How Much Cash Is Too Much for a Car Purchase?

Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

[SevilCanErten]

More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.

[MC-gjfg]

Rules of vehicle ownership for me...

1- ensure ownership costs in maintenance, insurance, and fuel are not disproportionate compared to the median vehicle.

2- do not purchase a car valued at more than 1/3 my annual gross income.

3- own vehicle for a minimum of 10 years, though I feel as though I left money on the table if I own it for less than 15.

4- pay cash for car unless I can get a rate less than what the money market is returning or there is a finance only rebate that allows me to pay the car off immediately

Edit: note that duation of ownership and max price of car integrate to create flexibility. So, if I'm willing to own a car 20 years rather than the minimum of 10, then I could buy twice the car (or perhaps 50% more factoring in the time value of money losses). The only issue here is that delusional thinking is a potential problem as we may not be able to truly feel entirely confident that we'll own a car for 20 years.

Of course, this works in the other direction, and if I wish to replace my car every 5 years, then I can't justify purchasing a vehicle that's 1/3 of my annual salary.

[thewerfs]

I love love love riding around in my 2006 Toyota Sienna mini-van with 230, 000 miles on it. Every mile I put on is no longer depreciating its value because it’s already at rock bottom. I feel like I’m driving for free. Insurance is cheap, I can scratch it and it’s ok. You can have your new car! I just need reliability.

[vaderwashere]

Thanks for another great video. I like how the Money Guys allow for certain splurges in life - if you are where you are supposed to be on the FOO. If you are saving the way you should, in Step 8, etc. - yeah, get that Porsche or Corvette if it doesn't change your basics. We are deep in Step 8 and we buy nice cars. My wife is in a customer facing role, so her $65K is justified (don't worry the total cost of the car is less than 20% of her income). I am not customer facing and work from home, but I like nice cars too. Once my kids move on to college, I will likely get that $100K+ 2-door sports car fully knowing that I am not going to make any money on it. That is the benefit of doing everything right, being in Step 8+, and enjoying your money and you life how you want to. Good luck out there!

[MichaelSmith-fjdi]

I hate spending money on cars. I’m going to spend as little as possible while still ensuring that I have a reliable car. In my view, I only need it to get me from A to B reliably. When I have to replace my car, I’m going to aim to get a three to five model year old car. I’m also not going to replace my car until it’s totaled or until the repair bills start to mount.

[natalieyt]

I'm not worried about scratches on my 2005 Accord with 22000 miles.

[appleztooranges]

I threw down $35, 000 cash for my 2023 Tacoma trd pro and had the remaining of $22k or so in loan. Paid off in 6 months. Probably dumb but I wanted that truck

[Xspeedspec]

I bought a used $86k car…it will hold its value for the most part (Porsche…drive 4K a year)…aside from that…I max out all my investments…yearly networth is still going up

[stocksxbondage]

If you have extra after bills and saving for retirement, put money in a vehicle sink fund. You’re probably not going to save more than 500-1000 a month anyway when you consider eating out, vacations, dates, and just enjoying life with excess. Once you’ve finally saved the big chunk of money, it’s actually really hard to let go of it until you find your dream car! Drop 50k on a used sports car? Or even more financially freedom? This is the psychological game institutions use to get you to easily sign up for a car payment even when you’re a high income earner. A down payment and committing a “small” portion of your income is less sacrifice than the years of hard, diligent saving.

[anniealexander]

I rented out a single family home a little while ago. My new tenants drive a nicer car than I do. 🤪

[langhamp]

I think the most depressing thing about living in the US is the requirement for needing a car. The US used to have a great public transportation system, with light and heavy rail going everywhere, and that was especially dense in the NE corridor. That all went away when the car arrived, but cars aren't affordable by the majority of Americans. They're a rich man's sport, except they're now an everyman necessity.

Even if you don't own a car, you're still paying a tremendous amount of money to pay for car infrastructure; roads and parking aren't free and cost about $3500/year per citizen.

I thought once car prices went bonkers, people would demand car alternatives. That hasn't at all happened; if anything people are more desperate to get into cars, and will finance anything to get into a car.

[ewicky]

bought my '07 for $11k at the end of '16. I'll upgrade soon if used car prices continue this rapid decline. Eyeing an '18-'20. All cash.

[Michele-hduh]

I paid cash. I use my car to do valuable things for the people I value.

[IrisP]

We put 50% down our our car instead of paying cash. Got 2.49% interest rate. We are not paying it off faster or all at once. Don't care about depreciation and are going to drive it until it is dead.

[dbdouglas]

There's been a nice used truck for sale that I've passed every day for the past 3 months or more. It'd be 25k after taxes and I have more than enough to write a check for it eight times over & N.W. is over 1m, yet my nearly 23yo car w/over 200k miles still runs good and I hate spending money. No deal!

[JusticeNelson-hpkg]

*People dont understand that the prices of things are never going back down. This inflation is deeper than we think. Those buying groceries are well aware that the real inflation is much over 10%. The increments dont match our income, yet certain investors still earn over $365, 000 in stocks and assets. Wish I could accomplish that.*

[jvansickle]

Spending a total of $5000 to fix up a 96 Ford F150. I would rather pay that than $50k+ for something new

[PizzaMan]

What ever happened to just saving up cash for a car for a few years then buying it with cash? Spend 3-5years saving and then no loan