Author Topic: The 1/10th rule for car buying  (Read 20524 times)

ChairmanKaga

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The 1/10th rule for car buying
« on: May 18, 2016, 10:37:41 AM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

I've seen variations that factor in net worth, or even "if you really love cars it's different." I've also seen a lax "1/20th Rule" and even "50% rule." But 1/10th is easy to abide by, although difficult to accept at face value, so that's where I'm starting off.

So generally, this rule means your car and your individual salary, not your household income. You also can't reduce the value of the new car with whatever equity you still have in your old car. You should not consider whatever money you get from selling your old car as profit, but as a return on depreciation. Finally, that 1/10th value also has to include fuel, maintenance, and insurance.

Example: you've been working for 20 years and make $80,000 annually. Net income is probably ~$60,000 if you're married. So easy, you can buy a car worth $6,000. You add up insurance, fuel, parking, and maintenance, then subtract from $6,000. I bet you're left with about $4,000 to spend on the car itself.

Go to Autotrader and see what you could get for less than $5,000. It's surprisingly decent. Maybe just look at 1996 and newer? You probably want something with airbags for safety and OBD II for maintenance ease. Then you research the heck out of the obvious options - Japanese or cooperative builds like the Pontiac Vibe - find some candidates, and take your time inspecting and selecting. Pay cash. Congratulations. Now just learn to ignore people when they say, "You came in that thing? You're braver than I thought."

Anyway, I'm wondering if you good folks have learned to live by this Rule, and if so how did it work out. Were you spending more keeping your car running that you would have on a payment for something more expensive? Did you save money? Were you an anxious wreck every time you needed to drive somewhere? Did you just figure out how to drive less? And what's your commuting situation? For reference, unless we just up and moved, we have no option. Moving closer to work would mean almost tripling housing costs - no joke, Austin is insane right now. I drive 25 miles a day, and usually spend anywhere from 1.5 to 2 hours in traffic. And finally - kids. Did you feel they were safe in an old, cheap for the sake of cheapness beater?

shotgunwilly

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Re: The 1/10th rule for car buying
« Reply #1 on: May 18, 2016, 10:47:56 AM »
I bet 0.1% of the population meets that rule.  Even for mustachian's I bet a small minority meet it.

TheAnonOne

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Re: The 1/10th rule for car buying
« Reply #2 on: May 18, 2016, 11:03:49 AM »
This rule is garbage because income has nothing to do with car needs.

Take two people with a 10 mile drive daily.

Person A, makes 40k a year
Person B, makes 250k a year

Does person A need any less of a car than person B? Can person A even buy a car that will last 2-3 years with 0 or little maintenance for ~3k (4k- costs)

If the above example doesn't work, change the incomes, eventually the rule breaks down.

------------

The goal should be the best 'bang-for-the-buck' or spending efficiency, currently I find that the 6-8k zone gets you a pretty new car with decent miles and the car will last 5-10 years.

A car for 3k? not so much.

slugline

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Re: The 1/10th rule for car buying
« Reply #3 on: May 18, 2016, 11:03:54 AM »
Those items you're combining, I prefer to consider separately. I hope my car never represents  (1) a large portion of my net worth or (2) a large portion of my expenses.

I live by a different "rule": I want my car to be valued low enough that I would feel comfortable with not having collision/comprehensive insurance on it. There's probably a large degree of overlap between my rule and the 1/10th rule you suggest.

ketchup

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Re: The 1/10th rule for car buying
« Reply #4 on: May 18, 2016, 11:18:59 AM »
This is probably more of a "reality check" than a "rule."  To scare someone off from blowing a stupid amount of money relative to their income on a car.  And that's a Good Thing.

Our two cars were purchased combined for less than I alone bring home in a month.

We have put a completely ludicrous amount of miles on our cars though.  Our total operating costs for the two cars (depreciation, fuel, maintenance, repairs, insurance, registration etc.) are a whopping $7k/year.

So, the upfront costs of our vehicles were very low (the above was NOT a brag on my salary), but we drive the hell out of them, fueling a disparity between purchase price and actual yearly cost. 

Just to blur it further, my GF drives a ton for work (self-employed traveling showdog photographer), so plenty of that is deducted.  More than half.

Just optimize the best you can.  That's more honest than some "rule."  I truly don't think our vehicle expenses could be any lower given our lifestyle, and I'm pretty proud of that.

neo von retorch

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Re: The 1/10th rule for car buying
« Reply #5 on: May 18, 2016, 11:22:44 AM »
FHA cost per mile is $0.57 and average people drive 12,000 miles per year. That's $6840.

My own target cost per mile is about $0.20 for my Honda Fit. I used to drive ~18,000 miles per year, but I think it's closer to 10,000 now, and 4,000 of that goes on my non-Mustachian pleasure car. So 6k * $0.20 = $1200 per year. That is less than 10% of my net paycheck per year ;)

VaCPA

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Re: The 1/10th rule for car buying
« Reply #6 on: May 18, 2016, 11:24:00 AM »
You probably want something with airbags for safety

Probably?

Jeremy E.

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Re: The 1/10th rule for car buying
« Reply #7 on: May 18, 2016, 11:25:46 AM »
This is a dumb rule, buy a car that makes sense, which usually means efficient, reliable, low miles, and the right amount of space for you, and pay as little as possible.

zephyr911

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Re: The 1/10th rule for car buying
« Reply #8 on: May 18, 2016, 11:35:41 AM »
How about "buy within your means while living an overall low-consumption lifestyle that enables you to get rich, be happy, do good for others, and maximize the utility of your time spent on earth"? ;)
My vehicle habits are, from a simplistic financial standpoint, less MMM all the time, and yet... see above.

MrsDinero

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Re: The 1/10th rule for car buying
« Reply #9 on: May 18, 2016, 11:35:49 AM »
I haven't seen the 1/10th only rule but I have seen the 20/4/10 rule when financing a car.

20% should be the minimum downpayment on a car.  This should prevent the person from being immediately underwater when they drive off the lot.

4 years is the maximum number of years a person should finance a car. 

10% is the max of your gross income your should spend on your monthly vechicle expense including car payment, interest, insurance.

I don't think most of these rules would apply to a mustachian.  Obviously the best way to figure out what meets your needs, how much cash you have to spend on a car, how much you will be driving it, but the average persons seems to think in terms of "how close to my max budget can I get?"  I think it they were to look at it in terms of a 3-4 year loan the 10% would work itself about.  The reason 7 year auto loans exist is because people don't like the options they can afford under a shorter term loan.

ketchup

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Re: The 1/10th rule for car buying
« Reply #10 on: May 18, 2016, 11:41:23 AM »
FHA cost per mile is $0.57 and average people drive 12,000 miles per year. That's $6840.

My own target cost per mile is about $0.20 for my Honda Fit. I used to drive ~18,000 miles per year, but I think it's closer to 10,000 now, and 4,000 of that goes on my non-Mustachian pleasure car. So 6k * $0.20 = $1200 per year. That is less than 10% of my net paycheck per year ;)
Hah, I was literally just calculating how much my costs will rise when I replace one of our cars with a 2007~2009 Fit sometime in the next year.  I hand-waved about $0.19/mile for the Fit, which is slightly more than my current '99 Metro ($0.16/mile), and slightly less than my big-ass gas guzzler '92 Buick Roadmaster Wagon ($0.20/mile).  The Fit would replace all Metro miles, and some of the Roadmaster miles, so even though it's a far nicer car than the Metro, the overall net cost differential should only be a few hundred dollars per year.

Spreadsheet-aholic here...

mm1970

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Re: The 1/10th rule for car buying
« Reply #11 on: May 18, 2016, 11:57:32 AM »
I don't think I've ever met that.

Well, not true.  The current value of my 2006 Matrix is probably $3000

But we bought it new at $17k, and I was not making $170k.  And I'm still not.

It was probably 20% when we bought it. (1/5)

zephyr911

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Re: The 1/10th rule for car buying
« Reply #12 on: May 18, 2016, 12:00:25 PM »
I'm about to pay ~30% of our annual gross for a car. Not in cash. With a LOAN! *screams* lulz

SR will drop to "only" 50-55% and then start rising again, and I'll still quit my FT job early/mid-2017. Amazingly, there is more than one path to financial freedom and self-actualization xD

v8rx7guy

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Re: The 1/10th rule for car buying
« Reply #13 on: May 18, 2016, 12:03:03 PM »
I haven't seen the 1/10th only rule but I have seen the 20/4/10 rule when financing a car.

20% should be the minimum downpayment on a car.  This should prevent the person from being immediately underwater when they drive off the lot.

4 years is the maximum number of years a person should finance a car. 

10% is the max of your gross income your should spend on your monthly vechicle expense including car payment, interest, insurance.

I don't think most of these rules would apply to a mustachian.  Obviously the best way to figure out what meets your needs, how much cash you have to spend on a car, how much you will be driving it, but the average persons seems to think in terms of "how close to my max budget can I get?"  I think it they were to look at it in terms of a 3-4 year loan the 10% would work itself about.  The reason 7 year auto loans exist is because people don't like the options they can afford under a shorter term loan.

This makes more sense than the whole car value being 10% net pay

2Birds1Stone

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Re: The 1/10th rule for car buying
« Reply #14 on: May 18, 2016, 01:04:07 PM »
I try to follow the RWD/6MT/300+HP rule......

.....it's all about the smiles per gallon, not efficiency.

neo von retorch

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Re: The 1/10th rule for car buying
« Reply #15 on: May 18, 2016, 01:09:04 PM »
I try to follow the RWD/6MT/300+HP rule......

.....it's all about the smiles per gallon, not efficiency.

My pleasure car just barely qualifies... 300HP on the nose. That might be enough information for you to guess it ;)

2Birds1Stone

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Re: The 1/10th rule for car buying
« Reply #16 on: May 18, 2016, 01:23:28 PM »
I try to follow the RWD/6MT/300+HP rule......

.....it's all about the smiles per gallon, not efficiency.

My pleasure car just barely qualifies... 300HP on the nose. That might be enough information for you to guess it ;)

350z?

neo von retorch

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Re: The 1/10th rule for car buying
« Reply #17 on: May 18, 2016, 01:24:25 PM »
Bingo! It cost more than 1/10th of my net pay last year. Shame on me!

2Birds1Stone

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Re: The 1/10th rule for car buying
« Reply #18 on: May 18, 2016, 01:29:26 PM »
Bingo! It cost more than 1/10th of my net pay last year. Shame on me!

I purchased my G37s for what will be ~20% of my net pay this year.

v8rx7guy

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Re: The 1/10th rule for car buying
« Reply #19 on: May 18, 2016, 01:37:24 PM »
I try to follow the RWD/6MT/300+HP rule......

.....it's all about the smiles per gallon, not efficiency.

My pleasure car just barely qualifies... 300HP on the nose. That might be enough information for you to guess it ;)

I think it could also be a V6 mustang

HipGnosis

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Re: The 1/10th rule for car buying
« Reply #20 on: May 18, 2016, 02:04:54 PM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

...
So generally, this rule means your car and your individual salary, not your household income. You also can't reduce the value of the new car with whatever equity you still have in your old car. You should not consider whatever money you get from selling your old car as profit, but as a return on depreciation. Finally, that 1/10th value also has to include fuel, maintenance, and insurance.
...
Where are you getting all these additional sub-rules you're including? 
The rule (per 8-10 google hits) is: Don't spend more than 10% of your gross income.
Your way wouldn't let a stay at home parent have any car - because they have no gross income!?!?


researcher1

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Re: The 1/10th rule for car buying
« Reply #21 on: May 18, 2016, 02:16:58 PM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

This rule is STUPID and doesn't factor in years of ownership.

Yeah, I can go buy a shitmobile for $5,000. 
But guess what, it will likely be an old and/or high mileage car.  So I'll have to buy a car every 4-5 years.

So you can use the "1/10th rule" and buy a $5,000 every several years, spending $20K+ over the next ~15 years.
Or spend the same ($20K) for a brand new car with ZERO miles, ZERO wear & tear, full warranty, ZERO repairs needed, and drive it for ~15 years.

Do you see how the "1/10th rule" logic is flawed?


BDWW

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Re: The 1/10th rule for car buying
« Reply #22 on: May 18, 2016, 02:21:42 PM »
Is 1/10th the total cost of the car, or the cost of transportation. It would make more sense(for an unmustachian viewpoint) if it's talking about costs per year.

If you make 30,000 a year, can you only spend 3k on a car or 3k per year. There's a significant difference.

Most mustachians would try to hit 1/10 for the first year, and 0/10s for at least a few afterwards. I suspect the general population would spend 1/10 every year in perpetuity.

prognastat

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Re: The 1/10th rule for car buying
« Reply #23 on: May 18, 2016, 02:40:46 PM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

This rule is STUPID and doesn't factor in years of ownership.

Yeah, I can go buy a shitmobile for $5,000. 
But guess what, it will likely be an old and/or high mileage car.  So I'll have to buy a car every 4-5 years.

So you can use the "1/10th rule" and buy a $5,000 every several years, spending $20K+ over the next ~15 years.
Or spend the same ($20K) for a brand new car with ZERO miles, ZERO wear & tear, full warranty, ZERO repairs needed, and drive it for ~15 years.

Do you see how the "1/10th rule" logic is flawed?

For $5,000 with some effort you can get a reliable car with under 75k miles that will last until 200.000 miles which unless you drive a lot will last you 10 years.

The comparison is you can buy a brand new car for 15-20k that will last for 15 years probably or you can buy two 5k cars that will last you 10 years each leading to 20 years and end up saving yourself between $5,000 and $10,000.

Due to the way cars depreciate early in their life when purchased new they lose a vast portion of their value in the first 5 years. Due to this mathematically buying the same exact car few years old means you will financially come out ahead.

Not saying that 1/10th is a good rule though. It probably won't be terrible since it would mean that most people don't buy anything too crazy, but people on either the extreme low end will buy something too cheap that isn't going to be any good and the people on the high end are going to waste a lot of money buying much more car than they need. Under 25k income the rule would start becoming hard to follow and over 300k income you are going to be buying more car than you need and you are squarely in the territory of wants.
« Last Edit: May 18, 2016, 03:20:44 PM by prognastat »

MrSal

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Re: The 1/10th rule for car buying
« Reply #24 on: May 18, 2016, 02:57:00 PM »
I actually buy my cars even cheaper. My last car was a very nice shape with no rust at 115k miles Honda Civic from 2003 ... cost me about 3k.

I pay 220 dollars for annual premium on insurance for my car and my gas cost is around 30 cents per gallon. I am now replacing my timing belt but other than that no problems.

even if I assume an annual maintenace cost of 500$, my cost per mile falls in the 0.06 USD/mile range which is awesome especially when compared to the 0.50s people come up with!

obstinate

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Re: The 1/10th rule for car buying
« Reply #25 on: May 18, 2016, 04:45:03 PM »
This rule is garbage because income has nothing to do with car needs.
Needs are only part of the equation. A rich person also needs no more house than a poor person, but a poor person would be ill advised to buy a house like a rich person does.

That said, of course you need to factor your needs into the decision too.

undercover

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Re: The 1/10th rule for car buying
« Reply #26 on: May 18, 2016, 05:31:24 PM »
The "rule" comes from FinancialSamurai:

http://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/

He came up with it by hisself, hence why it's BS. There's no rhyme or reason to it, just an arbitrary sensationalist headline created to drive traffic to his site. Can't knock the hustle, but I can surely roll my eyes.

Not saying that you can't get a good car for $3.5k to $10k, but it definitely won't always make sense if you're looking for longevity.

prognastat

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Re: The 1/10th rule for car buying
« Reply #27 on: May 18, 2016, 05:55:54 PM »
The "rule" comes from FinancialSamurai:

http://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/

He came up with it by hisself, hence why it's BS. There's no rhyme or reason to it, just an arbitrary sensationalist headline created to drive traffic to his site. Can't knock the hustle, but I can surely roll my eyes.

Not saying that you can't get a good car for $3.5k to $10k, but it definitely won't always make sense if you're looking for longevity.

Yeah, but given the forum we are on longevity isn't the only thing people are looking for. Cost efficiency. How long it will last per dollar spent is generally what most people are looking for and for 10k you can get a car that will last you 15+ years.

Another thing that some may be interested is reducing the cost of insurance by having a car so low priced they can afford to carry the risk of covering their own car themselves without breaking the bank.

Also your 10k seriously makes me question what kind of cars you are looking for. You can find many reliable cars with relatively low mileage that will last you 10-15 years for under 10k.

beltim

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Re: The 1/10th rule for car buying
« Reply #28 on: May 18, 2016, 05:57:34 PM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

This rule is STUPID and doesn't factor in years of ownership.

Yeah, I can go buy a shitmobile for $5,000. 
But guess what, it will likely be an old and/or high mileage car.  So I'll have to buy a car every 4-5 years.

So you can use the "1/10th rule" and buy a $5,000 every several years, spending $20K+ over the next ~15 years.
Or spend the same ($20K) for a brand new car with ZERO miles, ZERO wear & tear, full warranty, ZERO repairs needed, and drive it for ~15 years.

Do you see how the "1/10th rule" logic is flawed?

For $5,000 with some effort you can get a reliable car with under 75k miles that will last until 200.000 miles which unless you drive a lot will last you 10 years.

Every time this conversation comes up I see someone say something like thing and I always wonder where you live.  Every time I look at the reliable Honda or Toyota sedans I see something close to linear depreciation so a 5 year old car with 75k miles is $10-12k, whereas a new model is ~2x that.  A Malibu might be better at $8-10k, but it's not a huge difference. 

Maybe it's the "some effort" part that needs more explaining.

ChairmanKaga

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Re: The 1/10th rule for car buying
« Reply #29 on: May 18, 2016, 05:58:40 PM »
I've seen the "formula" replicated on other financial independence sites/blogs. Different ratios, different qualifiers.
I think what they are all getting at is trying to force people to accept the fact that we don't need as much car as we want to and tend to buy, and that it's possible to spend far less. I think once you're accepted this as a reality then you're on your way to never over-extending your finances in order to buy an appliance that you use for maybe 2 hours a day (albeit one you probably rely on).
It's sort of like AM radio personalities. If you say something generally accepted as outrageous you get people's attention, and ultimately folks meet somewhere in the middle. Maybe 10% isn't realistic for most people, but if that rationale helps you NOT spend 50%, and maybe land around 20%, then mission accomplished.
Personally, I'd be a happy camper to find a clean 1994-2001 Acura Integra GSR with fewer than 100k miles for less than $8,000. I'd buy that posthaste.

prognastat

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Re: The 1/10th rule for car buying
« Reply #30 on: May 18, 2016, 06:26:01 PM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

This rule is STUPID and doesn't factor in years of ownership.

Yeah, I can go buy a shitmobile for $5,000. 
But guess what, it will likely be an old and/or high mileage car.  So I'll have to buy a car every 4-5 years.

So you can use the "1/10th rule" and buy a $5,000 every several years, spending $20K+ over the next ~15 years.
Or spend the same ($20K) for a brand new car with ZERO miles, ZERO wear & tear, full warranty, ZERO repairs needed, and drive it for ~15 years.

Do you see how the "1/10th rule" logic is flawed?

For $5,000 with some effort you can get a reliable car with under 75k miles that will last until 200.000 miles which unless you drive a lot will last you 10 years.

Every time this conversation comes up I see someone say something like thing and I always wonder where you live.  Every time I look at the reliable Honda or Toyota sedans I see something close to linear depreciation so a 5 year old car with 75k miles is $10-12k, whereas a new model is ~2x that.  A Malibu might be better at $8-10k, but it's not a huge difference. 

Maybe it's the "some effort" part that needs more explaining.

The effort would be looking over craigslist and going to see and test drive a few cars from both individual sellers and used dealers. About 5-6 years ago I bought a used 1999 Mazda Protoge for $2900 with just under 100k miles on it. It is still going today. Now you can get something nicer, but it has been reliable so far, looks decent and has plenty of space for my family. I expect it to go for at least a few more years before needing replacement.

It definitely isn't going to win any races or turn any heads, but it works and even if it broke down today I would not lose any sleep over the choice to purchase it.

It all depends on what you are looking for in a car, but most people don't truly need anything more than a mid sized sedan and with a little work on craigslist you can get yourself a mid sized sedan that will last you 10 years or so for under 5k.

Also I am in Texas.
« Last Edit: May 18, 2016, 06:30:43 PM by prognastat »

tobitonic

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Re: The 1/10th rule for car buying
« Reply #31 on: May 18, 2016, 07:18:04 PM »
You probably want something with airbags for safety

Probably?

LOL. Haven't you heard? Safety is an expensive illusion!

alsoknownasDean

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Re: The 1/10th rule for car buying
« Reply #32 on: May 19, 2016, 03:00:22 AM »
I'm exploring this "1/10th rule" that your car should never be more valuable than 1/10th your net pay. This has popped up pretty frequently when I search for "How much should you pay for your car?"

This rule is STUPID and doesn't factor in years of ownership.

Yeah, I can go buy a shitmobile for $5,000. 
But guess what, it will likely be an old and/or high mileage car.  So I'll have to buy a car every 4-5 years.

So you can use the "1/10th rule" and buy a $5,000 every several years, spending $20K+ over the next ~15 years.
Or spend the same ($20K) for a brand new car with ZERO miles, ZERO wear & tear, full warranty, ZERO repairs needed, and drive it for ~15 years.

Do you see how the "1/10th rule" logic is flawed?

What about the opportunity cost of the $15K? If one has $20K to spend on a car, spends $5000 and invests the remaining $15000, they've still got $15K worth of little green employees generating income :)

You can get a good reliable, safe car for under $5000.

My car cost me less than one month's net pay. It's still only got 125000km on the clock, so it should last a little while longer yet :)
« Last Edit: May 19, 2016, 03:02:29 AM by alsoknownasDean »

Dezrah

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Re: The 1/10th rule for car buying
« Reply #33 on: May 19, 2016, 10:24:10 AM »
The "rule" comes from FinancialSamurai:

http://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/

He came up with it by hisself, hence why it's BS. There's no rhyme or reason to it, just an arbitrary sensationalist headline created to drive traffic to his site. Can't knock the hustle, but I can surely roll my eyes.

Not saying that you can't get a good car for $3.5k to $10k, but it definitely won't always make sense if you're looking for longevity.

This is also the first and only place I encountered this rule. I used it as a starting place but found it really hard to find something that fit all the criteria. It was a good way to challenge us and probably made us lower our expectations in a good way. The vehicle we got was a bit more than this but at least it kept me from pining for new model or something.

Fwiw, the author of this piece used this same rule to justify his lease on a luxury car while he's still insists that people earning $30k should be ashamed for buying more than a $1k car.

I now see the rule as something akin to Newtonian physics, useful in the middle ground, but eventually you have to switch to a better set of equations as you get very big or small.

researcher1

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Re: The 1/10th rule for car buying
« Reply #34 on: May 19, 2016, 12:44:46 PM »
For $5,000 with some effort you can get a reliable car with under 75k miles that will last until 200.000 miles which unless you drive a lot will last you 10 years.

The comparison is you can buy a brand new car for 15-20k that will last for 15 years probably or you can buy two 5k cars that will last you 10 years each leading to 20 years and end up saving yourself between $5,000 and $10,000.

Due to the way cars depreciate early in their life when purchased new they lose a vast portion of their value in the first 5 years. Due to this mathematically buying the same exact car few years old means you will financially come out ahead.

How about an apples-to-apples comparison...

2016 Honda Civic LX
- 0 miles, 0, previous owners, 0 accidents, 0 wear/tear, full warranty
- $18,738 (from NADA.com), not including any eligible discounts/cash back/financing specials

2005 Honda Civic DX
- 112K miles, 3 previous owners, 2 accidents reported, wear/tear, NO warranty
- $4,999 (cars.com)
- I searched for Civics within 50 miles of my zip code.  This was the newest, lowest mileage car under $5K.

Let's assume you drive 12K miles/year and get a new car when you reach 175K miles.  Under this scenario:
- 2005 model will last you 5.25 years, costing you $952/year (purchase price only)
- 2016 model will last you 14.6 years, costing you $1285/year (purchase price only)
- The brand new car will cost just over $300 per year more than the 11 year old car.

It is highly likely you will incur $300/year in maintenance & repair on a car with 112K miles, compared to a brand new car with 0 miles, right?  In addition, The used car is inferior in many other ways:   
 - ZERO warranty coverage   
 - Lacking the latest safety/convenience features   
 - Higher maintenance/repair costs (the first 100,000 miles are the cheapest)   
 - More wear & tear (dents/scratches/stains/ect)   
 - Unknown driving patterns & care of vehicle   

You also have the hassle factor of churning through cars nearly 3 times more frequently:
 - Selling your current used car with 175K miles
 - The effort involved in finding a new used car
 - The administrative effort and cost of these transactions (tax/tags/title/registration/insurance transfers)

When you do a fair comparison using a quality vehicle, I just don't see much advantage to buying $5000 cars versus a new one.

neo von retorch

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Re: The 1/10th rule for car buying
« Reply #35 on: May 19, 2016, 12:55:41 PM »
- The brand new car will cost just over $300 per year more than the 11 year old car.

It is highly likely you will incur $300/year in maintenance & repair on a car with 112K miles, compared to a brand new car with 0 miles, right?

To be sure, we're talking about $300 / year * 15 guaranteed = $4500
Then we're talking about $300 / year * 5 (each car) * 3 = $4500 possible maintenance on 3 cars over 15 years time.
But... if we're "definitely" spending $4500 on cars in their last 60K of life (115K - 175k) than you have to add $1500 in cost to that new car, too...

OK so new $6000 over 15 years
Old, $4500 over 15 years

Plus opportunity cost of not investing the money.
Plus you say "not having the latest safety features" - only valid at time of purchase and early in the life of the new car.
In 2021, you buy a 2011, in 2026 you buy a 2016.

(I'm not saying one or the better is best. I think, personally, I would do better getting a new car that I really liked and held onto... the longest I've owned a car was 4 years and that was a new one, and I only sold it because of a girl ;) Currently driving a 2008 w/ 82k on it and mostly hating it...)

ketchup

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Re: The 1/10th rule for car buying
« Reply #36 on: May 19, 2016, 12:57:23 PM »
For $5,000 with some effort you can get a reliable car with under 75k miles that will last until 200.000 miles which unless you drive a lot will last you 10 years.

The comparison is you can buy a brand new car for 15-20k that will last for 15 years probably or you can buy two 5k cars that will last you 10 years each leading to 20 years and end up saving yourself between $5,000 and $10,000.

Due to the way cars depreciate early in their life when purchased new they lose a vast portion of their value in the first 5 years. Due to this mathematically buying the same exact car few years old means you will financially come out ahead.

How about an apples-to-apples comparison...

2016 Honda Civic LX
- 0 miles, 0, previous owners, 0 accidents, 0 wear/tear, full warranty
- $18,738 (from NADA.com), not including any eligible discounts/cash back/financing specials

2005 Honda Civic DX
- 112K miles, 3 previous owners, 2 accidents reported, wear/tear, NO warranty
- $4,999 (cars.com)
- I searched for Civics within 50 miles of my zip code.  This was the newest, lowest mileage car under $5K.

Let's assume you drive 12K miles/year and get a new car when you reach 175K miles.  Under this scenario:
- 2005 model will last you 5.25 years, costing you $952/year (purchase price only)
- 2016 model will last you 14.6 years, costing you $1285/year (purchase price only)
- The brand new car will cost just over $300 per year more than the 11 year old car.

It is highly likely you will incur $300/year in maintenance & repair on a car with 112K miles, compared to a brand new car with 0 miles, right?  In addition, The used car is inferior in many other ways:   
 - ZERO warranty coverage   
 - Lacking the latest safety/convenience features   
 - Higher maintenance/repair costs (the first 100,000 miles are the cheapest)   
 - More wear & tear (dents/scratches/stains/ect)   
 - Unknown driving patterns & care of vehicle   

You also have the hassle factor of churning through cars nearly 3 times more frequently:
 - Selling your current used car with 175K miles
 - The effort involved in finding a new used car
 - The administrative effort and cost of these transactions (tax/tags/title/registration/insurance transfers)

When you do a fair comparison using a quality vehicle, I just don't see much advantage to buying $5000 cars versus a new one.
Don't forgot opportunity cost.  Piggybacking off your numbers, allowing an extra $13739 to be tied up in a car would (invested with expected returns of ~5%) cost you ~$685/year.  $3425 over five years.  Throw in your $300/yr number, and that's $4925 total saved over the new car in five years.  Nearly enough to buy another $4,999 112k-mile Civic right there.

Increased insurance cost on the new car probably cancels out maintenance/repairs savings on the new car, especially if we're talking about a Honda and dumping the car at only 175k miles.

researcher1

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Re: The 1/10th rule for car buying
« Reply #37 on: May 19, 2016, 02:35:35 PM »
Don't forgot opportunity cost.  Piggybacking off your numbers, allowing an extra $13739 to be tied up in a car would (invested with expected returns of ~5%) cost you ~$685/year.  $3425 over five years.  Throw in your $300/yr number, and that's $4925 total saved over the new car in five years.  Nearly enough to buy another $4,999 112k-mile Civic right there.

Increased insurance cost on the new car probably cancels out maintenance/repairs savings on the new car, especially if we're talking about a Honda and dumping the car at only 175k miles.

I know you guys really want to stack the deck in favor of the $5K car, but the opportunity cost argument is not what you make it out to be.

In the example, you will have to buy another used car in 5 years.  In that short of a time period, it is inadvisable to invest in the stock market.  Therefore, you don't have $13K to invest, you have $8K.

Secondly, you are ignoring the impact of capital gains taxes on the interest earned.  That will erode your earnings.

Thirdly, you conveniently ignored all of the benefits listed for the new car over the old one.  Don't you place any value on any of these reasons???  Having a car with 0 miles, full warranty, zero wear/tear?

Lastly, who actually allocates & invests funds like this?  We are only talking about ~$8K available for stock market investing.  This would simply be a part of the money everyone should keep in liquid savings, set aside for things like living expenses, unexpected expenses (house/car/medical), ect.

If we were talking $25K-$50K, you might have an argument with opportunity cost.  But $8K should not have a substatial impact on your decision.

researcher1

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Re: The 1/10th rule for car buying
« Reply #38 on: May 19, 2016, 02:46:32 PM »
Plus you say "not having the latest safety features" - only valid at time of purchase and early in the life of the new car.
In 2021, you buy a 2011, in 2026 you buy a 2016.

Your example makes no sense, and in fact enforces the advantage of buying new!

Buying new...
- I start out with a 2016 model car, with all of the latest safety features, and drive it for nearly 15 years.

Buying used...
- You buy a 2005 car, with technology that is more than a decade old, which will last 5.25 years.
- When it comes time for a new car, you buy a 2010-2011 model.  You still have a car with technology that is 5-6 years behind the new car.
- For your third car, you buy a 2015-2016. 

You have JUST NOW caught up with the technology/safety features of the new car I've been driving for almost 15 years!

ooeei

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Re: The 1/10th rule for car buying
« Reply #39 on: May 19, 2016, 02:53:15 PM »
Don't forgot opportunity cost.  Piggybacking off your numbers, allowing an extra $13739 to be tied up in a car would (invested with expected returns of ~5%) cost you ~$685/year.  $3425 over five years.  Throw in your $300/yr number, and that's $4925 total saved over the new car in five years.  Nearly enough to buy another $4,999 112k-mile Civic right there.

Increased insurance cost on the new car probably cancels out maintenance/repairs savings on the new car, especially if we're talking about a Honda and dumping the car at only 175k miles.

I know you guys really want to stack the deck in favor of the $5K car, but the opportunity cost argument is not what you make it out to be.

In the example, you will have to buy another used car in 5 years.  In that short of a time period, it is inadvisable to invest in the stock market.  Therefore, you don't have $13K to invest, you have $8K.

Secondly, you are ignoring the impact of capital gains taxes on the interest earned.  That will erode your earnings.

Thirdly, you conveniently ignored all of the benefits listed for the new car over the old one.  Don't you place any value on any of these reasons???  Having a car with 0 miles, full warranty, zero wear/tear?

Lastly, who actually allocates & invests funds like this?  We are only talking about ~$8K available for stock market investing.  This would simply be a part of the money everyone should keep in liquid savings, set aside for things like living expenses, unexpected expenses (house/car/medical), ect.

If we were talking $25K-$50K, you might have an argument with opportunity cost.  But $8K should not have a substatial impact on your decision.

Why in the world would $8k not count?  If you're saying $8k is so little it doesn't matter, I'm not sure I agree there.  $8k invested over 40 years at 5% (remember, you repeat this process numerous times in your life) works out to $56,319.  Maybe that's negligible for you, but I don't think I'd go as far as saying it's generally not worth considering.

Sure there are benefits to a brand new car, there are also downsides.  How many recalls do you get to deal with?  What's the extra insurance cost on a newer vehicle?  Do you need to get full coverage since replacement cost is pretty high?


As far as safety features.  Over your whole life, someone who buys new cars starting in 2005 and buys cars for 60 years gets to use the technology from 2005-2065.  Someone who buys 10 year old cars starting in 2005 for 60 years gets to use cars with technology from 1995-2055.  Both of you use technology from 2005-2055 for the same amount of time.  The new car buyer just uses it a bit sooner and avoids the 1995-2005 tech.  As long as they've got seatbelts and airbags it's not going to affect them too much anyway.

You're also assuming people trash their cars after 175k miles, and drive 10k miles a year, which isn't everyone.  Sometimes buying new makes sense financially, but it's certainly not a sure thing.

bobechs

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Re: The 1/10th rule for car buying
« Reply #40 on: May 19, 2016, 02:55:06 PM »
Plus you say "not having the latest safety features" - only valid at time of purchase and early in the life of the new car.
In 2021, you buy a 2011, in 2026 you buy a 2016.

Your example makes no sense, and in fact enforces the advantage of buying new!

Buying new...
- I start out with a 2016 model car, with all of the latest safety features, and drive it for nearly 15 years.

Buying used...
- You buy a 2005 car, with technology that is more than a decade old, which will last 5.25 years.
- When it comes time for a new car, you buy a 2010-2011 model.  You still have a car with technology that is 5-6 years behind the new car.
- For your third car, you buy a 2015-2016. 

You have JUST NOW caught up with the technology/safety features of the new car I've been driving for almost 15 years!

But within one year, probably less (perhaps as little as a day if you buy new right at the very end of a model year, or the day before the new ones roll off the Ro-Ros) you have already fallen behind the technology curve.  We are both now driving functionally obsolete death traps.  Yours is a slightly newer death-trap, admitted.  Even if I never catch you -and I probably won't, ever- you are still driving a partly worn out, used and somewhat deficient transportation box.

ketchup

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Re: The 1/10th rule for car buying
« Reply #41 on: May 19, 2016, 03:19:14 PM »
I know you guys really want to stack the deck in favor of the $5K car, but the opportunity cost argument is not what you make it out to be.
I'm really more of a I-spend-$1000-or-less-on-a-car sort of guy, so even "stacking the deck" for a $5K car is essentially still playing devil's advocate against myself.  I also took all the numbers you threw out there as gospel instead of figuring what I would do (keeping a car past 175,000 for example).
In the example, you will have to buy another used car in 5 years.  In that short of a time period, it is inadvisable to invest in the stock market.  Therefore, you don't have $13K to invest, you have $8K.
I'm not actually suggesting one should take the $13k, toss it in VTSAX, and then take a withdrawal back out to buy a replacement car in five years.  That would be silly.

But the net effect on one's net worth would be the same.

I don't understand what you mean by "Therefore, you don't have $13K to invest, you have $8K."

Secondly, you are ignoring the impact of capital gains taxes on the interest earned.  That will erode your earnings.
See above.  Over the long term with some proper tax planning, that shouldn't be a big deal, especially as you realize most of your gains presumably after FIRE.
Thirdly, you conveniently ignored all of the benefits listed for the new car over the old one.  Don't you place any value on any of these reasons???  Having a car with 0 miles, full warranty, zero wear/tear?
  I personally do not.  I know many do value those things.  I personally dislike most things about most new cars.  I left that opinion out in an attempt to stay more objective.  I personally would place zero personal value on the difference between a 2016 Civic and a 2005 Civic.  Maybe an extra $50 if the 2016 Civic has an aux-in port on the radio and the 2005 doesn't.
Lastly, who actually allocates & invests funds like this?  We are only talking about ~$8K available for stock market investing.  This would simply be a part of the money everyone should keep in liquid savings, set aside for things like living expenses, unexpected expenses (house/car/medical), ect.

If we were talking $25K-$50K, you might have an argument with opportunity cost.  But $8K should not have a substatial impact on your decision.
Again, I'm not suggesting that one throw the excess money in a special investment account; that's simply a thought experiment to make the consequences more apparent in the decision-making process.  Money is fungible enough that without that, things get less clear.

It would mean that in the year you purchase the car, you put $13k more into investments than you would if you bought the $18k car.  So during the lifetime of the $5k car, you'd have that $13k working for you instead of sitting in a car being useless.  Then five years later, you buy another $5k car, putting $5k less into the market that year than you would otherwise.  I don't think this is too much of a stretch.

Sorry, spreadsheet dork time.



As an example, if you're saving $20,000/year minus vehicle purchase, and expect your investments to earn 5%/yr, after 30 years of this (right as both scenarios are about to buy another car), you come out over $30k ahead with the $5k cars.  That's 18 months of savings for this theoretical individual.  I would call thirty grand over thirty years and two cars "substantial."  It's not earth-shattering, but it's a very real cost that needs to be considered when doing a true comparison of vehicle options.

researcher1

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Re: The 1/10th rule for car buying
« Reply #42 on: May 19, 2016, 03:22:33 PM »
Why in the world would $8k not count?  If you're saying $8k is so little it doesn't matter, I'm not sure I agree there.  $8k invested over 40 years at 5% (remember, you repeat this process numerous times in your life) works out to $56,319.  Maybe that's negligible for you, but I don't think I'd go as far as saying it's generally not worth considering.

I never said $8K "didn't count."  Please re-read my post.

Let me ask you a question.  Do you keep any money in a safe, liquid saving account?  You know, in case you need to buy a car, replace your roof, buy a refrigerator, cover your expenses if you lose your job?  Do you have at least $8K in such an account? 

If so, according to your logic, you are an idiot and losing out on $56K over 40 years. 

There is a reason you should not invest every available penny beyond your monthly expenses.  I keep many multiples of $8K in my liquid fund.  When I buy a new car, my liquid fund gets partially depleted, then I gradually build it back up.  The funds I use to buy a car do not come from assets I would otherwise invest.

undercover

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Re: The 1/10th rule for car buying
« Reply #43 on: May 19, 2016, 03:26:07 PM »
We can all come up 1,000 different arbitrary scenarios on why buying a used car for $5k is better than purchasing an $18k car brand new (or vice-versa) Or, we could just all agree that driving less, not switching cars till absolutely necessary, and buying sensibly any way you prefer to do it is the right way to go no matter if you buy used or new.

ketchup

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Re: The 1/10th rule for car buying
« Reply #44 on: May 19, 2016, 03:33:45 PM »
We can call come up 1,000 different arbitrary scenarios on why buying a used car for $5k is better than purchasing an $18k car brand new, or vice-versa, or we could just all agree that driving less, not switching cars till absolutely necessary, and buying sensibly any way you prefer to do it is the right way to go no matter if you buy used or new.
Indeed.  I personally am a fan of under $1000 cars that can be driven for at least 2-3 years of heavy use given my lifestyle (GF driving a shitload traveling for her business).  Or as I like to say "the kind of car a normal person would throw away."  Our two current cars are from 1999 and 1992, were bought for $1000 and $700 in 2014, had 146k and 158k on the clock when purchased, and now have 181k and 197k on them and will each last another year or so (total of about three years of ownership each) before we replace them.

Especially given that I'm 25 (GF is 23) and with a net worth of only mid-five figures, it would be particularly asinine to tie up more capital in vehicles.  In ten years or so, $5k cars will probably have a small enough marginal cost to us that it won't be too silly for us to have them.  It depends a lot on your own personal situation and preference.

I also enjoy not caring as much when I hit a deer and get the car all banged up.  That happened last year with our 1992 and it was nice to be able to give fewer fucks about the appearance of the car.

researcher1

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Re: The 1/10th rule for car buying
« Reply #45 on: May 19, 2016, 03:38:59 PM »
As far as safety features.  Over your whole life, someone who buys new cars starting in 2005 and buys cars for 60 years gets to use the technology from 2005-2065.  Someone who buys 10 year old cars starting in 2005 for 60 years gets to use cars with technology from 1995-2055.  Both of you use technology from 2005-2055 for the same amount of time.  The new car buyer just uses it a bit sooner and avoids the 1995-2005 tech.  As long as they've got seatbelts and airbags it's not going to affect them too much anyway.

Quote
But within one year, probably less (perhaps as little as a day if you buy new right at the very end of a model year, or the day before the new ones roll off the Ro-Ros) you have already fallen behind the technology curve.  We are both now driving functionally obsolete death traps.  Yours is a slightly newer death-trap, admitted.  Even if I never catch you -and I probably won't, ever- you are still driving a partly worn out, used and somewhat deficient transportation box.

Regardless of how far behind the technology curve a new car becomes as it ages, THE USED CAR WILL ALWAYS BE FURTHER BEHIND!  Please see my earlier post.

And it is incorrect to say the new and used cars are "both functionally obsolete death traps".  Here are just a few of the things the 2005 does not have.  I'm sure the list is much longer:
- 4 wheel disc brakes
- ABS
- side curtain air bags
- electronic stability control

Do these seem like insignificant things? 
If you regularly travel with a wife and two kids, would you pay any extra to have a car with these features?




prognastat

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Re: The 1/10th rule for car buying
« Reply #46 on: May 19, 2016, 03:43:43 PM »
You accuse people of stacking the deck in the favor of the 5k car, when you manipulate the numbers in your comparison to make the difference smaller than it is likely to be. Modern cars on average last 200k miles, not 175k. Also why would I compare two of the exact same model cars just with different years? So long as the car is relatively safe, known to be reliable and has the same size to me it is an apples to apples consideration.

I drive about 10k miles a year and I expect my car to last to 200.000 miles. This is of course on average, but over my lifetime at 10 years per car I expect to go through at least 5 cars in my life so some will underperform the 200k, but some will outperform it.

2016 Honda Civic LX
- 0 miles, 0, previous owners, 0 accidents, 0 wear/tear, full warranty
- $18,738 (from NADA.com), not including any eligible discounts/cash back/financing specials

2005 Honda Civic DX
- 112K miles, 3 previous owners, 2 accidents reported, wear/tear, NO warranty
- $4,999 (cars.com)

Let's assume you drive 10K miles/year and get a new car when you reach 200K miles.  Under this scenario:
- 2005 model will last you 9 years, costing you $555/year (purchase price only)
- 2016 model will last you 20 years, costing you $937/year (purchase price only)
- The brand new car will cost just over $382 per year more than the 11 year old car.

Using this extremely simplistic calculation alone it is $7640 of savings after 20 years. This isn't even considering opportunity cost as mentioned by other posters and for plenty of americans they would have to take out a loan on the 18k car which would mean even more money.

Now on top of this I also start with having $13739 not tied up in a car. My car lasts 10 years. With a 5% inflation adjusted annual return on that I would be at $22379.38. I buy another $5k car putting me at $17380 then have that for 10 years again putting me at $28310. This means I would have to spend an average of $1415 a year on additional maintenance compared to your newly bought car for us to even break even. Not to mention that I will likely save on insurance costs even if I use the same level of insurance, but also having a cheaper car also allows me to self insure more without risking too much money meaning I will likely save even more on insurance. Now if someone starting at 18 were to do this until they retired at around 68 for 50 years we are talking about up to about $150.000 they could have more for retirement than using your strategy. This would give them $6k extra per year at 4% withdrawal rate or about $500 a month. The average American collects $1,180.80 in SS. If you simply managed to get the average SS and never save any yourself outside of your potential car savings you could come out with almost 50% more money for a regular retirement. If you end up with below average SS it would be an even larger portion of your retirement.

Also new cars fail too, actually new cars on average fail more than slightly older cars following the bathtub curve https://en.wikipedia.org/wiki/Bathtub_curve. By buying an older car I am likely to avoid what commonly is referred to as a lemon. Now my used car could have some serious failure, but if my 5k car fails which can also happen with new cars too you are out 18k investment, I'm out 5k.

You mention needing to have that 5k available instead of having it invested due to the risk of short term losses, but I can afford to buy another 5k car using my emergency stash and just build it up again afterwards.

This is simply following your premise of comparing two of the exact same models, I would not be limiting myself to one and only one type of car when searching for a new car and would thus open a whole new level of savings on top of the ones I calculated above. If you want to just be convinced that your way is the best way counter to any actual evidence.

The gist of it is you keep moving the goalpost to try to justify why you like buying new cars. Go ahead and buy a new car, it will not take money out of my pocket, but don't argue that it is the financially smarter decision.
« Last Edit: May 19, 2016, 03:50:41 PM by prognastat »

beltim

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Re: The 1/10th rule for car buying
« Reply #47 on: May 19, 2016, 03:54:39 PM »
Using this extremely simplistic calculation alone it is $7640 of savings after 20 years. This isn't even considering opportunity cost as mentioned by other posters and for plenty of americans they would have to take out a loan on the 18k car which would mean even more money.

By not even mentioning maintenance and repairs, you're completely missing the point.  This discussion is pointless without a worthwhile estimate of the relative costs of maintenance and repairs (as well as other costs, some of which you do mention).

Quote
Also new cars fail too, actually new cars on average fail more than slightly older cars following the bathtub curve https://en.wikipedia.org/wiki/Bathtub_curve. By buying an older car I am likely to avoid what commonly is referred to as a lemon. Now my used car could have some serious failure, but if my 5k car fails which can also happen with new cars too you are out 18k investment, I'm out 5k.

Sure.  But in the case of the new car, you're not out 18k you get a replacement car because it's under warranty.

prognastat

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Re: The 1/10th rule for car buying
« Reply #48 on: May 19, 2016, 04:40:10 PM »
Using this extremely simplistic calculation alone it is $7640 of savings after 20 years. This isn't even considering opportunity cost as mentioned by other posters and for plenty of americans they would have to take out a loan on the 18k car which would mean even more money.

By not even mentioning maintenance and repairs, you're completely missing the point.  This discussion is pointless without a worthwhile estimate of the relative costs of maintenance and repairs (as well as other costs, some of which you do mention).

Quote
Also new cars fail too, actually new cars on average fail more than slightly older cars following the bathtub curve https://en.wikipedia.org/wiki/Bathtub_curve. By buying an older car I am likely to avoid what commonly is referred to as a lemon. Now my used car could have some serious failure, but if my 5k car fails which can also happen with new cars too you are out 18k investment, I'm out 5k.

Sure.  But in the case of the new car, you're not out 18k you get a replacement car because it's under warranty.

True but do you really believe that the new car is on average over it's lifetime spending $1415 less per year on maintenance? Because that is the amount of money you would have to compensate for both the difference in price plus the opportunity cost lost.

beltim

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Re: The 1/10th rule for car buying
« Reply #49 on: May 19, 2016, 04:59:54 PM »
Using this extremely simplistic calculation alone it is $7640 of savings after 20 years. This isn't even considering opportunity cost as mentioned by other posters and for plenty of americans they would have to take out a loan on the 18k car which would mean even more money.

By not even mentioning maintenance and repairs, you're completely missing the point.  This discussion is pointless without a worthwhile estimate of the relative costs of maintenance and repairs (as well as other costs, some of which you do mention).

Quote
Also new cars fail too, actually new cars on average fail more than slightly older cars following the bathtub curve https://en.wikipedia.org/wiki/Bathtub_curve. By buying an older car I am likely to avoid what commonly is referred to as a lemon. Now my used car could have some serious failure, but if my 5k car fails which can also happen with new cars too you are out 18k investment, I'm out 5k.

Sure.  But in the case of the new car, you're not out 18k you get a replacement car because it's under warranty.

True but do you really believe that the new car is on average over it's lifetime spending $1415 less per year on maintenance? Because that is the amount of money you would have to compensate for both the difference in price plus the opportunity cost lost.

Maybe.  It's pretty easy for me to come up with a possibility for how that would work if you saved, say, $800 per year on maintenance for the first ten years of the new car ownership (the last 5 years would be the same), then the two situations come out exactly the same (well, the new car actually comes out ahead by $40) when you include opportunity cost.

It's trivially easy to come up with reasonable-sounding examples that favor one over the other.  Without hard data, we really can't say which is most cost-effective.