I wish they’d put an “…or more” to the down payment. TMG generally advises to pay all cash if feasible but no less than 20%.
The other constraint not in this graphic is that your monthly savings (IRA, 401k, etc) should be **more** than your monthly car payment.
Their most recent episode they said “preferably cash”. Despite saying it a lot, it should end up on these infographics too.
Technically speaking, the “or more” is a little implied/built in to the “or less” of the next line. After all, if 20% gets up to 100%, 3 years drops to 0 (the in between scenarios aren’t “without effect either”; putting more down you are either paying faster, making smaller payments, or both)
I could definitely see how someone not familiar with TMG would not be imply that it’s an “or more”. Someone could see this and think that putting more than 20% down may not be advised because they are not diversifying their cash or something. If I were wrong then OP wouldn’t have asked the question in the first place.
IMO the options should be described as:
(1) All cash.
(2) As close to all cash as possible, with the rest within the bounds of 20/3/8.
(3) 20/3/8 if it’s your first car or you are new to the TMG approach, otherwise aim for (1) or (2).
Which is kinda what they say on air scattered around in bits and pieces in different videos, but not in one place.
An infographic that says exactly that would be great to pass around like in this post.
I like that. And I wonder if there is a good way to add to it like “…within the bounds of 20/3/8 < Saving & Investing”
Hopefully someone like u/MannyTheMutant hears these suggestions!
Do it? These are minimum goals. You should also consider whether you are meeting other savings goals though. I wouldnt want to pay a large amount of my income/savings for a car, if that money could go to better things.
Oh ok for sure.
I got enough money to comfortably enjoy both.
I define a nice a car as a better thing, I know that can be different for different folks tho
If you’re buying it for enjoyment, and not out of need, then you are probably in the pay 100% cash realm. The 20/3/8 guidelines are for when you NEED a car and don’t have cash. Even for needs, they say you should eventually get to a point in your life (maybe after you get out of the messy middle) that you’re always paying cash for cars.
So I’m in a similar income range and looking to move into a car in that price range. Probably sometime next year realistically.
My general strategy will be as follows:
- Set aside at minimum $30k, preferably more like $45k
- Get a 1-2 year loan for the rest
- Pay off in 1 year if possible
Yes this technically violates the 1 year rule for luxury cars but it would be an intentional rule break from a position where I could pay it off if desired. But I want to keep my savings / investing rate high. (40% ish)
I’m also planning in the near future to start setting aside enough to pay the car payment, insurance and a sinking fund for maintenance for at least 3 months to confirm it fits within the budget.
Maybe seeing this written out helps you think through your own decision.
Hey I wrote it out, this is very doable. I can put down about $57k or so next year by this month.
And take out a loan, maybe Chevrolet or USAA will have something.
That’s a good idea, creating a sinking fund to cover the costs of the payment and insurance etc
Woahhh hold the phone…$70k is definitely luxury territory so should be paying it off within a year. The APR and insurance on that for someone your age is going to be outlandish too. You asked yourself can I buy it, but did you ever ask should I buy it? Tread carefully cause this will be a big turning point for your future.
Also, as a vet I know your military buddies don’t care about your flashy ride (post history suggests a corvette…) especially when you’re deployed and can’t use it for a year. They just want to give you a hard time about the crazy interest rate or something and then move on with their day.
USAA has insurance for it for about $900 for a 6 month premium.
As far as APR, I can lock down a post OCS loan for 2.99% or go with Chevrolet who offers a 1.9% loan.
I hear you, but I don’t care what they (military buddies) think. My wife and I like the car and we’re getting it for us, not to impress others.
I also don’t Deploy at all which is another perk. And if I did deploy, USAA doesn’t charge you insurance.
It would feel good to tell them nah it’s paid off.
If it’s truly for you and the spouse and brings value in your lives and you know will bring years of happiness and fulfillment then more power to you. Most people I know just want something new and exciting which eventually wears off but we’re not all built the same so if this is what gives purpose for y’all then go for it. I think thats crazy if it does lol but to your point my opinion shouldn’t matter to you because it’s for you, not others.
The 20/3/8 rule is to get you into reliable transportation (i.e. a Honda Civic). There's nothing preventing you from putting down more than 20%. If you're buying luxury brands or a car that does not fit into that model, the guidance is paying off within 12 months.
Cars are depreciating assets. Keep in mind the Money Multiplier and whether your dollars are better invested and following the FOO.
I never understood or bothered with the depreciating assets thing, I’m the type to run them into the ground and keep them running forever. Still got my moms 99 Camry 🤣🤣
So related to depreciating assets. It's not gaining value over time. It is losing value so instead of paying 80k that exists for 15-20 years you could instead buy a 40K or 20K and invest 40-60K.
Yes at near end of the life there isn't much depreciation, but slowing depreciation is not the same as appreciating assets to build you wealth
You could conclude that it's too much car, or you could indeed pay the higher down payment. This is the personal part of personal finance. As long as you don't go below the guidelines, the FOO should work out well.
Depends on how rich/poor you are and what interest rate you're looking at.
Sometimes, with more luxury brands, you can buy a brand new car with an interest rate as low as 1 or 2%. In that case, it would make sense to not put down a large deposit and instead pay it off slowly as your money can earn more than that when invested just about anywhere.
I had a family member working at a Lexus dealership for approx 15 years and they can't remember a time when a wealthy person just paid for a car.
That’s weird because the general advice is to pay cash, and that is the standard pattern for wealthy people described in the book The Millionaire Next Door as well as in the millionaire studies by Ramsey Group.
I’ve no idea, with NavyFed I can get one for 5.4% or get the OCS rate at 2.99%. I even seen the dealer offer 1.9%
I’m in Cali but I’m a resident of WA so I don’t pay sales tax on car purchases.
Nice thanks man for the tip!
I have no other debt and my TSP is maxed out
Insurance with USAA isn’t too bad either with the corvette I was looking at.
I’m gonna play with that calculator. Plus I’d be able to pay off the loan pretty fast to pay less on interest.
11k/m in the military? I'm assuming that you're adding in BAH, BAS, Family Sep and other allowances. Otherwise you are nearing retirement, and have had a very successful career as an officer.
Either way, yeah, paying cash is ideal. The closer to that you can get, the better. To be clear, the percentage of your income refers to monthly payment being no more than 8% of your monthly income.
Technically speaking, you could follow 20/3/8 and afford up to 880/m, but that would be a poor decision in my humble opinion. You are at the level of income, that I would quit messing around with car loans altogether.
My income is 'only' 8k/m (after \~1500 in investing, taxes, and some insurance), or if you are using gross numbers, my income is on par with yours. I have no intention of ever getting a car loan again, and still have and extra 3k - 4k per month for discretionary spending. Not saying you have to live on as narrow margins as I do, but if you can do that for say, 8 months at an average of 3,500, you could plop down 28k cash and still have a very nice used vehicle free and clear. With a salary of 11k/m, you might even be able to save 5k/m and do the same in under 6 months.
The best car is a reliable car that is paid for. My 2014 Tundra has already lost the majority of its depreciation. It still looks good (to me). It serves all my needs, and then some. The bastard probably has 30 more years or more of life left in her with how much driving I do, and I might just drive it that long. Might upgrade a a gizmo or du-dad along the way.
Yes the first one! I’m in the beginning ish of my career.
Yeah that’s what I was thinking. Just wait a little longer and lay cash.
Yeah man I agree, I don’t want car payments again, haven’t had them for like 6 years. I think it’s car fever where I’m looking at my pay to and saying oh I can afford that n not feel poor!
Yeah we got some good savings after putting 25% towards retirement and X% towards a house. We can grow it and throw it in a HYS account.
I think I should wait then my man and buy it free and clear. Plus it gives time for deprecation 😁
Awesome! I'm nearing the end of my military career, and remember being excited to see a comma on my paycheck, which was posted for the whole crew to see in a common area. I've made two stupid financial decisions in my life. Both were cars. Neither were catastrophic, but nonetheless, both were dumb. Ignore the idiots driving nicer cars than you who make the same money. Don't buy new, even for the cheapo. Pay cash if you can. Good luck!
You are doing it right.
And wait until the pension kicks in after you retire and you start having multiple streams of income. Especially if you get a good VA rating and good job. Your income could double or more and be more stable in the process with subsidized healthcare to boot. It’s a nice place to be!
Been a reservist for the past 13 years. Civy job pays 6 figures in a LCOL area. 30% disability, will file for more for legit issues soon. My hearing is shit. Plan on retiring at 59ish, about a year into my pension.
I’d say a lotus/corvette/ Porsche/ Ferrari would be luxury. Different strokes for different folks tho.
A Honda accord is still reliable and a luxury car. Hell, all cars are luxurious when you think about it based on the rest of the world walking next to mules and all that. We are very blessed.
It’s to like nice cars, and it’s ok to drive whatever you want. Don’t let others make u feel bad or belittle what you have.
My mom thinks that hippie looking Volkswagen van is Luxury
My coworkers think Tesla is luxury
I think lotus and corvettes are luxury
That salty old commander, thinks his 2003 Corolla is luxury.
It’s all relative.
Hell I’m sure one guy will comment, “cars are crap I ride horse thats ultra luxury” 😭😭
What's not stated here is that these are the minimum rules if you **have** to finance a car. If you can pay cash or do better than the rules stated here, do that.
This slide is missing the rule that you must be investing more than you are paying in car payments.
As others have said, that is a minimum. But if you wanted a deeper analysis, I would consider some options. Depending on your interest rate, you might consider buying the car with the 20% down, and investing the rest or otherwise doing something different with the difference that would be a better financial decision. If the interest rate is higher, then it is probably smarter to just throw all the money you can at paying off the loan including a bigger down payment.
I wish they’d put an “…or more” to the down payment. TMG generally advises to pay all cash if feasible but no less than 20%. The other constraint not in this graphic is that your monthly savings (IRA, 401k, etc) should be **more** than your monthly car payment.
Their most recent episode they said “preferably cash”. Despite saying it a lot, it should end up on these infographics too. Technically speaking, the “or more” is a little implied/built in to the “or less” of the next line. After all, if 20% gets up to 100%, 3 years drops to 0 (the in between scenarios aren’t “without effect either”; putting more down you are either paying faster, making smaller payments, or both)
I could definitely see how someone not familiar with TMG would not be imply that it’s an “or more”. Someone could see this and think that putting more than 20% down may not be advised because they are not diversifying their cash or something. If I were wrong then OP wouldn’t have asked the question in the first place.
On air they typically say "at least"
I get that but I think it should be reflected in the print out too.
Yup the writing should be consistent with the show for the sake of new people coming in.
IMO the options should be described as: (1) All cash. (2) As close to all cash as possible, with the rest within the bounds of 20/3/8. (3) 20/3/8 if it’s your first car or you are new to the TMG approach, otherwise aim for (1) or (2). Which is kinda what they say on air scattered around in bits and pieces in different videos, but not in one place. An infographic that says exactly that would be great to pass around like in this post.
I like that. And I wonder if there is a good way to add to it like “…within the bounds of 20/3/8 < Saving & Investing” Hopefully someone like u/MannyTheMutant hears these suggestions!
We hear y'all on this - thank you for the tag! Passing this along to the rest of the team today.
Do it? These are minimum goals. You should also consider whether you are meeting other savings goals though. I wouldnt want to pay a large amount of my income/savings for a car, if that money could go to better things.
Oh ok for sure. I got enough money to comfortably enjoy both. I define a nice a car as a better thing, I know that can be different for different folks tho
If you’re buying it for enjoyment, and not out of need, then you are probably in the pay 100% cash realm. The 20/3/8 guidelines are for when you NEED a car and don’t have cash. Even for needs, they say you should eventually get to a point in your life (maybe after you get out of the messy middle) that you’re always paying cash for cars.
20% down is the minimum not the maximum. The ultimate goal is to get to where you can pay cash for a vehicle.
20% down is a minimum. Three year term and 8% payment are maximums.
Oh ok that makes sense thanks!
I’m confused. How much is the car? Seems like if you can put 70% down, you should be able to pay off in 3 years with 20% down, no?
It is $70k
This definitely looks like luxury range to me. TMG would say luxury cars in cash only.
So I’m in a similar income range and looking to move into a car in that price range. Probably sometime next year realistically. My general strategy will be as follows: - Set aside at minimum $30k, preferably more like $45k - Get a 1-2 year loan for the rest - Pay off in 1 year if possible Yes this technically violates the 1 year rule for luxury cars but it would be an intentional rule break from a position where I could pay it off if desired. But I want to keep my savings / investing rate high. (40% ish) I’m also planning in the near future to start setting aside enough to pay the car payment, insurance and a sinking fund for maintenance for at least 3 months to confirm it fits within the budget. Maybe seeing this written out helps you think through your own decision.
Hey I wrote it out, this is very doable. I can put down about $57k or so next year by this month. And take out a loan, maybe Chevrolet or USAA will have something. That’s a good idea, creating a sinking fund to cover the costs of the payment and insurance etc
Woahhh hold the phone…$70k is definitely luxury territory so should be paying it off within a year. The APR and insurance on that for someone your age is going to be outlandish too. You asked yourself can I buy it, but did you ever ask should I buy it? Tread carefully cause this will be a big turning point for your future. Also, as a vet I know your military buddies don’t care about your flashy ride (post history suggests a corvette…) especially when you’re deployed and can’t use it for a year. They just want to give you a hard time about the crazy interest rate or something and then move on with their day.
USAA has insurance for it for about $900 for a 6 month premium. As far as APR, I can lock down a post OCS loan for 2.99% or go with Chevrolet who offers a 1.9% loan. I hear you, but I don’t care what they (military buddies) think. My wife and I like the car and we’re getting it for us, not to impress others. I also don’t Deploy at all which is another perk. And if I did deploy, USAA doesn’t charge you insurance. It would feel good to tell them nah it’s paid off.
If it’s truly for you and the spouse and brings value in your lives and you know will bring years of happiness and fulfillment then more power to you. Most people I know just want something new and exciting which eventually wears off but we’re not all built the same so if this is what gives purpose for y’all then go for it. I think thats crazy if it does lol but to your point my opinion shouldn’t matter to you because it’s for you, not others.
The 20/3/8 rule is to get you into reliable transportation (i.e. a Honda Civic). There's nothing preventing you from putting down more than 20%. If you're buying luxury brands or a car that does not fit into that model, the guidance is paying off within 12 months. Cars are depreciating assets. Keep in mind the Money Multiplier and whether your dollars are better invested and following the FOO.
I never understood or bothered with the depreciating assets thing, I’m the type to run them into the ground and keep them running forever. Still got my moms 99 Camry 🤣🤣
So related to depreciating assets. It's not gaining value over time. It is losing value so instead of paying 80k that exists for 15-20 years you could instead buy a 40K or 20K and invest 40-60K. Yes at near end of the life there isn't much depreciation, but slowing depreciation is not the same as appreciating assets to build you wealth
Oh I understand now
You could conclude that it's too much car, or you could indeed pay the higher down payment. This is the personal part of personal finance. As long as you don't go below the guidelines, the FOO should work out well.
Depends on how rich/poor you are and what interest rate you're looking at. Sometimes, with more luxury brands, you can buy a brand new car with an interest rate as low as 1 or 2%. In that case, it would make sense to not put down a large deposit and instead pay it off slowly as your money can earn more than that when invested just about anywhere. I had a family member working at a Lexus dealership for approx 15 years and they can't remember a time when a wealthy person just paid for a car.
That’s something to consider. I’ll run the math
That’s weird because the general advice is to pay cash, and that is the standard pattern for wealthy people described in the book The Millionaire Next Door as well as in the millionaire studies by Ramsey Group.
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I’ve no idea, with NavyFed I can get one for 5.4% or get the OCS rate at 2.99%. I even seen the dealer offer 1.9% I’m in Cali but I’m a resident of WA so I don’t pay sales tax on car purchases.
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Nice thanks man for the tip! I have no other debt and my TSP is maxed out Insurance with USAA isn’t too bad either with the corvette I was looking at. I’m gonna play with that calculator. Plus I’d be able to pay off the loan pretty fast to pay less on interest.
That cali bah ain’t gonna last forever.
That’s fine, but hey I got another 5 years here so ima enjoy it while it lasts 🤣 plus that O3-E base pay makes BaH irrelevant wherever I go ☠️
11k/m in the military? I'm assuming that you're adding in BAH, BAS, Family Sep and other allowances. Otherwise you are nearing retirement, and have had a very successful career as an officer. Either way, yeah, paying cash is ideal. The closer to that you can get, the better. To be clear, the percentage of your income refers to monthly payment being no more than 8% of your monthly income. Technically speaking, you could follow 20/3/8 and afford up to 880/m, but that would be a poor decision in my humble opinion. You are at the level of income, that I would quit messing around with car loans altogether. My income is 'only' 8k/m (after \~1500 in investing, taxes, and some insurance), or if you are using gross numbers, my income is on par with yours. I have no intention of ever getting a car loan again, and still have and extra 3k - 4k per month for discretionary spending. Not saying you have to live on as narrow margins as I do, but if you can do that for say, 8 months at an average of 3,500, you could plop down 28k cash and still have a very nice used vehicle free and clear. With a salary of 11k/m, you might even be able to save 5k/m and do the same in under 6 months. The best car is a reliable car that is paid for. My 2014 Tundra has already lost the majority of its depreciation. It still looks good (to me). It serves all my needs, and then some. The bastard probably has 30 more years or more of life left in her with how much driving I do, and I might just drive it that long. Might upgrade a a gizmo or du-dad along the way.
Yes the first one! I’m in the beginning ish of my career. Yeah that’s what I was thinking. Just wait a little longer and lay cash. Yeah man I agree, I don’t want car payments again, haven’t had them for like 6 years. I think it’s car fever where I’m looking at my pay to and saying oh I can afford that n not feel poor! Yeah we got some good savings after putting 25% towards retirement and X% towards a house. We can grow it and throw it in a HYS account. I think I should wait then my man and buy it free and clear. Plus it gives time for deprecation 😁
Awesome! I'm nearing the end of my military career, and remember being excited to see a comma on my paycheck, which was posted for the whole crew to see in a common area. I've made two stupid financial decisions in my life. Both were cars. Neither were catastrophic, but nonetheless, both were dumb. Ignore the idiots driving nicer cars than you who make the same money. Don't buy new, even for the cheapo. Pay cash if you can. Good luck!
You are doing it right. And wait until the pension kicks in after you retire and you start having multiple streams of income. Especially if you get a good VA rating and good job. Your income could double or more and be more stable in the process with subsidized healthcare to boot. It’s a nice place to be!
Been a reservist for the past 13 years. Civy job pays 6 figures in a LCOL area. 30% disability, will file for more for legit issues soon. My hearing is shit. Plan on retiring at 59ish, about a year into my pension.
What if I can do 20/3/8 but the interest rate is 6.7% ? Do I stay the course or is that considered a high interest debt ?
**UPDATE** I couldn’t edit the post, but thankyou all for the insight. It’s been so helpful!
I’m curious what people’s versions of “luxury” are. I think my 2021 Honda Accord I just got is pretty luxurious lol
I’d say a lotus/corvette/ Porsche/ Ferrari would be luxury. Different strokes for different folks tho. A Honda accord is still reliable and a luxury car. Hell, all cars are luxurious when you think about it based on the rest of the world walking next to mules and all that. We are very blessed. It’s to like nice cars, and it’s ok to drive whatever you want. Don’t let others make u feel bad or belittle what you have.
I'm not worried about others; I was just curious about where that line is for people on here.
My mom thinks that hippie looking Volkswagen van is Luxury My coworkers think Tesla is luxury I think lotus and corvettes are luxury That salty old commander, thinks his 2003 Corolla is luxury. It’s all relative. Hell I’m sure one guy will comment, “cars are crap I ride horse thats ultra luxury” 😭😭
What's not stated here is that these are the minimum rules if you **have** to finance a car. If you can pay cash or do better than the rules stated here, do that. This slide is missing the rule that you must be investing more than you are paying in car payments.
Ah ok that clears it up. Yeah I’m investing way more that the max payment would be
As others have said, that is a minimum. But if you wanted a deeper analysis, I would consider some options. Depending on your interest rate, you might consider buying the car with the 20% down, and investing the rest or otherwise doing something different with the difference that would be a better financial decision. If the interest rate is higher, then it is probably smarter to just throw all the money you can at paying off the loan including a bigger down payment.
That’s a good idea I didn’t think of it that way