Is the 20 4 10 rule good?

Asked by: Dr. Jaqueline Bogisich II  |  Last update: March 10, 2024
Score: 4.5/5 (6 votes)

The 20/4/10 rule helps you determine the ideal amount to spend on a car by specifying how much down payment to offer, the length of the loan term and the percentage of your income to devote to car-related expenses. Following this rule can help you buy a car you can afford and enjoy for years to come.

How much should I spend on a car if I make $100000?

Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.

How to buy a car with the 20 4 10 rule?

20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.

Why is the 10 in the 20 4 10 a good goal for your monthly payment?

Income: Keeping car expenses to 10% of your gross income ensures that your purchase doesn't hinder your ability to meet other financial obligations or savings goals.

How much can you afford the 20 10 rule?

The 20/10 rule of thumb is a budgeting technique that can be an effective way to keep your debt under control. It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income.

Know BEFORE you buy! True Ownership Costs of 4 SUVs

38 related questions found

What is a good down payment on a 30k car?

Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.

What are the 3 C's of credit?

Character, capital (or collateral), and capacity make up the three C's of credit. Credit history, sufficient finances for repayment, and collateral are all factors in establishing credit.

What is your #1 financial goal?

Long-Term Financial Goals. The biggest long-term financial goal for most people is saving enough money to retire. The common rule of thumb is that you should save 10% to 15% of every paycheck in a tax-advantaged retirement account like a 401(k) or 403(b), if you have access to one, or a traditional IRA or Roth IRA.

How much should I spend on a car if I make $60000?

How much should I spend on a car if I make $60,000? If your take-home pay is $60,000 per year, you should pay no more than $750 per month for a car, which totals 15% of your monthly take-home pay.

How much should I spend on a car if I make $200000?

Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.

What is the money guy rule for buying a car?

The 20/3/8 rule stand for:

20% down. Finance no longer than 3 years. Total car payment is no more than 8% of gross income.

How many years is best to finance a car?

Even though the majority of car buyers are going with long-term car loans, is an auto loan of 72 months or more a good idea for you? NerdWallet recommends financing new cars for no more than 60 months and used cars for no more than 36 months.

What is the 30 60 90 rule for cars?

Staying on top of this service also allows you better track your vehicle's maintenance history. Most vehicle manufacturers follow a 30/60/90K rule. These numbers have significance and refer to the number of miles between each major service. They should occur roughly around 30,000, 60,000, and 90,000 miles.

How much does the average millionaire pay for a car?

Most of the millionaires surveyed said they never spent more than $65,000 on an automobile. Over 50 percent of these cars are American made with 3 in 10 millionaires driving a Ford F-150 pickup. Millionaires earn, save, and invest early in life.

What car can I afford with 50k salary?

How much car can I afford if I make $50,000? While it depends on factors like your credit score, loan terms, down payment and any potential trade-in value, you may find that a vehicle in the $20,000 to $35,000 range will fit your budget.

What car can I afford with 80k salary?

you comfortably afford under an 80 000 salary. a volkswagen golf gti audi a3 a toyota. avalon the kia stinger and the cadillac ct4.

Is $700 a month a lot for a car?

The average new car payment has just hit $700 a month, with some paying $1,000. Some ways to lower that price. Remember just a few years ago when a car loan was $300 a month? Now, unless you put down a huge down payment, those days are gone forever.

What is considered a high car payment?

According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.

Who can afford a $60,000 car?

Assuming a 60-month loan with a 4% interest rate, your monthly car payment would be around $1,073.33. To afford this, you would need to have a gross income of at least $53,666.67 per year. Unless you use a different financing method like a Savings Club.

What does living paycheck to paycheck mean?

What Is Paycheck to Paycheck? "Paycheck to paycheck" is an expression that describes an individual who would be unable to meet their financial obligations if they were unemployed. Those living paycheck to paycheck devote their salaries predominantly to expenses.

Which behavior can help increase savings?

Reduce Discretionary Spending. If you are trying to increase your monthly savings, the most effective way is to reduce discretionary expenditures. These are purchases that you may enjoy but are not necessary. This way, you can add that dollar amount to your automatic monthly transfer into your savings account!

Is getting a job a financial goal?

Examples of financial goals include creating an emergency savings account, building a retirement fund, paying off debt and finding a higher-paying job.

What do lenders want to avoid?

Making purchases such as furniture or a new car adds to your monthly debt and increases your debt-to-income ratio. For a lender, this higher debt ratio places you at a greater risk of being unable to repay your mortgage. In some cases, qualified buyers with new debt may no longer qualify for a home loan.

What habit lowers your credit score?

Several factors can ruin your credit score, including if you make several late payments or open to many credit card accounts at once. You can ruin your credit score if you file for bankruptcy or have a debt settlement. Most negative information will remain on your credit report for seven to 10 years.

Should I pay off my car or house first?

There are some small differences in the way in which extra payments are credited on car loans and home mortgage loans, which are related to the fact that interest accrues daily on car loans and monthly on mortgage loans. However, these differences are too small to matter. Pay off the car loan first.