Not only are cars expensive to buy outright, but you can also end up paying a significant portion of your yearly salary on your vehicle due to running costs, insurance, maintenance, and servicing loans (if you have your car on financing).
The average cost of owning and operating a vehicle in the US is $10,742 per year, according to the US Department of Labor. That’s a lot of money when you realize that the average wage in the United States is $56,310.
What about cars that are better than average, though? Vehicles that are fast, off-road, luxurious, or vintage… How much income do you need to have in order to buy the car of your dreams?
Using the new BMW M3 as an example, Humphrey Yang, a former Merrill Lynch financial advisor with over 2.6 million followers on TikTok, has broken it down employing the assumption that you’re obtaining the car on finance and using a cunning financial gimmick known as the “20/4/10 rule.” [Watch it here]
In case you missed it, here’s how the 20/4/10 rule operates:
- Deposit at least 20%
- No more than four years may be spent financing the car.
- Maintain a monthly car spending total under 10% of your gross income, including principle, interest, and insurance.
For a $69,900 automobile, $181,740 looks overly conservative – and challenging to reach – but it’s important to keep in mind that 1) the BMW M3 is a high-end performance car, they’re not designed to be cheap, and 2) the 20/4/10 rule’s entire purpose is to provide yourself contingencies (and ultimately save you money in the process).
Lifehacker says this: “Your ability to pay off the car sooner and with more manageable payments depends on having at least 20% saved up in advance. Short financing terms allow you to sooner cancel pricey comprehensive insurance coverage while limiting the amount of interest you spend.”
Last but not least, keeping your monthly spending under 10% of your income provides you a bit more flexibility if you get smacked with an unexpected payment or lose your job.
Yang’s video naturally assumes you don’t have any savings. If your annual income is $181,740, you can definitely afford to save aside some money and buy your ideal car outright after only a few years of saving, which is ultimately a less dangerous or challenging option.
There are alternative options to obtain your dream automobile if you don’t want to take out a loan or save for years, including a novated lease, but good luck trying to get one of those going with your boss for a Ferrari…
In This Article...
demographics of recent BMW owners: annual income of a BMW owner
The annual household income of a buyer of a new BMW vehicle or SUV is $124,800. In order to put that into perspective with the US populace, in 2020, the median household income in the country was $67,521. It should be noted that the median income in 2019 was $69,560.
Since the MSRP of the BMW product line varies widely, it stands to reason that the typical household income also varies widely. For example, the 2022 BMW 750i of the BMW 7-series has an MSRP that starts at $103,000, while the rather rare 2022 BMW Alpina B7 has an MSRP that starts at $143,200. Buyers of new BMW 7-Series vehicles make an average household income of $184,170.
The popular BMW 2022 3-Series, on the other hand, starts at an MSRP of $41,450 for the 330i model. A new BMW 3-Series owner makes an average annual household income of $116,550.
Keep in mind that these are national averages. When contrasting car ownership with “average household income,” geography factors. For the New York Times, Kantar Media TGI recently conducted research on owners of premium vehicles. They discovered that a luxury car owner made around $100,000 on average, but that average varied from $83,891 to $155,548, depending on the state!
Our total sample size is little over 3,000 brand-new BMW owners, and our error margin is +/-2.5%.
earning a lot of money
We must first determine the monthly payments required to buy a new BMW 2 Series utilizing a financing plan in order to determine how much of an income is required to “afford” one.
- Vehicle cost: R765,000
- 60 terms for payments (5 years)
- 9.5% interest
- 10% deposit
- There is no balloon payment.
- Extras – There are no add-ons.
As a result, a monthly finance payment of R14,500 is required. The total amount of interest paid on the contract will be R179,400.
Then, according to financial experts, you shouldn’t devote more than 20% of your gross monthly income on car payments.
We arrive at a needed monthly wage of R72,500 by applying this formula to the aforementioned finance payments on a BMW 220i.
To calculate the wage requirement for the top-end M240i, we may also use the same formula and suggestions.
The BMWM240i will have R19,900 in monthly installments, making the “needed” salary to purchase the fast car R99,500 every month.
How can I budget for a BMW?
- Look for financing incentives or rebates.
- Invest in Phased Out Year Models.
- Get a used luxury vehicle.
- Online price comparison.
- Verify the invoice’s price details.
- Prior planning for financing
Based on my income, what kind of automobile can I afford?
You’ll be better prepared to buy a car if you enter the auto-buying process armed with a few crucial figures. And the math isn’t that complicated. You have fixed expenses like housing, health care, and food in addition to your income. You can spend the money you have left over after covering these costs on interesting stuff, like vehicles!
If you’re wondering how much of your money you can spend on a car, keep the 20% rule in mind. According to financial experts, you shouldn’t spend more than 20% of your monthly income on car-related expenses. Let’s assume that you earn roughly $2,500 every month. You should spend approximately $500 on your automobile in total, which includes the loan payment, gas, insurance, and maintenance. You shouldn’t have any trouble paying for your ride as long as you abide by these restrictions. If you want to spend a bit more, you can always make savings elsewhere.
However, depending on the expenses you have, everyone has a different budget. Make sure that adding a new auto payment won’t result in added stress by considering your personal budget.
How much do owners of expensive vehicles make?
For instance, the median yearly salary of a luxury automobile owner in the United States is $99,364, but the entry-level Mercedes C-Class sedan, the brand’s most popular model, costs roughly $40,000.
Who purchases a BMW?
And the car company has recovered from an anti-Yuppie backlash from the 1980s to make it acceptable for the wealthy to once again acquire BMWs. The average age of its primarily male customers is 46 across the board, ranging from roughly 43 for the entry-level 3-series to barely 51 for the top 7-series model.
Can I buy a car with an income of $75,000?
According to the 10% rule, you shouldn’t spend more than 10% of your annual wage on car payments. You should try to spend no more than $7k a year on car payments if your yearly salary is $70k.
How durable is BMW?
With the right care, almost any BMW has the ability to last up to 200,000 or even 250,000 miles, and there will always be outliers that go even longer. It’s simple to get off to a good start because every new BMW comes with free factory-recommended maintenance through BMW Ultimate Care.
What vehicle can I buy with a 40k salary?
Your spending cap shouldn’t be any more than 35% of your gross annual income, regardless of whether you’re buying, leasing, or financing a car.
In other words, the car shouldn’t cost more than $12,600 if your yearly income is $36,000. If you make $60,000, the car should cost less than $21,000.
The current top spending ceiling is 35%. Not everyone should invest more than a third of their earnings in a vehicle. People who only need a vehicle to get to work may be content with spending far less money, while those who grew up watching Top Gear will probably want to spend closer to the maximum amount.
I would like some luxuries, like heated seats and an excellent sound system.
“I love driving and automobiles, and I want my whip to be as elegant and enjoyable as I can afford.”
What automobile can I buy with a salary of $75,000?
The “20% Rule” certainly seems straightforward. However, if you consider it, using 20% of your salary for only your car payment still leaves you with 80% for everything else.
Take into account your mortgage, consumer debt, healthcare costs, food costs, utility costs, and the cost of life. You might go beyond with your spending plan.
- 10% of your salary: If you want to buy a car on a tight budget, limit yourself to 10% of your yearly income. If you earn $50,000 a year, you have $5,000 available for spending.
Probably not realistic for the typical driver. This rule might only be applicable if you actually require an automobile to travel from Point A to Point B.
- The 36% Rule states that no loan payment should equal more than 36% of your gross income. Your mortgage, auto loan, personal loans, student loans, and minimum credit card payments all fall under this category.
Your monthly loan payments shouldn’t be more than $2,250 if you earn $75,000 a year.
- The 20/4/10 rule states that you should put 20% down, finance an automobile for no more than 4 years, and keep your car payment to 10% or less of your gross income.
This comprises the loan’s principal, interest, and ongoing insurance costs.
Checking prices online could be a better option than splurging at a nearby dealership. CarsDirect is one reliable supplier. To find out how much cars actually cost in your area, you may find discounts on both new and used cars.
“People frequently don’t consider their credit score when seeking to buy a new automobile, but because of the interest rate, it can affect what car you can afford.”
If I earn $100,000, how much should I spend on a car?
Do you know what a “debt-to-income ratio” is? It’s just a percentage based on how much you make compared to how much money you owe overall. Your debt-to-income ratio is 50% if your total debt is $30,000 and your take-home pay is $60,000.
Many professionals utilize a 36% maximum debt-to-income ratio as a general guideline. But remember, that’s just a suggestion. With a DTI of around 50%, many lenders approve auto loans (and refinancing loans).
Simply multiply the combined income of your family by 0.36 to get how much car you can buy using the 36% rule. Assuming you have no other debt, if you make $100,000, for example, you might afford to take out a car loan of up to $36,000.
If I earn $300,000, how much should I spend on a car?
My 1/10th Rule for car buying should be followed as a first rule. According to the rule, you shouldn’t spend more on a car than one-tenth of your gross annual salary. A new or used car is OK. It doesn’t matter as long as the car costs no more than 10% of your gross annual salary.
Set a $4,200 maximum for your vehicle purchase price if you earn the median annual per capita income of $42,000. Limit your car purchase at $6,800 if your family makes the median household income of $68,000 per year. Do not go out and spend the excessively expensive median new car price of $39,950!
Aim for a household income of at least $399,500 per year if you must purchase a car that costs $39,950. You might laugh at the need for making such a huge sum. However, today’s middle class lifestyle with a family requires at least $300,000 a year.