For such a big purchase, I find that people don’t talk all that much about whether or not you can actually afford a car—whether it’s how much car you can afford, or affordability rules, or really anything along those lines.

Like sure, judge me all you want for spending money on makeup, but where are my props for not buying too much car, you know?

Keeping my transportation costs at a reasonable level has a much bigger impact on my money than my fun budget ever has, and there are a few key ways I’ve always approached buying cars to make sure it stays that way.

Specifically, I have three rules I always bring up when someone (rarely) asks me what I recommend in terms of buying a car and keeping it affordable.

Why talk about car affordability at all?

You know I am here for your lattes and your avocado toast, and I never want to make anyone feel badly about their purchase decisions.

And sure, a car is a purchase decision, but unlike avocado toast, it will cost you way more than $20, and you’ll be able to finance it for a looooong time.

I’d put it closer to “buying a house” and “taking out student loans” than avocado toast on the money spectrum, which means that yes, giving it a bit more thought (and a bit more structured guidance) is a good financial move.

But first, a few disclaimers

Before we get into these rules for car affordability, there are two key things I want to make crystal-clear.

Personal finance rules are the pirate’s code of money.

Any time you hear a specific number, or specific target, mentioned as a personal finance rule, it’s more of a guideline.

The “rules” are a great goal, but as long as you’re either in the general ballpark of the rule, or working towards it to the best of your ability, you’re doing OK. 

If you’re reading this and a specific number jumps out at you as totally unattainable, consider it a guideline. Aim to be closer to it than not, and you’re moving in the right direction.

You’re not bad at money if you didn’t follow these rules.

I genuinely believe all of us are making the best choices we can with the information we have at the time. If you bought a brand-new car when you graduated school and you did none of these things? That doesn’t mean you’re bad at money. (Same goes if you were not a new grad when you did it, FYI.)

If you’re here and learning about these rules to make a more balanced financial choice next time, I’d argue you’re really great at money, because you’re trying to do better.

And I’m basically an internet money expert, so there. A money expert thinks you’re great at money.

Now let’s talk about cars.

Rule #1: The 20% Rule

No matter what anyone says while trying to sell you a car based on how much it will cost you on a monthly basis, the total purchase price of your car matters. (This seems obvious until you enter into a conversation with any car sales professional ever.)

So before you get into any conversations about buying a car, it’s helpful to figure out a ballpark purchase price for yourself, but it’s also easier said than done. It’s way too easy to start browsing cars and then conveniently justify your ballpark price based on a car you saw and loved.

It’s way too easy to start browsing cars and then conveniently justify your ballpark price based on a car you saw and loved.Click To Tweet

That’s what makes the 20% rule so handy.

Multiply your annual, pre-tax income by 0.2. That’s your ballpark purchase price.

On lower incomes, that can feel really restrictive, but there’s a reason for that. If you spend 75% of a $40,000 salary on a car, you’re going to feel it, and not in a good way. Either you’re still going to be paying for the car eight years later, or you’re going to be seriously scrimping to make your payments work with your budget. Possibly both.

You can avoid both of those things by keeping the purchase price of your car around 20% of your income.

Rule #2: The 3-Year Rule

Sure, I bought my first car in cash, but I also just financed a car with The Fiance, so I have used debt to buy a car. It’s not always realistic to expect that you’ll have tens of thousands of dollars sitting around in liquid cash to buy a car, which means that a guideline for how to use financing responsibly is a must.

Enter, the 3-year rule.

If you’re going to finance a car, aim for a loan period of no more than three years.

It’s a guideline, so keep in mind that it’s not all or nothing—a four-year loan is still much better than an eight-year loan. But keeping your loan period on the shorter side has two key benefits.

One, you’ll force yourself to pay off your car faster, so you’ll be charged less in overall interest. It’ll also help you pay off your car faster than it depreciates

Two, even if you don’t heed the 20% rule perfectly, you’ll still need to keep your total purchase price within reasonable limits. After all, paying off a $40,000 car in three years on a $40,000 salary is going to be really, really challenging. So much so that you might adjust your purchase price to something a bit more handle-able with your other monthly money commitments.

Rule #3: The Retirement Rule

My most popular tweet in the past few weeks was when I made up a car affordability rule on the fly, and you know what, I stand by it.

New fave car advice I just made up: don’t buy a car that costs more per month than you can afford to save for retirement. https://t.co/gekvC5nQN1

— Desirae Odjick (@half_banked) March 28, 2018

If cars are important to you, I have no beef with that.

You can spend your discretionary income on whatever you want, and if your financial situation allows it, you can totally ignore the other guidelines and dedicate more of your monthly budget to buying a car—as long as you’re not paying more for a car payment than you’re saving for retirement every month.

That’s the whole rule. Look at how much you’re saving for retirement, and don’t spend more than that every month on a car.

Look at how much you’re saving for retirement, and don’t spend more than that every month on a car.Click To Tweet

If you’re not saving for retirement, this is a great prompt to start. If you love cars, and you’re not saving all that much for retirement, it’s a great time to increase it. You end up getting the car you want, and because you’re also making sure to invest some money for future you, you can rest easy about the money stuff.

… just please make sure you can still afford to make rent and eat. I feel like that maybe had to be said.

Remember: they’re just guidelines

I am fully prepared for the internet to revolt and tell me I have lost my marbles, and that these are impossible standards. Which is fine! But honestly, they’re just guidelines. If you can stick to all of them, amazing! (I know it’s possible, because I’ve done it twice, with very different cars, on very different salaries.) If you’re working towards them, or closer to them than you would have been otherwise? Also great.

Happy car shopping, pals.