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The past few years have been rough financially (housing crisis and collapse in real estate prices). As a result I have been educating myself about personal finance (credit, debt, budgets, etc). I have been trying to refine my budget to better manage my spending, saving and payoff debt.

Now I am trying to determine how much I should spend upon transportation. My current commute is about 30 miles/day, plus miscellaneous errands (call it 200 miles per week), and public transport is terrible in my area. I also have three children who drive, and have had to loan them a car on occasion.

What percentage of my income should I spend on transportation?

What percentage of my assets should I commit to vehicles?

I currently have 3 cars,

  • 2004 Civic, daily driver (paid off), 80,000 miles
  • 2006 Honda, weekends (owe $8,000), 20,000 miles
  • 2001 Oldsmobile, spare/extra (paid off), 130,000 miles

Currently I pay about $150/month for insurance on the three cars, and spend about $120/month on fuel. Selling one car seems like a good plan.

  • I'm not sure I understand your question. You spend what you need, don't you? – littleadv Dec 20 '13 at 3:14
  • There is no general rule as percentage of assets to vehicles. If you don't need a car, sell it off. If you can afford a car, keep it. – Dheer Dec 20 '13 at 3:43
  • I know lots of people have voted to close, but I believe there's enough of a question here to justify worthwhile answers. – ChrisInEdmonton Dec 20 '13 at 14:43
  • On further reflection, I'd rather undo my close vote, but that's not a non-mod option. – JTP - Apologise to Monica Dec 20 '13 at 15:12
  • One personal finance guru recommends no more than 10% on vehicles, but doesn't mention an asset allocation. Since transportation can be a big expense, getting that area right is important. – ChuckCottrill Dec 20 '13 at 16:44
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The general rule is to spend as little as possible on transportation, as it is an expense.

Many people can get by without a car at all, but you say you can not. So, what you need is the cheapest car that is sufficiently reliable for your needs. I suggest you do not need three cars. You don't need to loan cars to your children; if they need a car, they can get a job and buy one, or borrow your reliable vehicle if (but only if) you are not using it.

I would suggest, then, selling two of your vehicles and holding on to one for your daily commute. Pick the car you judge to be the most reliable.

However, not all decisions are made purely rationally. My vehicle is a 2012 Subaru Forester. AWD is very nice in my snowy climate, but I could have picked up a second hand vehicle for a lot less money. Similarly, you may choose to hold on to a second or even a third vehicle because you judge it a reasonable use of your money. It's an unnecessary expense, but so is coffee and you can have my coffee when you pry it from my cold, dead fingers.

More generally, there's a rule of 28/36. Roughly speaking, that says that a household should spend a maximum of 28% of its gross income on housing expenses (mortage, heating, etc. etc.), and no more than 36% on total debt (the aforementioned housing, plus also car loans, credit cards, and other loan repayments). If you are spending significantly more than that, it's time to seriously consider selling one or two of your cars, plus cutting back elsewhere. If you are significantly below that, the fact that you may be underwater on your home may be a far less pressing matter.

  • 1
    You offered an interesting perspective, referencing the sane mortgage ratio qualification, and that car loans should squeeze into the 36%. But this still ignores insurance and ongoing maintenance, no? Part of my reason to vote close was the thought that every line item is open to debate. I think that a reference to a typical budget has value, but beyond that, it's a matter of choosing. The pie divides based on people's priorities. And income. A $250K earner won't spend the same percent on food as the $50K earner, I hope. – JTP - Apologise to Monica Dec 20 '13 at 15:10
  • Joe, I agree with your comments here. The OP's question is frustratingly close to a discussion question rather than something that can be answered objectively, though I tried hard. :) – ChrisInEdmonton Dec 20 '13 at 15:21
  • Using the 28/36 rule is a good idea. My goal is 25% for housing, so 6-8% for a car would leave 3-5% for other personal debts. – ChuckCottrill Dec 20 '13 at 16:46

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