Enter the car price of your wanted car ($) into the 20/4/10 Rule Calculator. The calculator will evaluate the down payment and minimum monthly income.
20/4/10 Rule Formula
The following two example problems outline the steps and information needed to calculate the 20/4/10 Rule.
Variables:
- DP is the down payment ($)
- MI the minimum monthly income ($)
- MC is the monthly car cost on the 4 or less year loan ($)
- CP is the car price of wanted car ($)
The 20/4/10 rule states that you should be able to afford 20% of the down payment on a car and for the monthly cost to be less than 10% of your monthly income when a loan of 4 or less years is used.
How to Calculate 20/4/10 Rule?
The following steps outline how to calculate the 20/4/10 Rule.
- First, determine the car price of wanted car ($).
- Next, gather the formula from above = DP = P * .20.
- Finally, calculate the 20/4/10 Rule.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
car price of wanted car ($) = 25,000
DP = P * .20 = ?
FAQs
To apply this rule of thumb, budget for the following:
- A 20% down payment.
- Repayment terms of four years or less.
- Spending less than 10% of your monthly income on transportation costs.
20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.
How much should I spend on a car if I make $100,000? ›
Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.
What car can I afford with a 40k salary? ›
on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000. And at 150 k salary, that means your max car price should be 50 2500.
How much should I spend on a car if I make $60,000? ›
How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.
How do you calculate the 20 10 rule? ›
The 20/10 rule follows the logic that no more than 20% of your annual net income should be spent on consumer debt and no more than 10% of your monthly net income should be used to pay debt repayments.
How much does Dave Ramsey say to spend on a car? ›
According to a Ramsey Solutions article, if you wonder what type of car you can afford, the answer is simple: “The car you can afford is the car you can pay for in cash.” “And as a general rule, the total value of all your vehicles combined shouldn't be more than half your annual income,” according to the article.
How much car can I afford on a 50k salary? ›
Start With Your Gross Income
To get an idea of how much car you can afford, a good rule of thumb is to pay no more than 35% of your annual pre-tax income. So, if you make $50,000 before taxes per year, your car purchase price should not exceed $17,500.
What car can you afford with a 120k salary? ›
I personally would not spend more then a third to half of what your yearly salary is. So a $40,000 vehicle would be the low and recommended while $60k is the highest. That still puts you in the territory of an Audi S4 or similar vehicle. But don't go out buying GTRs or Ferrari Californias.
What is a decent car payment? ›
In general, it's recommended to spend no more than 10% to 15% of your monthly take-home income on your car payment, and no more than 20% on your total vehicle expenses, including insurance and registration. Read on to learn how you can determine how much car you can afford based on your financial situation.
As an individual, you may find that $40,000 is a good entry-level salary. Couples living the DINK lifestyle (which stands for dual income, no kids) and who each make $40,000 would be well above the median household income. Plus, they would have the additional costs of raising children as part of their budget.
What's a good down payment on a 30k car? ›
Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.
How do you calculate how much you need to save for a car? ›
Plan to spend less than 15% of your monthly post-tax income on a car loan payment and less than 20% on your total vehicle expenses. You'll need your post-tax income, credit score, monthly payment potential and other critical information to calculate your car buying power.
How to calculate car budget? ›
NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment. Check if you can really afford the payment by depositing that amount into a savings account for a few months.
What is the 50 30 20 rule for car payments? ›
Balance Your Budget
50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.
What price car can I afford with my salary? ›
It depends on how much income you have after your bills and expenses. But as a rule of thumb, your car payment should not exceed 15% of your post-tax monthly pay. For example, if after taxes, you make the U.S. median income of $37,773, you could shop for a car that costs up to $472 per month.
