How Much Should I Spend on a Car If I Make $60,000?

Buying a car is an exciting experience. It can be stressful, though, to try to figure out how much you can really afford. How much money should you set aside for a new or used car if you make $60,000 a year?

I recently had this problem when I was shopping for my own car. With some research and help from professionals, I learned that there are some rules you can follow to figure out if you can afford a car based on your income. I learned the following about how much I should spend on a car if I make $60,000 a year:

The 20/4/10 Budget Rule

The 20/4/10 rule is often suggested by financial experts as a way to figure out how much you can spend on a car. Here’s how it works:

• Put down a 20% down payment
• Finance the car for no more than 4 years
• Your monthly car payment should be no more than 10% of your gross monthly income

So if you make $60,000 annually, your gross monthly income before taxes is $5000 ($60,000/12 months). Following the 20/4/10 guideline, your maximum monthly car payment would be

• Down payment: $12,000 (20% of $60,000)
• Loan term: 4 years (48 months)
• Maximum monthly payment: $500 (10% of $5,000)

Based on this, the 20/4/10 rule says that if you make $60,000 a year, you can afford a car worth about $24,000 with a $12,000 down payment and a $500 monthly car loan payment.

The 35% Gross Income Rule

Another common recommendation is to spend no more than 35% of your annual gross income on a car purchase. So if you make $60,000 per year, you would multiply your income by 0.35 to get your max car budget:

$60,000 x 0.35 = $21,000

Thus, according to the 35% rule, you can afford a car valued around $21,000 if your gross annual income is $60,000.

Average New vs. Used Car Prices

It also helps to have an idea of current average car prices when determining your budget.

The estimated average price for a new car today is around $48,000. For a used car, average prices fall between $28,000 for a 3-year-old used vehicle and $22,000 for a 5-year-old used vehicle.

Comparing these averages to the recommended budget guidelines above suggests purchasing a used car is likely the more affordable option on a $60,000 annual salary.

Additional Costs to Factor In

Your car payment isn’t the only expense that should be included in your affordability calculation. You’ll also need to budget for:

• Insurance – Average annual cost is $1,500-$2,000
• Fuel – Average annual cost is $1,500-$2,000
• Maintenance and repairs – Average annual cost is $1,000-$2,000

When you add in these additional costs, a used car becomes an even more practical choice for staying within a $60,000/year income budget.

Use an Online Car Affordability Calculator

To take the guesswork out of figuring out how much you can afford, use an online car affordability calculator. Sites like Kelley Blue Book and Car and Driver offer calculators that allow you to plug in your income, estimated down payment, and ideal monthly payment.

The calculator then runs the numbers and shows you loan details including:

• Loan amount
• Interest rate
• Monthly payment
• Total interest paid
• Loan term options

This takes your specific financial situation into account vs. just applying general percentage rules.

The Bottom Line on Affordability

While guidelines like the 20/4/10 rule and 35% income rule provide good starting points, running your own numbers with an online calculator helps ensure your car budget aligns with your individual income and finances.

The calculators suggest that with a $60,000 salary, you can likely afford monthly payments between $300-$500 over a 4-5 year loan term while keeping your total vehicle budget in the $15,000-$25,000 range.

Ultimately, you want to choose an affordable vehicle that fits both your budget and lifestyle needs without becoming a financial burden. Take the time to run the numbers so you can enjoy your new car with peace of mind!