is based partly on an amount that is directly proportional to the value of your house. That seems kind of backwards to me — it is saying that the more you spent on your house, the more you should spend on your car!
The description alone of the calculator was enough to let me know how stupid it is, no need to try it. In addition to what everyone else already mentioned, I’m really confused by “how much time do you spend in the car.” This could go either way–if someone has a ridiculous commute that’s five hours a day, maybe they should spend more money to be more comfortable. OTOH, if they’re only going to drive the car on sunny Sunday afternoons, maybe they should spend more money because they’re hardly going to wear it out anyway. Or maybe the opposite is true in either case.
I do think, however, that it might be time to question the old frugal devotion to used cars. I’ve been pricing them out online, and darned if I don’t think they’re a tad overpriced these days–esp. the ones that are statistically more reliable, i.e. Honda and Toyota.
A good way to shop, if you have access to an online buying service, is to find the pre-negotiated prices of the new car before you price out the used version. Often, though, I’m seeing used cars with maybe 40,000 miles for maybe 10% less than I could pay for a new model. No thanks.
I think the recession (or its after-effects at least) have pushed alot of folks into the used market and they think it’s automatically a better deal, they don’t really question it, and they’re paying too much.
LOL, $1479.82. Not likely. If I raise the amount of time spent in my car on the weekends it comes up to $3790. Hmmmm.
Fun, but definitely off the mark.
I think it’s interesting that when I tell them my current car is 8 years old and I want to keep it another 8, it says $26,777.63. When I tell them it’s brand new and I’ll keep it 12+ (the max) it says $20,770.01.
Oh, and why won’t it let me set the car interest rate to 0? Not everyone pays interest on their car.
Um…$913? Even if you added in bikes and gear, which is what we use on a daily basis, it’s way too low. We mostly use our car for monthly (or more often, in holiday season) out of state trips. We need a reliable car, and it cost about 10x that figure.
p.s. why assume an interest rate? We pay cash for cars.
I like Suze Orman’s calculator, if you cannot afford a 3 year or less car loan it’s too expensive. I tried out that calculator and felt it was a huge waste of time.
It said I should pay $13.21 for a car.
Who needs a calculator? As little as possible for the class of vehicle you determine you need makes the most financial sense.
$10,760. I’m not sure the calculation makes much sense, but thinking about how much one drives on a daily basis, how much one drives on annual basis, etc. is a useful process.
I actually do not drive very far on a regular basis, my commute is 10 miles round trip on neighborhood streets, we don’t do much car traveling, once or twice a year. But the last car purchase also included factors like the number of visitors we have per year (we bought a 4 door car and got rid of a two door car), the fact that I also sometimes drive people for business, and the fact that while my normal commute is short, I also have time periods where I’m driving a lot for work, last week I was in my car two hours a day, three days a week.
It told me I shouldn’t spend more than $1800. Ha! Our two cars that we bought new were $20k and $16k. The calculator doesn’t make much sense to me. Right now I don’t spend a lot of time in the care because my commute is only 5 minutes away but even so I want to have a reliable car. It is worth it to me to buy new for that reason alone. But now we won’t buy another car until one of these cars dies. And that should be for a long time (they’re Hondas).
I just bought car happiness last month for $12,500. I “traded-in” my ’98 Subaru Outback with 195,000 miles and a blown head gasket for a brand-new (to me) 2006 Outback with 87,000 miles.
While my old car was comfortable (to me), I have to admit that it was showing its age. And after blowing the head gasket, it was a tad annoying not being able to drive more than 4 miles without overheating.
But this new (to me) Outback is NICE! It has a lot more features (or amenities as they would be called in the time-share business). It gets better mileage. It smells a lot less funky. And best of all, my wife will ride in it. It’s so nice, I named it Mr. Fancy!
Overall, its best feature (to me) is that I didn’t have to take out a car loan for it!
Ridiculous…it told me Suggested Car Value: $802,068.97 Basing the calculation on home value when you live in a super expensive place like the SF Bay Area doesn’t make sense! I’m driving a 12 yr old VW Jetta and I would think it extravagant to replace it with a $30,000 car.
Hahaha it said I should spend $22,985 on a car! Considering I have not spent over $7500 on my last few cars I don’t think that is going to happen anytime soon.
It is weird because I am a SAHM so put in 0 hours working. You would think that it would assume I don’t have much money to spend on a car if I am not working!
I think I will stick with my current method of buying used @ auction & paying cash.
I think Coley is right on about used cars often being overpriced.
When we bought our last car, we looked at a lot of used cars before we looked at new, mainly so that we could look at a lot of cars on one lot. What we realized was that when you look at how many miles you expect to get out of a car, the used cars often have a large percentage of the mileage used for a relatively small price difference, particularly when you look at the negotiated price for the new car (as opposed to MSRP.)
The formula is simple. Estimate how many total miles (T) you expect to get out of that model car. The mileage of the used car is (M). The price of a new car of that model is (P). The correct value for a used car of that model with M miles is U.
Here’s the formula:
U=((T-M)/T)*P
For a car you expect to get 100,000 miles out of, a good used car should reduce the price by 10% for every 10,000 miles. What I usually find is that for a car with 40-50,000 miles they usually reduce the price by 20% (relative to the price you would actually pay a dealer.) That’s only a good deal if you really expect to get 200,000 miles out of the car.
Other considerations are that any used car you buy the previous owner decided to sell. That could just be because they buy a new car every 3 years, but it could also be because the car was a lemon and they got rid of it as fast as they could. As a result, the percentage of lemons among used cars is higher than among new cars.
There are other intangible advantages to owning a new car over used. For instance, if you own the car when it’s new, you know the maintenance history for the entire life of the vehicle. You usually get 3 years of warranty coverage with a new car that won’t be included with used. There is some value in these intangibles.
All of the above considerations just show that the value of a used car is somewhat LESS than the formula above, not more.
Finally, there’s just something nice about having driving a shiny new car off the lot.
My best advice for buying a car is to buy the cheapest new car that you’ll be happy with. My wife and I saved several thousand dollars just by deciding to buy a lower trim line that the one we were originally considering.
$49,173.12. In a weird way this makes sense. I’m in my car a lot (couple hours a day), and I expect it to last a long time, so it wouldn’t be a horrid idea to spend a lot for a nice new car, however, it really goes against my ingrained frugality.
@34, your car should last longer than 100K miles. At least 200K, robust vehicles like a Honda Civic will go for even longer than that.
I would like to see this website trigger someone else cutting up their math skills making a better equation. Even if it’s a spreadsheet you can share. Obviously, a lot of people think they can do better. Personally, I don’t know why they ask something so specific as property taxes, but don’t seem to consider the non-linear price of cars. To get any working car, there is a set bottom line price (some might say $750, but I’d say closer to $2K for something you know will work 99.9% of the time). The other thing is that if you buy new cars, or expensive cars, there’s going to be a reasonable resale value.
It seems to me that they are just taking your house monthly payment, multiplying it by the ratio of driving to house time, and then calculating a cost for a car with that monthly payment. That doesn’t seem like a very reliable indicator. I hope this sparks a more appropriate calculator. Maybe someone big will pick this up (Like consumer reports) and include large statistical samples, like breakdown rates, injuries in accidents, and their relationship to cost, and then come up with a cost that’s independent of what you spend on other things. Hmmm.
@Emily #2, you should try finding out what a privately sold $6,000 car is like. They are more reliable and safe than you think. I’ve had a car (1999 Honda) for 5 years, and it’s in basically the same condition that I bought it in, and I’ve really only spent $200/year in maintenance. If I sold it now, it’d probably be worth close to $4,000. I’m planning on running it for at least 3 more years, hopefully more like 5 more.
This is the first time I’ve read the GRS comments and literally laughed out loud. I almost fell over in my chair when I read someone was told $13.29! I am in the same boat and wondering why is it telling me I only have to pay $3,500 for a car to meet my needs? I bought a new one two years ago, I have about $18K paid off on it and probably another $2,300 left to go. I really wish I had been able to purchase a Pontiac or Saturn when they were 60% off.. Dark horses are the way to go.
This was strange. I apparently should buy a car worth $940. While it’s true that I keep my cars a long time, you can’t keep a car a long time if you only buy a car worth $940! Plus, cost-of-living seems to be a big factor. I rent a very nice townhouse for a monthly amount that would be obscenely low in a big city, but in my area, it’s a fairly high rent, so the calculator seems to think that because my rent is less than $600, I must live in a slum and thus have no interest in a nice car.
The twin assumptions that 1) you should spend the same per hour of use on your car and home and 2) that your home is reasonably priced render it nothing more than an amusing diversion.
This post is right on time since I’m looking for a new car. I don’t want to go into debt for it, then again, I want a new-ish car that has warranty on it. Now I have a better idea of how much I want to spend. Thanks!
This thing is not right. I don’t really understand why it asks for such figures. Why do you care about the value of my home and my rate, but not the value I have in it. What about my other debt? How about income? safety? kids or what you haul? It recommended $9k for me. Just cause I’m in my house a lot doesn’t mean I don’t want a safe, reliable car. I usually buy nice luxury level cars (with the best safety features I can afford), pay cash for it and then drive it til the wheels fall off. Why would I buy a $9k car when I have no debt, a great income and plenty of equity in my home. I just don’t fully understand why such factors were asked and others were not.
I should add used and entry-level to the luxury car above. Buy them with about 4 years on them, < 50k miles and pay cash. I’ll spend between $18k and $25k. It’s the best thing that works for me. Safety is of utmost importance, IMO, and this satisfies what I’m looking for. But $9k? Why would I buy that if my finances are in order and I can get nicer that lasts longer?
Mine suggested $193.93. I think because my daily commute is only about 5 minutes each way, and I entered that I would keep it 12+ years. Good thing I plan to keep my current car as long as possible! 9.5 years old now, and 72,000 miles – going strong!
I noticed the mention of the used Mini in the article. I used to own a Mini and it was a horrible money pit. Things would always be breaking, and repairs were double the price of a normal car. Windshied: $700. Tires: $1600. For real? Yes. Even after we found alternative repair shops and aftermarket parts, it’s still German prices.
When we got tired of it we took it back to the Mini dealer to see if they’d buy it, and they wanted to give us, oh, maybe $6K for it. The sticker price (5 years and 60K miles earlier) had been something like $24K. They claimed it needed repairs worth something like $3K (some minor nonsense, but Mini charges like a BMW dealer for the labor).
We didn’t want the hassle of selling it privately, so we took it to CarMax, sold it for $9.5K, and bought a used Chevy Avalanche with change to spare from someone we know. I noticed later that CarMax was selling the Mini for about $15K, I assume after fixing up things. I hope the new owner likes it, but I don’t think it’s a good purchase.
The truck makes sense to us for various reasons too long to explain (business use, cabin in the woods, we don’t drive a lot, etc). The beauty of it is that parts and repairs are incredibly cheaper than the Mini, with the added benefit that you can get it fixed anywhere in America.
For an 8-year-old car: $8,500.
For a 4-year-old car: $2250.
Everything else was the same.
I’m pretty sure I don’t want a 4-year-old car that costs $2250. I’d much rather have a 4-year-old car that costs $8,500 (though the ones I like cost $12,000) or an 8-year-old car that cost $2250 (though I think the kind I want would cost more like $7,000, if I could find one).
The two months take-home income rule of thumb means ~$6,000. The 2.5% of net worth means $7,500. Back when I was making half as much money and my net worth was negative (hello, student loans), these numbers would have been laughable, too.
I think they’re using housing costs as a proxy for family income, and that’s a horribly flawed way of doing that because of regional variations.
I would say that you should spend only as much as you can save in real cash. If you have to take out a car loan, it’s a bad investment, and you can’t afford the car.
Suggested Car Value: $57.08
I guess I could grab a plastic one from Toys-R-Us. Interesting, but for the frugal minded, I’m not sure a calculator can tell you what you should pay for a vehicle. Like your Mini, JD, you should love what you drive because it adds value, not because of what you pay for it.
$80.21
Well, seeing as my current car is worth about $500, and has lasted about 17 years …
I guess I’m rolling above my means!
(’95 Toyota Tercel, btw, and zero repairs in that time)
I completely agree with Stephanie. One should buy a car only if he has savings in cash. Buying a car on loan is a real bad option. It hurts your pocket in the form of interest, and at the end of the day, you realize that you are paying for something whose value is depreciating day by day!
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Buying my first car is an adventure! My parents and other older adults want me to buy a safe, used car. My idea is a new luxury sport car with a lot of horsepower behind it like a BMW M3! It cost a fortunate at about $73K but well worth it! I was told that even with my parents as cosigners; I could only qualify if I lease it! So that exact want I did! Love the car and it a great investment! The monthly insurance payments are pretty high and the week gas fill up is about $110 with Premium. But my overall year auto expense is about 70% of my total income. Lucky I pay no rent!
I just let the finance manager make my dreams come true. They always work it out so I can buy my new car that I dream of! Just remember that the dealership is your friend. I give them my business and they give me my dream!