How much should you spend on a car?

In America, having your own car is synonymous with having complete freedom. After all, a car allows you to go wherever you want, whenever you want.

But this freedom comes at a price.

Cars — even the cheapest ones — can be expensive. A junker that breaks down twice a month will still set you back a few thousand. A nice one with leather seats and a decent sound system costs more than most people make in a year.

However, for many, having a car isn’t a choice. It’s required to get to and from work, go grocery shopping, or run errands in places where public transportation is less-than-efficient.

So how much should you spend on a car?

The answer to this question, like so many questions, is: it depends. It depends on your income, on your lifestyle, and on how important having a nice, “cool” car is to you.

Here are three approaches to help you figure it out.

Personal finance is personal, but everyone wants a rule to follow. So, when pressed, I would say spend up to 35% of your annual income on a car.

This covers most bases. If you only earn $20,000 a year, it gives you a budget of $7,000. That’s not a lot, but it’s definitely enough to buy an older yet still reliable used car.

On the other end of the spectrum, someone earning $150,000 a year might spend $52,500 on a new car. That will buy a wide range of brand-new cars, including luxury models. Still, that person earning $150K might be annoyed to be told they shouldn’t buy a well-equipped Tesla Model S for $115K.

This is why I think it makes more sense to break the rule into tiers. Only you can decide which tier is right for you based on your financial situation, whether you’ll pay cash or finance, and how important your car is to you compared to other expenses.

Read more: Is it better to finance a car or pay cash?

For many people, I think that will be between 10–15% of their income. So if you earn $25,000 a year, that’s going to be a high-mileage used car for $2,500–$3,000. If you earn $80,000, that’s a used car for around $10,000 or $12,000. (Yes, this is the harsh reality of being good with money.)

But here’s the thing: I’m not that frugal. I know that’s weird coming from a personal finance blogger, but I’ve always been honest about the fact that I’m more of a natural-born spender than a saver. I’ve checked myself in a lot of ways and become better at making frugal decisions, but I don’t have that passion for spending as little as I can at every turn (though I’m often jealous of those who do).

I also value cars. I enjoy driving and taking care of vehicles, so I’m willing to spend a bit more — without going overboard — on my vehicles.

For me, if I’m going to buy a new car, I want something that’s as safe and reliable as possible for my needs. Especially with a young family and two busy working parents, reliability is key — sending the car to the shop all the time would be a hassle.

The last two vehicles I’ve bought have been between two and three years old with around 20,000 miles on them. The newness of the cars was good for their reliability, but the fact that they were used took thousands off the price compared to buying a new one.

“How much car you can afford?” is a different question than “How much should you spend on a new car?”

A loan officer will look at your income and credit report and say, “You can afford $650 a month.” You could finance a new Porsche for $650 a month if they stretch the loan out long enough, but you certainly shouldn’t spend that much on a car.

If you take pride in your frugality, 10–15% of your income sounds about right. If you value the reliability a newer, more expensive car brings, then 20–25% is a good benchmark.

This gets you $5,000 to $7,500 on a $25,000 salary. Still not a lot, but you’ll have more options. At a salary of $50,000, you can spend $10,000 to $15,000, which should be plenty for a basic used sedan under 100,000 miles.

Read more: Car affordability calculator

To all you personal finance blog regulars out there, this probably sounds good so far. If this is your first time here (and assuming you’ve read this far), you might be thinking, “These people are so cheap! That’s crazy. There’s no way I can get a car I want for that money!”

To you, I would say ask yourself why you’re saying that. Is it because you’re a “car person” and you value your car most out of all your possessions? Or is it because you’ve simply been conditioned by our culture, advertising, and car salespeople to think that you should buy a brand-new car and there’s nothing wrong with spending a year’s worth of paychecks on a car?

If it’s the former — that you love cars — cool. There’s nothing wrong with intentional spending on the things you value most. By “intentional spending,” I mean spending money — maybe more than other people would think is sensible — on things that interest you.

So if you value your car, I don’t see anything wrong with spending more than we recommend, perhaps up to 50% of your annual salary on the purchase price of a car.

Chances are — as a car person — you’ll care for the car more, enjoy it more, and get more money for it when you sell it than the average car owner. Again, you just have to remember that because the car will be a large expense, you’ll have to be extra vigilant about other expenses.

One thing to remember as you’re shopping for cars is that there are far more expenses than just the price you pay to drive it off the lot.

If you get an old beater, it may be cheap upfront, but then could cost you down the line in non-stop repairs. Alternately, you could fork over a chunk of cash to purchase a new car that comes with warranty protections.

Balance out the pros and cons of each as you’re shopping, and remember some of the other costs that will crop up later on, like:

• Maintenance — Think oil changes, tire balancing, filter replacements, even car washes.
• Repairs — Anything from a leaky transmission to engine failure.
• Registration — You’ll need to register and licence your vehicle for road use.
• Insurance — Depending on your driving record, how much insurance you want, and where you live, insurance costs could add up.
• Fuel — Which, as we’ve experienced all too well lately, ain’t cheap.
• Parking — That could be daily or monthly parking at your office or even paying for an annual pass to park on your home’s street.

If you’re not a car person, the takeaway is to think about why you think you should spend so much on a car. It’s easy to think that way, I know — I worked at a car dealership once.

If someone walked in and didn’t specify a budget, we’d sell them any car they wanted and only after the fact worry about whether they could afford it. And by “afford,” I mean that they could get financing approved. In some cases, I’m sure we sold cars that cost more than the customer earned in a year.

We didn’t care about the car buyer’s actual income or budget; it wasn’t the dealer’s business. If a customer can’t afford a car, the bank sends a repo man and gets the car back. The system looks out for everyone but you. Start looking out for yourself by figuring out how much you should pay for a new car and then stick to your guns.

Happy driving.