How Much to Spend on a Car


We all know that a house is the largest purchase for most households. But not everybody realizes that a car is not just the second largest purchase, but also the second largest annual expense for most households -- ahead of food and healthcare.

Exactly how expensive is a car, you ask? Well, here is how the average American household spends their income:

  • Housing: 32%
  • Cars: 18%
  • Groceries: 7%
  • Healthcare: 6%
  • Entertainment: 6%
  • Dining Out: 5%
  • Clothing: 4%
  • Everything else, combined: 22%

Ever wonder how much you should spend on a car? There are many online calculators that let you calculate how much, based on a proportion of income. Well that is all fine and good, but what about taking people’s lifestyles into account? Obviously, if you drive 4 hours a day then you should spend more on a car than if you drive 1 hour a week.

Another way to figure out how much you should spend on a car is to look at the amount of time you spend at home versus the time you spend in a car. In other words, the annual cost of your car versus the annual cost of your house should be proportionate to the amount of time you spend in each.

Take a look at our new calculator to figure out how much to spend on a car.

Photo courtesy of Hugo90.

4 thoughts on “How Much to Spend on a Car”

  1. I would argue that the more time you spend in a car, the LESS you should spend on it because you are even more rapidly decreasing its value than if you hardly ever drive it.

    I drive 30,000+ miles per year for my job and I drive a car worth $400, but it still drives great. Of course, I don't care what the car looks like, just as long as it drives well.

  2. At 18% the cost of my car is right on the money ;-) I do not drive a lot at 12k per year. I buy cars based on what I like and what I will use it for. Fuel economy does not play into it (although it probably should). There is no measurable difference to me between $150 and $300 of gas per month if the driving pleasure makes up for it.

  3. In many ways I agree with your calculations, but there is one factor the Fun to Drive car. Especially for more settled and retired people. A divorced man about 60yrs old, small mortgage (pmt - less than 9% of income), no other bills, except the usual food, clothes, HVAC, etc. and a large dog to feed. What I want is a ZL-1 Camaro Convertible at $60,000 [never want to buy a used performance car, as the previous owner probably used it for that]. With your formulas (pick from the one above, or any of the others, as you say there are many) but it would appear that unless I significantly increase my pension, go back to work full time, etc. because it would appear that unless my gross income is between $400,000.00 and $500,000.00 I should not buy the car. Ok, there are some other cars in the world, and quite frankly I don't need a new car, I have an entire museum full of them. I have more than enough in my 401k that hasn't been touched to pay off everything, provide a trust fund for my dog should he outlive me, etc., and my pension is such that unless the U.S. Gov't is overthrown it is going to be there on the first of the month. I also have goo health insurance. Should I buy the Camaro or not? Could you tell me why, or why not? I can say that your input will probably carry weight when I make a final decision, so please be straight with me, but I have a feeling that you will probably say "No" and if there are really some negatives I would like to know them.

  4. I very much appreciate this calculator. It's kind of inline with the way I approach frugality in my spending on vehicles. On a fun note, I think Forensics Doc sounds like a smart guy. I don't know if he received a response or bought the new Camaro. I only know that he missed one word: FRUGAL. Neither he nor the Camaro fall into that category.

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