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What is the 1/10th rule of car buying?
I'm looking to buy a car, but I've heard I shouldn't spend too much. I've also read about the 1/10th rule. What is the 1/10th rule of car buying?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“The 1/10th rule of car buying states that you shouldn’t spend more than 1/10th of your gross annual income on a vehicle.
For example, if you make $80,000, you should only spend $8,000 on a car.
However, many car buyers don’t follow this rule. With an average price of a new car at $40,000, it’s highly unlikely that people are bringing in $400,000 a year.
That said, you don’t have to follow this rule to a tee, provided you aren’t stretching yourself too thin. A
new car
means you can save money on maintenance, but massive depreciation is also a concern. At the very least, try to keep your car purchase under 20% of your yearly income. This should get you a reliable car without spending too much.
And don’t forget: if you finance the car, you’re going to need
car insurance
, so factor that into your budget. If you need help gathering car insurance quotes before buying a car, use Jerry
. Jerry collects the best quotes from up to 50 top insurance companies in seconds!”View full answer
- Gregory R.
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