# Really? One-third of salary is affordable car price range?



## Jakked (Feb 6, 2009)

Boile said:


> I was thinking in montly terms.
> They say 1/3 of your monthly salary goes to mortgage. That's still a guideline banks use to approve you, is it not?
> Now this 1/3 rule for a car payment.
> The other 1/3 goes to taxes.
> WTF do I eat?  :lmao:


More importantly, WTF do you save?


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## TofuTurkey (Mar 15, 2009)

Kamdog said:


> Car. One third of the yearly salary of 120K is 40Gs. That is for cars. One car at 40 Gs, or, two at 20Gs each. The rule, 20% down, 4 years = 8Gs up front, finance 32K @ 6.0 for 4 years is 380/month. Doable.


Is the car's rule for 4 years? Because if I intend to keep the car for 12, that would mean I can be buying a 120K car then?


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## Kamdog (Apr 15, 2007)

Boile said:


> I was thinking in montly terms.
> They say 1/3 of your monthly salary goes to mortgage. That's still a guideline banks use to approve you, is it not?
> Now this 1/3 rule for a car payment.
> The other 1/3 goes to taxes.
> WTF do I eat?  :lmao:


No. The monthly percentage would include mortgage, property tax, and insurance. I think that goal, on a monthly basis, is about up to 28%. Which would mean, in a low interest environment, $2800/month max. That would probably get you more than a 400K house.

You cannot spend 1/3 of a monthly income on a car. On a monthly basis, 10% would be the reasonable max.

Taxes.

The property tax is deductible. The interest on the mortgage is deductible. Everyone's math is different, but, if you are in the 33% bracket (fed + state), that $2800 per month saves you a third in taxes, so, it is the equivalent of only $1860 a month. Pretty hefty savings. If you are renting for 1860 a month, you are paying the same as someone who is buying, paying 2800 a month, and, eventually, could have home equity (more tax deductible borrowing) and could sell at a profit.

Don't get her more than a carat, unless you are bringing down large money, like 250K, and want to show everyone else. A good woman would find 1 carat OK....... (just my opinion)


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## mclaren (Jan 5, 2005)

A friend of mine bought his fiancee a $65,000 engagement ring. Before the wedding things went to hell and she took off with the BMW he bought her and the ring. He got a lawyer who eventually got the ring back. Here is the funny part, he took the ring back to the dealer he bought it from and he said he could sell it for more and my friend got $75,000 back. Of course I don't know how much the lawyer cost him. I think she kept the bimmer. True story.


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## TopDownInFL (Apr 25, 2008)

Boile said:


> My personal rule is even more strict than yours.
> If you have to borrow the money, you can't afford it.
> I apply that to every discretionary purchase I make.


Nearly the same here - we do lonas on the house and one car at a time (the other is paid for) and stay completely away from credit cards. No cash = don't buy.

http://www.hulu.com/watch/1389/saturday-night-live-dont****-stuff


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## bolaber (Jan 5, 2009)

depending on your credit, most banks wouldnt allow your monthly payments to exceed 20% of your gross income (before taxes). If you have bad credit, it would be between 12~15%. The only reason anyone should go over 10% is if they're going a lesser term so they can pay off the car quick.


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## DDL24 (Jan 12, 2009)

Kamdog said:


> Lol, lets get this straight. The general rule is a house should be 2 1/2 to 3 times your annual salary. So, if you have 120K in income, at 3, you are looking at a 360K house, with 20% down is 72K, mortgage of, call it 290K. At 5% that is $1560/ month. Doable.
> 
> Car. One third of the yearly salary of 120K is 40Gs. That is for cars. One car at 40 Gs, or, two at 20Gs each. The rule, 20% down, 4 years = 8Gs up front, finance 32K @ 6.0 for 4 years is 380/month. Doable.
> 
> The ring? That crap about 3 months for a diamond ring is the industry talking. No Effin Way would I fork over 3 Grand for a diamond ring. It isn't too far over the top, but you can get a 1 carat ring for about half. And, if she is marrying a guy makin 120K, a one carat ring is enough.


maybe I had too much wine at last night dinner, but how did you come up with 380/mo payment on 32k 48mo loan?


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## bolaber (Jan 5, 2009)

i think he was thinking of a lease payment...


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## cwinter (Feb 3, 2009)

1/3 is a start and your annual income will certainly factor in someone giving you a loan for a car. What is more important is income to debt ratio though. You want to keep that below...is it 30%? I don't know, just do a Google search, it is real easy to compute. It makes a ratio of your current indebtedness to gross annual income.

It's certainly good that you are concerned about managing your debt. I would suggest a sizable down payment of at least 10%, perferably 20-25% so you are never upside down in the loan if the car gets totaled, etc.

As long as you keep your debt ratio down it is really up to you how you want to distribute that debt. Some like to spend more on house, some like to spend more on car, some spend it on buying that $20,000 TV at Fry's. :yikes:


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## newtman (Dec 3, 2005)

Unless your car loan/lease is going to be competing with a mortgage or children, to hell with everyone's advice. As long as you're not building up debt and living within your means, do what feels right to you and have fun! I bought my first new BMW in college, and had to work my ass off for it but it was worth every penny. I'm doing leasing now (BMW subsidizes their leases and they have some very attractive offers), and I was able to pick up a 550i for about 10% of my monthly salary.



pembriar said:


> Hi guys,
> 
> I'm kinda new here, and really have enjoyed your stories - most especially about the deals you guys are getting for your 3-series . The info here has been priceless, especially regarding cost expectations and how to handle a bmw deal smoothly. And the dealer-sponsors here are especially friendly and helpful.
> 
> ...


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## newtman (Dec 3, 2005)

Sorry, not buying it. If you're responsible, there's nothing wrong with debt, credit cards etc. The problem is that many Americans are all about immediate gratification and can't (or won't) manage their finances. It's like telling everyone to stop drinking alcohol just because drunks can't control their drinking.



mclaren said:


> My advice is to avoid debt, credit card debt, car loans, installment loans etc. The only loan that makes sense is a home mortgage. Of course if everyone followed my advice the American economy would collapse. If I were a young person I would buy a 10 year old Toyota Corrola or similar for cash unless I had sufficient funds to buy a better car. Credit is like heroin, once you start using it is hard to quit.


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