Is there a financial decision that people agonize over more than buying a vehicle?
A house is undoubtedly a bigger purchase, but it isn’t one that comes along as often, at least not for most people.
I often find myself in conversations with friends and colleagues who are trying to figure out how buy a car without it breaking their budget. Most fail miserably.
There are so many decisions to make.
New or used?
How much should they spend?
How will it be financed, through their bank, or through a dealership?
If it’s a used vehicle, how old is too old?
And so on, and so on.
With so much to consider, it can easily become a case of paralysis by analysis.
And for good reason.
Transportation costs make up one of the “big 3 expenses” for most families, along with housing, and groceries. And let’s face it, no matter how little you spend, a car will almost always feel like a money pit.
Such a complicated problem requires a simple solution.
A number of years ago, I came up with an easy-to-follow rule, one that takes a lot of the guesswork out of deciding how much to spend on a vehicle.
Following this rule when you buy a car will ensure that transportation expenses don’t swallow up your paycheque. The best thing is that the rule works for families across most income levels.
I call it the $1500 rule for car buying.
Before I delve into the experience that led me to the $1500 rule, here’s how it works, in all its simplicity.
The $1500 Rule For Car Buying
The rule is this: The purchase price of a vehicle (taxes included), shouldn’t exceed $1500 per year, when averaged over the number of years you own the vehicle.
The rule applies regardless of vehicle type (car, truck, SUV), or whether it’s new or used.
Note: It doesn’t account for operating costs such as fuel, or maintenance, due to their variable nature, understanding that operating costs should always be considered when shopping for a car. Remember, we’re keeping this simple.
Here’s an example:
Let’s say you buy a used car for $12,000. Using the $1500 rule, your goal would be to own the car for at least 8 years.
Fig. 1 $12,000/8 years = $1500 cost per year.
Pretty simple, heh.
Now, if you change your mind, and decide to sell the car after only 5 years, you can do so and stay within the $1500 rule.
In this case, you would need to sell the car for at least $4500, to maintain your average annual price of $1500.
Fig. 2 $12,000 – $4500 (sale price in 5 years) = $7500 / 5 years of ownership = $1500
Mission accomplished.
How I Came Up With The $1500 Rule
Like so many great ideas, the $1500 rule was the result of miserable failure.
The year was 2008, and my wife and I decided it was finally time to buy a minivan.
You know what I’m talking about, that moment every parent with more than 2 kids experiences. It’s the “I give up, I surrender, I will never be cool again, it’s time to buy a minivan.”
We die a little bit inside, until we realize it’s the greatest thing ever invented.
We were those parents.
We had a young family, and the novelty of cramming three car seats into a Toyota Corolla was beginning to wear off, big time.
Unfortunately, rather than staying within our means and buying a used van, I financed a brand new, $36,000 Toyota Sienna. To this day, it was the nicest vehicle I’ve ever owned, but it was way out of our budget.
For four long years, I felt completely weighed down by the $450 monthly payment.
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I came to the point where I realized something needed to give. But was it too late to correct a poor financial decision? I felt like the damage had already been done.
One day, the van went into the shop for some routine maintenance. I think it was brake pads and an oil change, something like that.
I was on my way to work, so I took a shuttle from the car dealership over to my office.
The “shuttle” was an older model Toyota Sienna, the same vehicle we owned. As we were driving, I noticed how quiet and smooth it ran. I knew it was 8 or 9 years old, but it felt just as solid as my much newer, more expensive model.
I was very surprised. I actually remember leaning over to check the odometer. I was shocked to see that the “shuttle” van had over 300,000 miles on it.
I made a comment to the driver about the van’s mileage, and mentioned how nicely it drove. He agreed, and said that the mileage was, in fact, one of the reasons they used it as a shuttle. To the car dealer, it was the best kind of advertising you could ask for.
This got me thinking.
Why was I driving around in such an expensive vehicle, if I could replace it for a fraction of the cost, with something that could deliver the same amount of versatility and almost as much comfort, and still last for several years.
So I started doing the math.
Because I had put a $10,000 downpayment on the van when we purchased it, we had about $11,000 of equity built in.
I realized that I could sell the van, get rid of our enormous loan payment, and still have more than enough funds remaining to buy an older model, one that could last us for several years.
I talked about it with my wife, and we decided to sell the van. Even though the numbers made sense, it was’t an easy decision.
We sold it for $21,000. This left us with $11,000 cash after the loan was paid off.
I found a 2005 Toyota Sienna with 125,000 miles on it, and negotiated the $8500 sticker price down to $6700. Taxes in, it came to $7500.
The remaining $3500 went towards some other debt.
This is where I came up with the $1500 rule.
At the time, my goal was for our new (used) van to last at least 5 years.
Fig. 3 $7500 / 5 years = $1500 cost per year.
In my mind, an average annual cost of $1500 was reasonable, much more so than putting down a huge downpayment and still forking over $450/mth.
Being able to pay with cash, and avoiding the monthly payment altogether made it even better.
Seven Years And Counting
We’ve had our van for seven years, the odometer having recently crossed the 200,000 mile mark. It’s shuttled our family of five on numerous cross-country road trips, and has required only routine maintenance.
In fact, we’ve followed the $1500 rule and then some:
Fig. 4 $7500 / 7 years = $1,071 cost per year.
I’ll never get back the thousands I wasted buying a brand new vehicle I couldn’t afford. But by being willing to correct a money mistake, my wife and I immediately improved our financial situation.
Why the $1500 Rule Works
Wondering how I decided on the figure of $1500? Here are a few reasons:
It works with a broad range of incomes. Car ownership is not a practical choice, or an economic reality for everyone. I get that. By using the $1500 rule however, you don’t need to earn $80,000/year to make it fit into the budget.
There are other factors to consider, but in a world where the average car payment is $500/month, anyone applying the $1500 rule for car buying will look pretty money savvy, regardless of income.
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It favours used vehicles over new. In other words, it encourages people to spend less. Paying $45,000+ for a pickup truck or luxury SUV is a bad financial decision. Sorry, but it’s a fact. There’s simply far too much depreciation during the first 2-3 years after a new vehicle drives off the lot.
Been there, done that.
Unless you plan on owning said truck or SUV for over 30 years, it won’t meet the criteria for the $1500 rule. In other words, abiding by the rule can help ‘steer you away’ from making a big money mistake…pun absolutely intended.
It’s allows for flexibility with the purchase price (to a point). The longer you own your car, the easier it will be to get the average annual price down to the $1500 level. Keep in mind however, the more you spend, the longer you’ll need the car to last.
The $1500 Rule Sweet Spot
Price wise, I feel like the sweet spot is $7500-$10,000.
In this price range, it’s easy to find well maintained vehicles of all types, makes & models, that you can expect to have last for several years without high incurring maintenance costs.
And don’t let the number of miles on a used car scare you. If it’s a reputable brand, such as a Toyota or Subaru, a car with over 125,000 miles has plenty of life left in it.
But use caution. Before buying, always have a car inspected by a mechanic you trust, to make sure there are no surprises waiting for you. It’s worth the time, and the 100 bucks it will cost you.
Can the $1500 Rule Work for New Cars?
The short answer would be that yes, it is possible, in fact, I was successful in doing this with a car I bought new, long before I came up with the rule.
Realistically however, the instances where this would work are very limited. You really would need to buy a vehicle for less than $20,000, taxes in.
In other words, you can forget that $45,000+ F-150 or Toyota 4-Runner.
With new cars, your options are limited to base model compact or subcompact cars, such as a Toyota Corolla, or a Honda Fit. Both great cars, by the way.
You would then need to own the car for 10+ years, and also realize some resale value when you sell it.
For example, if you purchased a car for $20,000, taxes in, drove it for 11 years, and were somehow able to sell it for $4000 at the end of that time, your cost per year would be $1454.00.
Alternatively, if you drove it into the ground, and couldn’t sell it for any value whatsoever, you would need to own it for 13 years, just to get under the $1500 limit.
The $1500 Rule For Car Buying: Things To Consider
Be realistic about how long the car you’re buying will last.
Last year, my son bought his first car, and old Mazda. He paid $1800. As you can imagine, it is transportation at its most basic. That’s ok, because neither of us had an expectation of the car lasting for 5 years.
Applying the $1500 rule, my son only needs it to last about 15 months. Anything beyond that is bonus time.
He just passed the one year mark, and it’s still running smoothly, so here’s hoping.
The make & model matters.
In this day and age, cars are more well built than ever. Still, some brands are consistently more reliable than others.
If you’re buying a used vehicle, you should favour brands known for their reliability.
This will improve your odds of owning the car for a number of years, and successfully applying the $1500 rule. Hopefully, it will also keep your maintenance costs down.
I’m partial to Toyota, as they recieve top marks for reliability throughout their product lineup, but there are other solid brands out there.
Another Rule For Car Buying
I’ve heard plenty of opinions on car buying over the years; some good, some terrible.
Another rule that I think is very sound, is that you should spend no more than 1/10th of your gross annual income on a car purchase.
In other words, if you earned $75,000/year, the most you should spend on a vehicle would be $7500.
By the same token, someone with a salary of $30,000 would limit their car purchase to $3000.
While that sounds like a paltry sum, when you factor in all of the operating costs of owning a car (insurance, fuel, maintenance), it makes a lot of sense for someone on a lower income.
Similar to my $1500 Rule, the 1/10th Rule helps to ensure that a person’s transportation costs remain low relative to your overall income.
I’d love to know your thoughts on The $1500 Rule Of Car Buying.
What has your experience been? Do you prefer to buy cars new, or used?
Please share in the comments below!
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That $1500 rule is pretty awesome. We own two “purchased new” vehicles that are now 12 and 16 years old that pass that test
I like how you put that, it “passed the test”! 🙂 The fact that you bought two new vehicles that fit within this model is evidence of the flexibility of this rule. To me, it’s an easy way to simplify what can be an agonizing, and difficult financial decision. It definitely helps to steer people towards making smarter choices. Thanks for reading!
I really like your $1500 rule! I’m not sure how many of our past vehicles would have passed this test (I’m guessing probably half or less). Buying cars seems to be one of my weaknesses… I’ll have to use that the next time we’re looking at purchasing a vehicle. Thanks for the great post!
Hey Alan! Buying cars has been a weakness of mine as well, in fact, I think it’s probably one of the reasons I came up with this rule, as a way of keeping myself in check.
I just ran across your website today. Love it! Thanks for putting together such a good website with sound financial advice.
I love this “rule” because it is so simple. I’m in college and driving a 2001 Buick I got for free from my grandma who didn’t need it anymore. My parents’ cars are a 2001 Chevy Suburban (purchased new, now with 227,000 miles and going strong), a 2004 Sienna (purchased new, had 186,000 when it was totaled recently). So sad, because it still had a lot of life left! Siennas are awesome, and super practical. The Sienna’s replacement (which we just purchased from a friend of a friend), is a 2011 Avalon. The Avalon was a great deal at $12,000 and only 25,000 miles. Based on the Avalon’s past reliability, we should get 10+ years out of it since we only drive it 7,000 miles per year. I’ve heard of Avalons going to 300k to 500k miles!
The Suburban hasn’t passed the test yet, but in a couple years it will. When you factor in the money we got back from insurance, the Sienna just barely passed the test. But like I said, it would’ve gone a lot more. The Buick obviously passed! And the Avalon should too. Only time will tell.
Kyle, thanks so much for stopping by, and for the great comment. Breaks my heart to hear about that Sienna! Seriously though, I hope everyone was ok. I’ve actually been considering a used Avalon in the future. While I’m not in the market for a vehicle, I enjoy scrolling through the Kijiji app on my phone (Canadian Craigslist), looking for great deals. I actually found a couple of used Sienna’s for friends over the past few months, and they absolutely love them. Cheers!
This it’s a really clever way of looking at the overall value you get from a vehicle and making sure to keep it in check. The only thing I would add is to maybe go a little bit higher on the 1500 but account for required and unexpected maintenance as well. I’m thinking that 1700-1800 including maintenance could be a good target as you’ll be paying for it anyways.
Thanks so much for reading, Mike! I enjoyed your recent vehicle related posts as well, we think alike. I was thinking of including a section about maintenance, and whether it factored into the $1500 rule. Of course it could be, I only kept it out for the sake of simplicity, because there are so many variables when it comes to operating costs. I think I might have to make a separate post on how to keep your cars maintenance costs down, and then tie it into this post?
We just had our second child, and we’re in the midst of searching around for a used minivan, and we’re likely going to be getting a Toyota Sienna. Sounds like we’re making a wise choice there.
I do think the $1500 rule makes a lot of sense. I’ve always saved up and paid cash for my cars, and tried to keep my cars 2-3 years old with a cost of $9,000-$15,000 max, and then keep them for 8-10 years or more if possible (saving for the next one all the while).
In looking at my last vehicle before my current one, it came out to about $1250 yearly cost when taking into account the purchase price, the years I kept it and the amount i sold it for.
My current car I’ll likely need to keep about 7-8 years before it comes in under that same $1500 limit. I’ve now owned it for 3 years and just passed 30,000 miles, so that should be pretty easy. My wife’s Honda CRV will probably under that $1500 limit by the time we sell it, although we’ll be cutting it close. 🙂
Thanks for reading Peter, and congrats on your newest edition, that’s fantastic! Yes, I’m definitely a Toyota fan, as you can tell. The Sienna’s a great vehicle. You’ve been smart to always pay cash, I wish I could say the same, but you learn the hard way sometimes. 🙂 Buying used cars 2-3 years old seems like a pretty good plan, as most of the depreciation is realized over those first couple of years.
I certainly can appreciate the rule that you created to work for your situation. For some reason, I got the impression that your rule was created to help keep ahead of monthly car payments. In that case, it’s an awesome rule to keep from procuring a vehicle that is out of your spending/earning plans.
However, there are car people and their are not.
I would never think of applying the rule for a car that I have been wanting since 1970. I waited 40 years to build a new 2010 Dodge Challenger R/T. It’s a modern version of a car that symbolizes my youth. So after 20 years, yes, it meets your $1500 rule. But then, it will have to be restored.
Bottom line, cars are always going to be loss leader on anyone’s balance sheet. It’s usage, utility and enjoyment cannot be measured with anything but emotion.
Hey Francis! The $1500 rule is meant to to simplify what can be a difficult financial decision for a lot of people. I think that most overspending is the result of people making emotional decisions about money, and following this rule can help to remove the emotional component. That’s not to say that it works for everyone. I have a friend who also bought a new Challenger recently, he’s a real car guy. It’s a beautiful car! Thanks for reading. : )
what do you guys thing about subtracting the resale value after the time period? For example, if I purchased a $6000 car and sold it for $3000 3 years later.
it seems like I would fail the $1500 test if I just consider the purchase price ($2000) per year. but if I subtract the $3000 I sold it for, then we can say that I spent $3000 over 3 years or $1000 per year.
Thanks for reading, Jack! I actually mention that scenario further down in the article, factoring in the funds received from the sale of a vehicle, in order to calculate the net cost. The $1500 rule can still work when people’s plans change.
My first car comes out to $703 over 13.5 years.
I will have to keep this Outback for about 10 total years to get there, but sitting at 60,000 miles or so on an Outback is like when your new shoes are just breaking in.
I like the rule. I think simplicity is the best place to start in help make decisions.
Hey Robert! I completely agree, simplifying money decisions is the best way to go. Love the Outback btw, my brother used to have one, it was a great car, lasted him a long time. Thanks for reading!
I bought my current car new. I wouldn’t buy new again – especially since I financed this car – but I’ve had the car over ten years now. I think I paid slightly over $13,000 for it (purchase price was actually $12,000, but the dealer was able to sneak in a few extra charges that I didn’t notice until I came across the paperwork maybe a year ago). That puts me at about $1300 a year, which exceeds (or goes below?) you’re $1500 rule.
Oh, and if the average person drives 12,000 miles a year, that means your $1500 rule equates to about 12.5 cents a mile. I have about 125,000 miles on my car, so that puts me at about 10 cents a mile.
Hey Joe, sounds like you’ve made out pretty well with your car. I highly doubt I will buy new again, but I know how tempting it can be, when car companies make it so easy. I like your idea of converting ownership cost to a per mile basis. That’s a great way to measure it as well. 🙂
I just grabbed a usedTundra, which is way more than the $1500 rule..but I bought it used (2016) so the original owner took the big hit and I also bought it under book value.
We needed the space of the Crewmax with 2 kids, and the towing ability for our SXS..not to mention it’s nice to have something to haul big things in.
Since I work from home, I only put on a couple thousand miles a year-so my depreciation is at a minimum and they hold their resale very well.
Yes it was expensive, but it works for our budget and I know I won’t lose my shorts on it when I do decide to sell it.
Hey Jason! I think it helps that you son’t plan to put much mileage on the vehicle, not only for the eventual resale value, but also to keep operating costs (fuel/maintenance) down, with pickups being more expensive to run. Those Tundra’s (and Tacoma’s) really do hold their value, you never know, maybe you’ll get under that $1500 threshold. 🙂
The number we used when picking my first car was decided by comparing the cost per month of all the cars in my family’s car history- we came to $300-$350 per month for the life of the vehicle, including large repairs at the end of life. We added up the cost per car we’ve had over the time we used it (used, new, and VERY old were all included)- and whether the car was new or used, they all came out to over $300 per month. Some of the used cars cost more than new (per month) when the end of life mainentence was added in, like new transmissions. So then we just set out to find me a deal that whether new or old we could predict to cost less than $300 per month including estimated maintenance and repairs when it gets older.
My previous car (used 5-series BMW) ended up at $3,800 per year… But this current car (used Camry Hybrid) was only 3 years old for $15k, so I expect to get 10 years out of it and still have some residual value.
Hey Josh, I think I read somewhere about your Camry, did you just buy it recently? Maybe I saw something on Twitter, any ways, thanks for reading. It’s no secret that I’m a huge Toyota fan, I’m interested to know how your Hybrid is for gas mileage vs. the 4 cylinder. Is it a substantial improvement?
I bought it in August last year, and have put about 34k miles on it already. In those 34k miles, I have averaged 41.2 MPG
Thanks for sharing, that’s pretty good!
Made a big difference in profitability when I was using it for Uber
I’ll bet! Capturing margin is important in that business.
Very well articulated, I LOVE this way of thinking about car buying, it helps make things so much simpler. I had seen Financial Samurai’s original post about the 1/10th rule, which I like as well. We didn’t meet that rule with our first car, but we did with our second car.
There are a lot of debates on new vs used, financed vs cash, etc. Generally most of us agree that buying a reliable used car with cash makes the most sense, but personal finance isn’t usually black and white. I have a post on my site where I discuss some of the reasons we decided to finance a new car. At first glance that sentence would seem like we made the wrong decision until people understand the background circumstances (base level Honda Civic, on sale, 0.9% interest rate, put some money down, and are planning to drive it into the ground).
Considering it was about $18K, we’ll need to drive it for 12 years to meet the $1,500 rule. So far we’re only putting about 10K miles per year on it, so at this rate we should easily blow past the 12 years (which was our plan when it was purchased).
Anyways, awesome article and I’m sure this will help a lot of people when they consider how much they should spend on a car.
Hey Matt,thanks for stopping by. You make a great point about your Civic, I once bought a base model Corolla (something I also wrote a post about) new, and I was able to own it for less than $1500/year over the 11 years, and almost 300,000 miles we drove it. If I hadn’t written it off, I think I’d still be driving it. 🙂
As important as maintenance and servicing is for our vehicles (cars and finances) and regardless of doing it all ourselves or not; the fact is that other cause of over 90% of accidents and injuries on the roads are due to poor driver decisions.
Within this 90%;
45% involve drug/alcohol,
20% weather related,
35% driver error.
One may argue this percentage also extends to our financial accidents, i.e. 90% of financial losses being investor decision. My estimation albeit there are no official statistical data confirming or denying the accuracy of these percentages.
45% investor invincibility (enhanced performance expectations vs. actual abilities) A.K.A. “excessive borrowing with limited or nil cash flow”,
20% changing economic, legislative or market movements and
35% poor decision making;
So, be it for our convenience, or reaching a destination/ improving our quality of life, there are always additional risks we need to factor in. The biggest risk I suspect is by far is ourselves.
Hey Peter! Thanks for your comment. I agree with you, there is so much within our control. We can often be our own worst enemy, when it comes to a lot of things!
It is a great rule and also helps defeat the consumer mindset by forcing you to hold into a vehicle longer until you pass the $1500/year mark. I’m a car guy so I always want something new/different to drive, it’s my biggest financial weakness. That being said, you can get some very durable new Korean cars for 25-30% less than Japanese models, and they come with a 10 year warranty. Recent studies have actually shown them to be just as reliable too. As an example, I’m currently driving a base model 2018 Kia Forte that all in new it will cost $14,000 after rebates and discounts.
That’s really what this rule is about, helping people defeat the consumer mindset, and aiming for a longer term relationship with their vehicle, which is the key to achieving a $1500 or better annual ownership cost. You could get more granular with the analysis, and factor in other things, like ownership costs, brand reliability, I do that myself. But if you’re looking for a rule of thumb that will keep people at most income levels out of hot water, this is it. By the way, I agree with you on Korean brands. I actually own a Hyundai myself (my other car), and it’s been very good. Both Hyundai and Kia have come a long way.
While I enjoy the analysis, I’m not sure I totally agree with this. I feel that the $1,500 number was backed into by the useful life you wanted to get out of the car. I think I agree with the premise of your post, but find the conclusion arbitrary. You wanted 5 years out of your $7,500 vehicle and you proceeded to say, “In my mind, an average annual cost of $1500 was reasonable . . . ” But this isn’t based on fact – only feel. Again, I agree that buying a vehicle can probably be done more rationally across the board, but I just don’t think a blanket rule can or should be applied in this situation. Just my two cents!
Hey DP, thanks for your comment! I appreciate your point, but in no way is the $1500 figure meant to be an exact science, only a guideline. And I think if you look at it from that perspective, it’s incredibly powerful. To me, it doesn’t really matter if the perfect number is $1500, or $1200, or $2000, if you can hit any of these targets, you’ll be way ahead of the average consumer. (The average new car payment in North America is just shy of $600/month).
In my mind, making better financial decisions is more about mindset (understanding and controlling emotions), and less about number crunching and accurate analysis, and the $1500 rule is based on that premise.
It’s not so inflexible that it boxes you in, you can make it work for different vehicle price points, various makes and models, but following it will definitely help prevent emotion-based overspending, while guiding the car buyer towards a more rational choice.
And it’s simple, which is what the average consumer wants. A concept that’s easy to understand.
Awesome post and I love the $1500 rule.
I”ve bought 2 cars in my life, both for $1,000. I drove my first car for 2 years, sold it for $800. I’ve been driving my second for over a year with no repairs (yet). They’ve served me great so far, but I will definitely move up on my next car purchase 🙂
That’s awesome Eric, 3 years of driving on a couple thousand bucks! Nothing wrong with upgrading either, wish I’d always been as pragmatic in my approach to owning cars. Thanks for reading!
Great post! Great suggests for most car buyers. I have met so many people that spend easily $450 or more a month on car payments and it is hard for them to afford that. We haven’t had a car loan in over 10 years.
My husband and I like cars but all used cars. It’s a hobby. We have 5 cars right now, okm technically 6 one was free and is a race car that we plan to teach the kids how to wrench. Crazy, but we enjoy it. Not for everyone. All of them are 16 years or older and we do most of the maintenance ourselves. It is funny in the past we had a loan on a used SUV that we decided we didn’t want to pay the payments on anymore and sold it for more then what we paid. That is rare! A year an half ago we got a 2000 SLK Mercedes for $1000 and we put in about $1000 in maintenance so I can drive around the “Mom, with no kids car!” That is the type of purchase that is fun. The number of smiles per mile. So worth it!
We calculate our costs including purchase, maintenance, gas etc. based on per miles. Right now the “expensive” car is about $5 a mile and the least expensive is $0.42 a mile. Of course, the more we drive the less it costs. Just different take on it.
Curious, what is the cost of maintenance you have spent on your 2005? I find so many friends tend to trade in their cars as soon as they have any major maintenance.
Hi Holly ,thanks for stopping by! I love your approach to used cars. I’m not much of a mechanic, so I wouldn’t be able to put a lot of work into a project car, but it seems like you are saving lots of money by being able to do a lot of the work yourselves. And you can drive some interesting vehicles that way as well. : )
My 2005 Sienna has had almost no required maintenance, outside of oil changes and new tires. I repaired a broken coil spring once, and I’m pretty sure we replaced front brake pads once in the almost 6 years we’ve owned it.
We’re fortunate that almost 100% of our driving is highway miles, so that helps reduce wear and tear.
In 2002, I actually bought a base model Toyota Corolla (new). We owned it for 11 years, put over 300,000 miles on it, and only spent $1300 in repairs, hence why I’m such a believer in Toyota as a brand .
Did I read this right? You purchased an 8 year old Sienna that had a model year of 2005. So that means you purchased the car in 2013. This article was written in 2018. So you have only owned the car for five years, not seven years correct? If you purchased for $7500 it still equates to $1500/year for five years but you’ve calculated the amount based on 7 years.
Hi Ashley, we purchased the van in 2011, not 2013. So we have had it for almost 8 years now. It’s an ’05 Sienna, so it would have been somewhere between 6 or 7 years old when we bought it, not the 8 years that I had noted in the article. Thanks for pointing out my mistake, I’ve gone back in and corrected it!
To me 1500 rule translates a little different..
1500 is what I mostly spend on a car purchase 😉
my 04 Hyundai bought for 1500 lasted 8 years !! still running
Ha, that is an even better $1500 rule. 🙂 I’m curious, do you do a lot of your own maintenance on your car? I have a friend who also buys vehicles for next to nothing, usually from the insurance auction. He is able to do a lot of his own work, but he has a lot of success. They often run for a few years. Thanks for reading, Jim!
Hi Mystery Money Man,
I’m in Sweden with a 2nd hand SAAB that the wife and I picked it up for just over $1500. It’s been going well now for the 2 years we have had it and used parts are easy to come by (for the time being). I think that’s important to note as well – get a car with easily accessible and cheap used parts!
I wish this rule would work by providing us $1500 each year until we the car dies. If that were the case, I’m sure we would see a reduction in new cars being bought!
Matt
Hey Matt, thanks for reading! You make a great point about the cost of parts, as they can vary so much from vehicle to vehicle. And it’s not only accessibility, in North America, there are so many large vehicles on the road, SUV’s, pickup trucks. People don’t often consider the cost of replacing things like tires, or brakes, on large vehicles. It’s pricey!
This rule is really simple and easy to remember. Thanks for sharing.
Thank you for the kind words, and for stopping by!
Love this article. For years I’ve internalized a ~$1500/year figure; anything over $2k or so feels wasteful. Currently on my 6th year of ownership of a 15 year old small pickup I paid $9100 for and which is now worth about $4000. Annual cost of $850 or $71/mo.
Tired of manual locks/windows and no room for 4 adults I recently began drooling over used mid-size trucks costing ~$25k used (GMC Canyon). Some friends are no help; all smiles and encouragement and even some urging me to look at ‘real’ full size trucks costing even more. Stumbled across this article trying to snap myself out of it.
I ride dirt bikes and often find myself down 4×4 mountain roads for hiking, camping etc. I keep trying to justify a newer truck with my hobbies. In reality, I see it’s just something I want, not a need. An AWD small SUV like a Subaru Forester and trailer will get the job done. It’ll cost ~$10k less, get better fuel economy and cost less to insure.
The only things I’ll miss are some small conveniences. Maybe I’ll miss out on a few camp spots down 4×4 roads the trailer can’t make it to, but only when dirt biking. I’ll have to drive a little slower on mountain passes pulling a trailer. Some buddies might poke fun at me. None of those are worth the extra cost. That $10k will instead spend time invested. Future me can waste the earnings on a truck if I’m still itching for one in 5 years or so.
Nick, thanks for the great comment! It is a battle when you have friends who don’t see the problem with shelling out big bucks on truck payments.;)