I watched in horror as a total of 690,000 new vehicles averaging $24,000 each were sold under the Cash For Clunkers program in 2009. The government's $4,000 rebate for trading in your car ended up hurting hundred of thousands of people's finances instead: Your $20,000 invested in 2009 in the S&P 500 index would now be worth over $50,000 today, given that the stock markets are now at record highs.
Buying too much car is one of the easiest and biggest financial mistakes someone can make. Besides the purchase price of a car, you've got to also pay car insurance, maintenance, parking tickets, and traffic tickets.
When you add everything up, I'm pretty sure you'll be shocked at how much it really costs to own a car!
More from the Financial Samurai:
The average net worth for the above average person
Who makes a million dollars a year? Exploring the top 0.1 percent income earners
Have a net worth goal before having children: how about $1 million
The 1/10th rule for car buying is simple. Spend no more than 1/10th your gross annual income on the purchase price of a car. If you make the median per capita income of ~$42,000 a year, limit your vehicle purchase price to $4,200 if you must buy one. Absolutely do not go and spend the median car price of $34,000!
A median income earner buying the median priced car that now costs $34,000 in 2018 is financial suicide. Who spends ~81 percent of their gross salary on the purchase price of a car? Worse yet, after you pay a 20 percent effective tax rate on your median $42,000 gross per capita income, you're now spending ~95 percent of your net income on a car!
That's crazy and a sure path to financial mediocrity. Don't expect the government or your rich uncle to bail you out.