The 20/4/10 Rule for Buying a Car
When buying a car, make a down payment of at least 20%, finance the car for no more than 4 years, and ensure that your total car expenses do not exceed 10% of your gross income. Here’s how the 20/4/10 rule for buying a car works,
- Put down 20%: Aim for a 20% down payment on the car’s total price. This reduces your loan amount and saves you interest in the long run. Think of it as buying a bigger chunk of the car upfront, instead of borrowing more.
- Stick to a 4-year loan: Keep your loan term to 4 years or less. Shorter terms mean higher monthly payments, but you’ll pay off the car faster and avoid years of interest charges. It’s like sprinting to the finish line instead of taking a leisurely stroll.
- Stay below 10% for car costs: Add up your monthly car payment, insurance, gas, maintenance, and parking. This total shouldn’t exceed 10% of your gross monthly income. Think of it as setting a reasonable speed limit for your car expenses, so they don’t guzzle up your whole budget.
Example of 20/4/10 Rule for Buying a Car
You earn ₹50,000 monthly. A ₹2,00,000 car with a 20% down payment means you borrow ₹1,60,000. A 4-year loan at 5% interest gives you monthly payments around ₹3,600. Add insurance, gas, etc., aiming for a total under ₹5000 (10% of your income).
Pros and Cons of 20/4/10 Rule for Buying a Car
Pros |
Cons |
---|---|
Lower monthly payments, faster payoff, and less interest. |
Restrictive for high earners or specific car needs. |
You pay off the car loan faster, reducing overall interest costs. |
Flexible if you find a great used car deal outside the criteria. |
Freedom from high car expenses and room for savings. |
Doesn’t guarantee desired features or comfort. |
A good down payment gives you peace of mind. |
Requires adjustments for unexpected expenses or income changes. |
It promotes sensible car choices based on your financial reality. |
Demands discipline and budgeting. |
Top 10 Financial Rules for 2024
Financial wisdom tends to be timeless, with certain principles and rules enduring through changing economic landscapes and market conditions. As we look towards 2024, the following famous financial rules and principles are expected to remain highly relevant for individuals seeking to manage their finances wisely, invest effectively, and plan for the future,
Table of Content
- 1. The 50/30/20 Rule for Budgeting
- 2. The Emergency Fund Rule
- 3. The Rule of 72
- 4. Pay Yourself First
- 5. Diversify Your Investments
- 6. The 4% Withdrawal Rule
- 7. Avoid High-Interest Debt
- 8. The 20/4/10 Rule for Buying a Car
- 9. The Maximize Retirement Contributions Rule
- 10. The Home Affordability Rule