Operational Guide
Car Affordability: The 20/4/10 Rule
Cars are the #1 destroyer of middle-class wealth. They are depreciating assets that people finance like appreciating assets.
The Rule
Before you walk onto a lot, run the numbers against this triple constraint:
20%
Down Payment
Prevent being "underwater" (owing more than it's worth) the moment you drive off.
4
Years (Max)
Never finance for more than 48 months. If you need 72 months to afford the payment, you cannot afford the car.
10%
Income Cap
Total transportation costs (Loan + Insurance + Gas) should not exceed 10% of monthly gross income.
Leasing vs. Buying
- Leasing: You are renting the depreciation. Generally the most expensive way to drive, but offers predictable costs.
- Buying Used (3 Years Old): The "Sweet Spot." The steepest depreciation curve (40-50%) has already happened.
Decision Tree
Do not trade in your car just because it needs repairs.
Rule: Does the repair cost more than 6 months of new car payments?
If NO → Fix the car.