Have you ever wondered how much car you can actually afford or the average income of luxury car buyers? Well here is what you need to know before you head out to the dealership.
What is the Average Income of Luxury Car Buyers
In the United States, the average median income of luxury cars is just under a hundred thousand dollars.
This makes sense as you will need at least this amount to be able to afford the car.
Only about 20 percent of all households in the county have an annual income of a hundred thousand dollars or more.
Keep in mind your personal financial situation and your current debts and lifestyle will play a part in whether or not you can be a luxury car buyer.
If you are single without children and not in a lot of debt, you may find that many luxury vehicles are within your reach even if you don’t have that magical number of $100,000 dollar household income.
On the other hand, if you have a lot of debt or a family, then you will need a higher income to be able to afford the payments for any of the luxury brands out there.
The bottom line for many buyers of luxury cars is that they have made this purchase a priority in their life.
How Much of Your Income Should You Spend On Your Car?
Regardless of income levels, there is a rule of thumb that you should consider when deciding whether or not to buy one of these cars or not.
Experts say that you should only spend between 15 to 20 percent of your current income.
Let’s say that you make that $ 100,000 dollar per year.
That means you would be bringing home $8,333 per month before taxes.
Keep in mind that your car payment isn’t your only car-related expense, so let’s go with a car payment that would be 15 percent of your monthly income.
This means you would be able to pay up to $1,249 dollars per month.
(.15& x $8,333 = $1,249.00)
If you’re looking at buying a $70,000 dollar car at 3 percent interest with payments for 60 months your car payment would be $1,258 dollars.
That’s close enough to 15 percent.
But what if you don’t make a hundred grand a year or you do but you want to buy a more expensive car?
There is another rule that makes things a bit easier for you.
It’s called the 50-30-20 rule.
This rule suggests that you spend 50 percent of your income on needs, 30 percent on wants, and 20 percent on saving and paying debts.
The needs category includes things such as food, transportation, and housing.
The wants category includes travel, nonessential items, and entertainment.
The savings category includes saving for an emergency fund, and long-term savings goals as well as paying off any debt you might have.
A car is certainly a need, and it is also a want.
So, if you want to cut back on other expenses in these two categories, you can up that percentage that you can spend on any of the luxury car brands.
Let’s say you take 15 percent of your needs category to spend on your new car and then add another 15 percent from your wants category.
This gets your percentage up to 30 percent of your income.
It also means you won’t have as much money for travel and other fun activities.
You also might need to decrease your housing expenses.
That’s okay though because you’ve made this car a priority in your life.
Let’s go back and look at what you can buy now.
If you are making that $100,000 dollars your monthly income is still $8,333.
But you are using 30 percent for your car payment.
That means you can spend up to $2,500 dollars per month.
You can now buy a $155,000 dollars car and your payment would be $2,400 dollars per month.
That’s great if you are making that kind of money, but what if you are bringing in $70,000 dollars a year?
Your monthly income would be $5,833 dollars.
Using the 15 percent rule you could spend up to $875 dollars a month on a car payment.
That means you could buy a $55,000 dollar car.
If you are using the 50-30-20 rule and are using 30 percent for your new car, you could spend up to $1,750 per month on a car payment.
That means you could buy a $110,000 dollar car.
What Car Can I Afford With a $50,000 Salary?
With a $50,000 dollar salary, you can afford a car payment between $625 dollars to $1,250 dollars per month depending on which percentage of your salary you want to spend on your car.
That means you can afford any car that costs between $40,000 and $80,000 dollars.
Keep in mind, you will want to look at your other expenses and debt before you decide what percentage of your income you should spend on a new car.
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How Much Should I Spend on a Car if I Make $60,000 Dollars
If you make $60,000 dollars per year then you can spend between $750 and $1,500 dollars per month.
That means you can buy a car costing between $50,000 and $100,000.
Of course, if you have a lot of other financial responsibilities such as children and owning a home and maybe student loans, you will want to buy something on the low end of this or even below the $50,000 range.
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To Sum it All Up:
The luxury car buyer has an average income of a hundred grand a year, but you can make less and still buy a really nice car. Just consider the 15 percent rule or the 50-30-20 percent rule to determine what makes the most sense for your financial situation.