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20/4/10 RULE
By Staff Reporters
SPONSOR: http://www.MarcinkoAssociates.com
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An automobile is one of the biggest purchases after a home; for many physicians and most all of us. But, unlike the typical home, it is usually a depreciating asset – today morning you purchase a car for X-amount of dollars and by the evening it will be worth less. After 5 years it will not be even half-value but still, many folks keep buying cars regularly – buy at 10, sell at 4 & lose 6 (repeat the cycle).
So, here are few financial rules of thumb that you can follow:
- The value of a car should not be more than 50% of the annual income of the owner.
- Purchase a used car or buy a new & use it for 10 years.
- While buying a car with a loan stick to Rule 20/4/10 – Minimum 20% down payment, loan tenure not more than 4 years & EMI should not be higher than 10% of your income.
Note: Equated Monthly Installment [EMI]
Caution: The phrase rule of thumb refers to an approximate method for doing something, based on practical experience rather than theory. This usage of the phrase can be traced back to the 17th century and has been associated with various trades where quantities were measured by comparison to the width or length of a human adult thumb.
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Filed under: "Ask-an-Advisor", Experts Invited, Financial Planning, Funding Basics, Glossary Terms, Marcinko Associates | Tagged: automobile buying, automobile purchase, car buying, car purchase, EMI, Equated Monthly Installment, Marcinko |
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