Why not to own a $50,000 car on a $25,000 salary

“A penny saved is a penny earned.” – Benjamin Franklin

Car mania is in the water.

It feels like every time I turn around someone is buying not a used car, but a brand spanking new car.

What happened to the days when people bought a beater and made due until they could afford a nice ride. As we know, it’s not the ride, it’s the rider.

Owning an expensive car on an unrealistic salary is starting to become the norm. At least it is where I live.

I live near the nation’s capital: Washington DC.

When the spring comes, I can almost set my watch to the time when someone is going to say I just bought a new BMW.

Now a BMW is an impressive machine, but it comes at a price. A hefty price tag, that can be more than some folks make in a year.

The average American income is reportedly around $50,000. However, many folks are spending a huge chunk of their income to finance a car that can’t take them back in time or to the future when the speedometer hits 88 mph, fly, self-clean, or self-drive itself.

Nope. None of that. However, people are spending upwards of 50% of their income on their ride.

Well, they better be prepared to live in it should something go horribly wrong. That percentage is way too high!

I have read that 50% of your income should go toward all your living expenses. This includes housing, utilities, and transportation.  People are actually spending this amount on one item!

And a car of all things is one of the worst wastes of money you can possibly have.

Let’s do the math. (I used an online calculator)


Vehicle Price$50,000

Tax, Title & Fees (est.) $3,400


Term Length72 MOS

Down Payment$2,500

Monthly Payment$785

So, for a $50,000 vehicle, even if you factor in the interest rate, fees, and down payment, then you are still paying an incredibly high car note at $785 per month.

Edmunds.com says the average car payment is a whopping $479 a month! You haven’t eaten, taken grandma out to bingo, or even put gas in your tank.

If you just save that amount instead, you will have $56,520 in the bank. That’s no joke.

You could start a business or put a down payment down on a home.

It makes no sense to pay this type of money for a car when you really can’t afford it.

What if you needed that money for medical expenses, a new roof, or dental work? Worst yet, what if you lose your job? Dealerships are not exactly known for working out long term refinancing options.

Even if you can agree to new repayment terms, if you miss a payment, they can repossess the car.

Here’s some food for thought: If you pay on your vehicle for 71 of the 72 required months, then are unable to pay the last payment, they can still repossess the car.

Stop making payments for a few months or more and this is a very real possibility.

That means you would have paid well over $50,000 including interest and they can still take the car because you do not own it.

Same rules apply with a home. Until you pay it off the bank owes it.  If you pay on the home for 29 years, then can’t make the last year of payments, they can take your home. Pretty scary stuff.

Therefore, it makes no sense to have high fixed expenses like buying a $50,000 car on a $25,000 salary with a fixed payment of $785 a month.

Instead, go for a more affordable car and home. A car note should be around 8% of your income not 50% and should be for no more than three to four years. For a home, you should try to keep the mortgage payment to less than 30% of your income and go for a 15 year mortgage instead of 30 years.

If those tasks sound daunting, then it probably means you cannot afford to buy that $50,000 car or $500,000 home.

If you are approved for those amounts, then deduct 25% from these amounts to make the purchase more affordable so there are no signs of struggling to pay the bills when they come due.

For instance, 25% of $50,000 equals $12,500. Deduct that from $50,000 and that means you would purchase a car for $37,500 instead.

You can do this for any purchase. Find what you want. Get the price. See if you can get it for 25% less.

If so, you could save yourself thousands of dollars a year.

They say you miss 100% of every shot you don’t take. We’ll guess what, let’s flip this saying and instead of doing more you just do less when it comes to spending money and you do the opposite and save.

Then, instead the saying would go like this: You get to keep 100% of every penny you don’t spend.

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