How Much Car Can YOU Afford? Why the 20/4/10 Rule is BAD ADVICE!

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Have you asked “How much car can I afford” or “How much should I spend on a car?” while you’ve been searching for a car to buy? In this video we discuss why the common 20/4/10 rule is not the best financial advice to follow when buying a car. In simple terms the 20/4/10 rule which states that you should put at least 20% down, finance the vehicle for no more than 4 years, and have the total monthly car expenses (car insurance & car payments) add up to no more than 10% of your monthly income. If you incorrectly follow the 20/4/10 rule you can end up in some serious financial trouble and not be able to make the necessary car payments.

We will show you the hidden step to do before applying the 20/4/10 rule and how much money you should use to pay for a car. Once you learn these steps you’ll never ask “how much should I pay for a car”. Thanks to Next Level Life (How to Buy a car | The 20/4/10 rule explained) and Marko-whiteboard finance (How much car can I afford [20/4/10 rule]) for the inspiration in making this video. They did an awesome job. As a previous dealer I wanted to go a step further and show you how to better use the 20/4/10 rule in conjunction with the 50/30/20 money plan to get a more accurate figure as to how much you can really afford.

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*Have you been screwed buying a car before?*

MoneyGrowthAcademy
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Wow, I didn't know the average American has less than $400 in their bank account. Really nice and informative video.

JackieNaturals
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The 20/4/10 rule is absolutely too conservative. Spending less is always sound financial advice, but with this rule many people in lower income brackets will be either "unable to afford a car", or will always be stuck with old beaters. I have a 33k hourly rate if I make 40 hours a week. With a 33k under this rule, you can't even afford a 10k car at Carmax, because your monthly car payment alone would be 166$ not even factoring in APR or Insurance. I make just about 2100 a month. If I were to somehow try and shoehorn insurance and a payment into less than 210$ all i'd have to chose from are shady used car dealers and privately sold cars with over 150k miles with dubious at best service histories. I'll be "saving money" until I get hit with a 4k engine or transmission replacement because the last owner didn't know what a service interval is, or having higher maintenance costs that come with higher mileage cars.

It's good to live within your means but as long as your total expenses don't exceed 70%, preferably 60% of what you make you'll be fine. This rule is definitely bogus, because if you follow it you'll see that you can barely afford a base toyota prius making 100k a year, because the payment is already 500$ and if insurance is more than 183 you're already breaking it.

davidburke
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I sold cars for three years. Not one person financed under 5 years (obviously those that paid cash did, but I’m talking financing). Also, $500/month note is roughly a $20, 000 car. That price will get you an entry level new car with most major car manufacturers. Lastly, I found that people don’t buy vehicles on how much the final price is, but rather weather or not they can afford the monthly payment because the vast majority of people sell the vehicle before it’s paid off.

OculusQuestFun
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Happy that you’re mentioning net income . It’s frustrating when all these “finance” people fail to mention how much money you actually have in your pocket every month before expenses. Taxes alone can remove $800 from your monthly number . That’s a huge difference

linonator
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I hate this because for someone starting out in life, not really Im like 2 years in, living alone, housing and utilities all cost more than 50% so if I want to eat I would already be breaking this rule, not to mention that cities near me are borderline unwalkable because of heat, how far everything is and if I dont have enough money to live here I dont have enough money to move to a more affordable city because that doesnt even exist, so I need a car now because I wont be able to keep my job if I dont but I need the job for long enough to be able to get a car that with the wage these jobs are giving I cant even afford the cheapest used one so maybe people can advise the really poor, the ones that cant afford to have their mom provide housing until they get a degree and a job that gives you more than 15k a year

diegomiranda
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This “ratio” is totally unachievable in the US right now…groceries cost me 22% of my take home and mortgage is 24%…. I have utilities insurance and home repairs/maintenance to pay for not to mention a car to drive to work….no way to keep that under 50%….

mikevbushy
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Solid advice! I even think there’s a better modification to the 20-4-10 rule.

Instead of saying the “10” goes towards car payments and insurance, it should include all transportation costs. Gas and estimated maintenance too.

I pay something like $1K annually in maintenance and probably $3K in gas, even driving less than 15k miles a year!

Thats over $300 a month being pumped into the car.

dasancostandi
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Enjoyed the video, very useful clear info. Appreciate you sharing the 50-30-20 rule.

jonspicer
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Great info. I have not had a car payment since 97. We now pay the equivalent of a payment into a high interest online savings account. I totally agree with you on this.

heprovides
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I was planning to buy a second car through financing half of the price but I guess I will just wait. Great video and thank you!

pauliebenzie
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You got me with the “Might Live Too Long” 😅 Thanks for this!

kt.
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Thanks somuch for the advice. I enjoyed watching. New friend here

ugolicious
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The problem I see with these formulas they have adjusted to inflation over the past 15yrs

ericnabors
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this video is clickbait in a sense that 20/4/10 is not bad advice, its to be used WITH 50/30/20. Either way it was pretty informational.

Rs
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I had a lot of money saved up one time and made a big down payment. So I was able to get a 3 year loan on a 4 Runner.

PassiveIncomeTom
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this nice vlog my friend thank you for sharing, just keep in touch and have great day :-)

EuanneHyunaRosas
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After paying mortgage, living costs and my investment fund I don’t have much left in the bank.. as much as I love cars I reckon cash is king

comeonman
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Though I was able to pay my car off in twelve months, it's great to learn about this rule. Also thanks for the book suggestion. I didn't know Elizabeth Warren wrote a book on personal finance.

MacAutomationTips
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Wow! Where were you about 6 years ago when I could have used this info!??😱

hipdadip