Set your car payment budget
50% for needs such as housing, food and transportation — which, in this case, is your monthly car payment and related auto expenses. 30% for wants such as entertainment, travel and other nonessential items. 20% for savings, paying off credit cards and meeting long-range financial goals.
The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.
“Your cars, trucks, boats, motorcycles and other vehicles should not have a total value that exceeds half your annual income. Why? You don't want too much of your wealth tied up in things that depreciate. And cars, trucks and things with motors depreciate big time,” Ramsey posted on X.
To calculate an affordable car payment, use the recommended 20% down and 60-month maximum loan term. Based on those terms, a person making $100,000 a year can afford a $61,000 car, assuming their other expenses allow for a monthly payment of approximately $931.05.
Ninety-three percent of millionaires said they got their wealth because they worked hard, not because they had big salaries. Only 31% averaged $100,000 a year over the course of their career, and one-third never made six figures in any single working year of their career.
The 30-60-90 rule refers to a preventative maintenance schedule that suggests key servicing at 30,000 miles, 60,000 miles, and 90,000 miles.
To give yourself time to react, avoid last minute moves and hazards, always keep your eyes moving and scan the road at least 10 seconds ahead of your vehicle.
The 20/3/8 rule stands for:
20% down. Finance no longer than 3 years. Total car payment is no more than 8% of gross income.
Evaluating the Depreciation Impact
To maximize savings on a used car, it is advisable to seek a vehicle that has already weathered its most significant depreciation hit, which generally translates to a car that is at least 2 years old, preferably falling within the 3 to 4-year-old range.
Borrowing less and putting more down on a car builds equity sooner, incurs less interest, and results in lower monthly payments. One possible exception to the recommended down payment on a car is if you're able to buy the car outright with cash, but you have poor or little to no credit.
Bank underwriting guidelines allow for the monthly car payment to be 15% of the total monthly income. With a salary of $60000, and a monthly income of $5000, the maximum car budget is $750 per month, which can afford a maximum priced vehicle of $44302 using a 72 month term with a 6.75% APR.
The 20/4/10 Rule
This rule recommends making a downpayment of no more than 20% of the vehicle's cost, not taking a loan with a longer term than four years, and not allowing the monthly payment to exceed 10% of gross monthly income, said Peter C.
NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment. Check if you can really afford the payment by depositing that amount into a savings account for a few months.
In general, a quarter-mile time below 12 seconds is considered quite fast for a sports car. Cars that can achieve quarter-mile times in the low to mid-11-second range or even faster are often regarded as high-performance or "fast" in terms of straight-line acceleration.
Find cars that accelerate to 60 miles per hour between 5-5.99 seconds. These fast cars referred to as “5 second cars” were once reserved for only top end supercars, although with the advancements in automotive engineering, 5 second 0-60 times have become more common and open to everyday performance-oriented cars.
To apply this rule of thumb, budget for the following: 20% down payment: Aim to make a 20% down payment on your new car. 4-year repayment term: Choose a repayment term of four years or less on your auto loan. 10% transportation costs: Spend less than 10% of your total monthly income on transportation costs.
The 25 year car import rule, in simple words, keeps a check on the imports of vehicles that are not officially sold in the United States by the car brands operating in the nation. The rule states that one can only import a vehicle to the US when the vehicle in question is at least 25 years old.
Use the 35% income rule to find out what fits your budget. If you make $20,000, your max car price should be $7,000. If you make $30,000, your max car price should be $10,500. If you make $30,000, your max car price should be $10,500.
Bank or credit union account — If you have an account with a bank or credit union—generally considered one of the safest places to put your money—it might make sense to have a dedicated account where you can keep and maintain these funds.
Middle class is defined as income that is two-thirds to double the national median income, or $47,189 and $141,568. By that definition, $100,000 is considered middle class. Keep in mind that those figures are for the nation. Each state has a different range of numbers to be considered middle class.