What % of The Salary Do You Budget for a Car?

Hi guys,

Just wanted to know what % of your salary do you spend on car repayments. I recently landed a new job and was just considering upgrading my car (CR-V >230k) before it fell apart. I am open to finance as I usually invest most of my income into shares, etc. and I am getting a better return than what I would pay in interest.

I try to invest 40% - 50% of my income and rent + expenses don't exceed 30% of my income, so if my car repayment was to be 20% of my salary would that be optimal?

Just wanted to hear some thoughts from the OzB community to understand how much is not too much expenditure for a car.


Edit 1: Forgot to mention, looking at a nearly new (<30,000 kms) 3 series, C Class, A4, XE/XF, etc. I am well aware of their rock-solid reliability and high appreciation of value but want to experience them regardless (hopefully under warranty) and leasing is not possible.

Edit 2: Just clarifying, I meant <30,000 kms not <$30,000.


  • +1

    The last car I purchased, my wife's daily driver cost 5% of my salary. I have two keepers in storage that cost 17% each. My daily driver was bought new and is the oldest of the lot.

  • Why is it bankers making such poor financial decisions?

    Can’t you work out a budget and see what you can afford rather than coming up with some arbitrary percentage?

    Why buy some crappy Pov pack German car when you can get something nice like a Sonata n-line or seriously a hybrid Camry which are brilliant cars.

    • +2

      He is not a banker, he works for a big bank in IT.

    • +4

      Not everyone working at a bank is a 'banker'

    • He is not a banker, he works for a big bank in IT.
      Not everyone working at a bank is a 'banker'


      Why is it bankers making such poor financial decisions?

      We want to cause the next GFC and blame it on lizard people living underground so that we can pat ourselves on the back and take huge bonuses out of taxpayers money.

      • Fair enough.

        Back in the day IT workers all drove around in Subaru WRX's. What's the equivalent today? Tesla 3?

        For anything remotely cool in a BMW you'd be looking at maybe a series 4 coupe thats at least 5 years old for about $50k, factor in servicing costs, etc… I think I'd still take a Sonata N-line

  • +1

    The cheapest your ego will allow you.

    • so a bicycle it is

      • +1

        Absolutely. If it meets your needs and your ego allows it.

  • +1

    Don't be a badge snob ;-)

    At your age I'd be looking at a Hot Hatch over base line overpriced Euros.

    Look at cars such as,

    i30 N

    Focus ST
    Golf GTI
    Cerato GT etc.


    • That's really subjective, as I am not really into hatches and wagons. I had an Accord which was almost 5m so looking for somewhere in between.

  • 0%

  • As a car nut who gets joy from driving I probably spend more than most. My rule of thumb has always been 20% of net income.

    With financing, I agree with your logic. I've always borrowed against cars to leave cash for investing.

    However, I never borrow more than 60% of the cars value. That way if I ever lose my job, I can sell the car without any shortfall.

  • Unless you are a car enthusiast and cars are your passion, financing your car is the worst way to throw money down the drain, with high rates and likely a car you can't afford.
    Buy second hand with no finance, keep it modest, save the money and invest.

  • +2

    Whatever is left after mortgage and instant noodles.

    Make sure to buy the best AMG you can afford.

  • +1

    GTR R34. You will make money in the end.

  • How about a Lexus?

    • +1

      If you scroll up through the comments, you'll see the general consensus is that there's nothing bad about a Lexus except for its infotainment. It is almost unusable though.

      • Lexus RX and ES models from 2019 onward have Apple Carplay/Android auto standard and most other models form 2018 onward can be retrofitted for $249.

        • I am not really interested in crossovers and ES is too long. I had an Accord ~5m in length is frustrating to park. I am actually considering IS as well but their website only mentions the below cars for the upgrade:

          Certain Lexus models will be fitted with Apple CarPlay® and Android Auto™¹ from the following dates:

          • RX - From 23 October 2019
          • ES - From 24 October 2019
            For existing Lexus owners, a retrofit is available for $249 on the following models and respective productions dates:

          • ES - 4 July 2018 onwards

          • LC - 27 March 2017 onwards
          • LS - 8 January 2018 onwards
          • RC - 27 November 2017 onwards
          • RC F - 27 November 2017 onwards
          • NX - 1 September 2017 onwards
          • UX - 5 October 2018 onwards
          • @guavatemporary: Oh man, if the IS could be retrofitted.. That would be perfect for me.

            • @buckethat: You can retrofit it. Potential options are:

              • TomTom Go Supreme
              • Use a phone with a mount and Echo Auto
  • whichever car offering ~2% interest rate+balloon. paying 7% interest rate for personal car loan is just silly in the current environment.
    I'd suggest to look for bang for buck technologies that assist your drive rather than a luxury euro brand, at the end all you'll use is the steering/pedal and probably the carplay.
    Petrol is another concern. They are like liquid gold nowadays. Hybrid/PHEV are worth considering.

    • 7% interest rate
      This was based on literally the first result on Google. I will defs be shopping around for a much lower rate.

      I am open to hybrids but with turbos and smaller engines, the diff is not that much. Although not explicitly looking for PHEVs as I live in a rented house and charging them is an issue.

  • +3

    You're over thinking this. A car is a depreciating asset, that only costs money. The only benefit is the convenience of being able to travel on your own terms.

    You want the cheapest simplistic car that has the features you want, and is comfortable.

    As an example, a ute is great for moving house, but if you don't move house often, you're better off just renting a ute for that period. Otherwise the negatives of owning a ute outweigh the benefits (this includes being asked to move other people's stuff).

    Sane thing with a 4wd, no point owning a 70k 4wd if you're doing a standard road commute. Yes there is a status, and some people like the higher driving style, but these are personal choices.

    • 100% agree

    • For me (probs coz I grew up poor), it's just the prestige factor I want to experience at some point in my life. If I make a mistake it should be well within my risk tolerance. Regardless of how I put it, objectively, it may not make sense. When people pay $5000+ for first-class travel to Europe for example or luxury watches (not as investments) doesn't make sense. I guess this post was just to ascertain the optimisation between being objective and practical vs committing financial suicide by an irrational purchase.

      • No shame in growing up poor and making something of your life. Chasing some perceived prestige factor in a car marque to impress others is a surefire way to also die poor, which is a damn shame.

      • +1

        Book one of those weekends where you get to drive like 10 luxury/sports cars from Sydney to Wollongong or something and get it out of your system and have some fun and not be left with a massive debt for something you will probably get used to within days and have years of regret.
        Or do whatever suits you.

      • 'coz I grew up poor), it's just the prestige factor I want to experience at some point in my life'

        yep - people who grew up poor or rich tend to blow windfalls to experience even a short-term feeling of luxury

        people who grew up middle-class, who always had enough only if they managed carefully, tend to be frugal and continue to manage carefully, even when they have way more than enough

        a guy I knew who won lotto blew it all living large travelling the world first class staying in luxury hotels - I met him 18 months later living on a rural block in a hippie commune, apart from that and the self-built shack for his family, his only asset was his 4WD.

        I was shakin' my haid at thayut - but now I know it fits the 'grew up poor' category - so yair, enjoy that … ;-)

        • the difference is he probs had eg $100k which he blew up on whatever. I am intending to blow $20 of the $100 I make on an ongoing basis. I hope you understand the difference.

      • +1

        If this is the issue, try and rewire your brain to think about the benefit when you're actually well off. Rather than have a low end one now, set yourself a target of getting a second hand m4 in 4 years or something.

        My biggest financial mistake is literally the useless stuff. I've got hundreds of Amazon shares. I would have had hundreds more but for the silly things I bought in my twenties when I was spending hundreds a month on crap.

        No-one, and I mean no-one is impressed by a second hand low-end Euro. I had a brand new Audi S5 when I was 28, no-one gave a crap. It feels nice but it just fades into the background, then upgrade time comes and you're back on the ladder and trying to justify another jump in price range.

        • I've got hundreds of Amazon shares

          Unless you've got a multi-million dollar portfolio maybe diversify?

          Rather than have a low-end one now, set yourself a target of getting a second-hand m4 in 4 years or something.

          This actually made the most sense.

          • @guavatemporary: Yes, diversity with some Hertz and Blockbuster stonks.

          • @guavatemporary: Yeah I'm good thanks. I hope one day you'll learn to hate CGT too.

            That was just what I was buying at the time. ARM and Amazon.

  • +5

    Taking out a loan to buy a prestige car to impress other people is a bit like shaving your privates. You might think it looks good on day one, but no-one else will even notice, and after after a while you'll be left with annoying prickly regrowth and regret.

    There is a reason people lease German cars then get rid of them before the warranty expires.

    • +2

      Hahaha, I love the analogy and can totally relate.

      impress other people……might think it looks good on day one

  • pay cash for depreciating asset

  • just uber everywhere for the rest of your life

  • Get a car with good mod potential

  • +1

    $2000 on my 380. I hate spending money on cars.

  • I was in a similar situation almost a decade ago, where I ultimately decided to go with a E90 335i for nearly identical reasons - it ended up costing me ~20% of my take-home on repayments. While I didn't experience any financial issues, things got particularly expensive once the warranty expired and things began breaking like clockwork.

    While I don't regret the experience, in hindsight I realise I was allured by the badge, and if I ever got a do-over - I should have probably gone with an RX8 for less than half the price and probably would have had more fun.

    If it's something you still want to do, then my only advice would be to do it 'properly' and not go for a (near) base spec; gun for a C43 AMG.

    • +1

      so correct me if I am wrong but I guess you're saying the downsides like repayments and maintenance costs outweigh the potential upsides like prestige factor and trying to impress people you don't like.

      • +1

        Personally, the novelty of driving a high-powered BMW wore off around the 18 month mark as it was getting annoying having to park further away in car parks to minimise the chance of dents and scratches, or constantly worrying about scraping the front bar on steep driveways etc.

        Definitely do not get a car to try and impress people you don't like; individuals worth impressing tend not to be the ones swayed by the badge on your car.

        • try and impress people you don't like

          Defs need a better way to give my ex the finger.

          gun for a C43 AMG

          Also won't this bankrupt you with repair bills?

          • +2

            @guavatemporary: The best way to give your ex the finger would be to move on with your life and not give them a second thought.

            Also won't this bankrupt you with repair bills?

            Depends. If you get one with the balance of factory 5yr warranty remaining - you could theoretically enjoy it for a couple of years with that peace of mind. Make the determination of whether to get rid of it before the warranty expires once you've gotten a feel for your particular cars quirks.

  • car repayment was to be 20% of my salary would that be optimal?

    Will the car be used to derive much more than 20% of my salary?

    Yes -> you sure it has to be that expensive? -> yes? Okay get it
    No -> This is a stupid idea.

    • probs be used only to drive to the train station if/when they decide to call us to the office instead of letting us WFH, otherwise groceries, etc.

  • You want to spend a lot of money on a car. You have a reasonable savings rate. Go for it if that's what you want and you think you've done a comprehensive CBA according to your objective and subjective circumstances. I say this as someone who has no interest in spending much money at all on a car, and in terms of opportunity cost would be spending…approximately $200 per year in terms of car repayments alone (ignoring running costs).

  • As little as possible, have never bought a new car or borrowed to buy one. Maybe that has something to with why I own several properties and am looking forward to early retirement

  • How long do you typically keep your cars for? Do you consider yourself a car enthusiast? For example, if i keep a car for 10 years, I divide the purchase price of the car by my total anticipated salary in this time.

    I love cars and driving, and my cars' purchase price will account for around 3.6% of my total income across the time I'm expecting to keep them, not considering sale price.

    I'd actually really recommend against the cars you're considering. Go for something a bit smaller, older and more powerful. A base A4 will get very boring very quickly. A BMW M140i, M240i, IS/RC F or 350 at the very minimum, Nissan 370Z, Infiniti Q50/60 Redsport, Audi S3 etc should be on your shopping list.

  • In my opinion, unless there are tax or financial benefits, buy a car you can afford outright.

    • tax or financial benefits

      I don't have a lot of savings in cash per se as most of them are in shares, etc. If those are liquidated then I will be subjected to CGT.

  • Definitely go the XE/XF falcon route, as there are no XF v8's the top choice would be an XE ESP

    • XE/XF falcon

      I was actually referring to Jag. With these fuel prices defs not looking at a gas guzzler and even if it came with CNG, just don't see the point of a v8 if I am gonna a cop a fine every time. I am more inclined towards lux over perf.

  • +1

    If you are obtaining finance for a depreciating asset, consider if you are living beyond your means. Buy what you can afford. Nothing wrong with that., Your wallet will thank you later.

  • +2

    Sounds to me like you don't particularly love cars or driving, so why put so much money into a car, which will end up being a money pit? Spend your money on something you actually enjoy rather than trying to impress random people.

  • I think the golden rule is for the purchase price to be maximum 10% of your pre tax yearly income.

    If you make $50'000 a year, the purchase price should be no more than $5'000.

    If you make $500'000 a year, the purchase price should be no more than $50'000.

    This rule also scales according to higher expendable income.

    At $50'000, your post tax income is $42'283. Therefore $5'000 is equal to 11.8% of your post tax income.

    At $500'000, your post tax income is $294'333. Therefore $50'000 is equal to 16.9% of your post tax income.

    • So by that logic, you'd have to be a millionaire to afford the latest top-spec 3 series? I think this rule could be more tiered (coz of more disposable income).

      At $50'000, your post tax income is $42'283. Therefore $5'000 is equal to 11.8% of your post tax income.

      This I agree is spot-on.

      At $500'000, your post tax income is $294'333. Therefore $50'000 is equal to 16.9% of your post tax income.

      With nearly $300k in income and assuming a $1.5 mil property (<$100k mortgage p.a.), you're left with $200k. I don't see why you couldn't afford an expense of around $100k i.e. 20% of pre-tax income every few years on a car.

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