Dave Says: How Much to Spend on a Car
The car rule
Dear Dave,
What’s your rule of thumb about how much your car should be worth in comparison with your income?
–Madea
Dear Madea,
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 okay 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!
– Dave
Do rich people need the envelope system?
Dear Dave,
Do you ever reach a point in your plan where you stop budgeting or using the envelope system?
–Craig
Dear Craig,
I’ve been fortunate enough to build a net worth of several million dollars, and my wife and I never stopped doing either one. We still sit down together every month and plan out a written budget. Every dollar is spent on paper before the next month begins, and we follow it exactly. And I can promise that were you to look in my wife’s purse, you’d find one of our deluxe envelope systems, just like we sell in our office bookstore. She carries it with her everywhere!
We do these things because we’re responsible spiritually for handling that money well. Those of us who are Christians call that “stewardship.” We feel like we’re called to be good stewards—good managers—of God’s money. It’s not a freaky thing. It’s just a matter of following God’s good advice and common sense.
I want that money to behave, and these things are some of the best ways I’ve found to make it do what it’s supposed to do!
– Dave
