How much should I spend on a car is a question I recently have asked myself. Kudos to you if you live in a city where owning a car isn’t necessary or desirable. As my family populates the suburbs of a midwestern city, a car is a necessity. I know what kind of car I would like (a sports car), what kind of car my family needs (something safe with room for 2 growing boys), and what I would like to spend (nothing). As you can see these priorities don’t line up as I am not aware of a sports car that can haul a family of four and not cost anything. I come from a “car” family where we really like cars so this is a big decision. For some people this decision isn’t a big deal at all. I wanted to write on this topic because it is also a part of a person’s financial life that, if not kept in check, can short circuit even the best financial plan and make you miss your financial goals.
The average price of a new car is $33,340–US News and World Report
33k is a lot of money to plunk down for a steel box with wheels and yet many of our colleagues happily fork over much more than that amount for their transportation. Just because other people spend a certain amount on something doesn’t make it right or wrong, nor does it mean you should spend the same amount.
You should spend no more than 1/10th of your gross income on a car.–The Financial Samurai
The total cost of all things that move you own shouldn’t be at 50% of your income.–Dave Ramsey
These two quotes above give different answers to a physician. If we assume a $150,000 salary the first quote says you shouldn’t buy a car over $15k and if we take Dave’s advice you can have a car(s) that cost up to $75k. There is a big difference between 15 and 75k. That’s the difference between a Honda Fit and a Tesla (or Corvette, or Porsche, or BMW, or Escalade). So what is a newly minted (or not so newly minted) PEM fellow/attending to do?
Ultimately, you should purchase a car (or any large ticket item) that still allows for you to execute your financial plan (you do have one right)? If you find yourself looking at items that won’t allow you to continue to build your emergency fund, save for retirement (at the appropriate level), fund a college account, eat, or whatever else your plan dictates, you should start looking at something less costly. Ultimately, a car is a steel box to get from point A to point B and not the status symbol/lifestyle statement the car companies’ marketing departments would like us to think they are.
In the end each person/family must be comfortable with their purchases and with not having that same amount of capital invested or otherwise helping them to accomplish their goals.
What do you think–how much could you reasonably spend on a car without it derailing your financial plan?
The above is intended for entertainment purposes only and should not be construed as offering tax, legal, or investment advice. Each person should consult the relevant professional before making any financial decision.
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