Dear Dave: What's your rule of thumb about how much your car should be worth in comparison with your income?
Great question. My rule of thumb is that all of your vehicles - I'm talking about cars, trucks, boats and their Sea-Doo sisters, motorcycles and anything else like this - should not total more than half your annual income.
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Why? It's because all of these kinds of things go down in value. You never want half of your income going into things whose value is dropping like a rock. You don't need a $20,000 car if you're making $30,000 a year. That's just stupid. Think about it this way. If you're making that kind of money, and I walk up and tell you I've got an investment opportunity that will turn $20,000 of your hard-earned income into $12,000 in just three or four years, are you going to take me up on the offer? If you've got a brain in your head, the answer's no!
Now, I'm OK with it if you make $300,000 a year and buy a $20,000 car if you pay cash. That's like most people running out and buying a Happy Meal. It's just not a big deal!