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.
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!