How much should a car cost based on income?

How much should a car cost?

First, let's decide how to understand which car you can afford. Everything is quite simple here. In Europe , the idea has gained popularity that the cost of a new car should not exceed your income for 6 months . But this is not Europe , and such an idea doesn’t really take root among our fellow citizens. After all, the average salary in Russia 3-5 times lower than in Europe , and is about 33,000 rubles per month . Thus, it turns out that the cost of an average Russian’s car should not exceed 198,000 rubles . And what’s important is that you need to focus on the cost of a new car, even if you buy a used car. After all, car maintenance costs will directly depend on the price of a new car. What new car costs 198,000 rubles?! There are no such cars; prices for new cars start at 300,000 rubles . It turns out that the average Russian cannot afford even the cheapest car, judging by the valuation system common in Europe . That is why Russians are more inclined to believe that a car is quite affordable, if it does not exceed a citizen’s annual income. Although many still buy more expensive cars, which subsequently significantly eat up the budget.

What do I think about this? I believe that it all depends on how much a person needs a car. If this is a workhorse, then you can pay an annual income for it. And if a car is purchased as a toy – “just for a ride” , then the cost of a new car in this case may not exceed 2 months’ .

If we think about the topic more deeply, we can conclude that the European approach (when a car costs no more than half a year’s income) is better to apply if your salary reaches the European one (that is, from about 130,000 rubles per month) . If it’s less, then you should only take a car if you need it, and the cost of a new car (even if you take a used one) should not exceed 800,000 rubles and your annual income. That is, earning 50,000 rubles a month , the maximum you can afford is a Volkswagen Polo , but if there is no need, it is better to refuse to buy a car altogether, or choose a more budget option (Ravon Matiz, Ravon Nexia, Lada Granta, etc. .d.) .

Let me summarize. The lower your income, the more difficult it is to allocate money from the budget for the purchase and maintenance of a car. That is why it is recommended to think about buying a car if you have an income of 130,000 rubles per month . If a car is purchased for a family, then total income can be taken into account.

What car can I afford today?

Today my total income (excluding income from the investment portfolio, since it is in the growth stage and profits are reinvested) is approximately 70,000 rubles per month .

This is less than 130,000 rubles per month , so I don’t think it’s advisable to buy a car with that kind of income. But if you look at the European formula, then you should choose from cars in the category up to 70,000 * 6 = 420,000 rubles . That is, today I can afford a car of the Lada Kalina .

How much do I need to earn to buy an Audi?

From the above it follows that you should spend no more than six months’ income 800,000 rubles

Of the Audi that I like, the most affordable model is the A4 . The cost of a new car starts from 2,125,000 rubles . In order to easily afford such a car, I need to earn from 2,125,000 / 6 = 354,167 rubles per month.

When will I be able to get that kind of income?

Now I just have to figure out when I will be able to achieve that kind of income. To do this, I need to return to the latest version of my financial plan, substitute the current values and calculate the approximate time frame for achieving a given income.

Given:

Additions to the portfolio after achieving financial independence: 50% of “income minus housing fees”

Estimated investment income: 1.5% per month

Inflation: 7%

Increase in Internet earnings: 80% per year

Income required to purchase an Audi A4: 354,167 rubles per month

An increase in wages, rent and the cost of Audi by the amount of inflation (and, accordingly, the income required to purchase it) and Internet earnings by the planned amount, for the convenience of calculations, we will “make” once a year, in May (since I carry out the calculation in May) .

In the updated long-term financial plan, achieving financial independence is planned for 2020 , but let's consider a slightly more pessimistic scenario in which financial independence will be achieved in two years. Let's say in May 2021 .

We will take the initial figures at the time of achieving financial independence from the updated long-term financial plan.

And 2 more small clarifications:

1. After 2 years, the income required to purchase an Audi A4 will increase by the amount of inflation and amount to 405,486 rubles.

2. While I reach the indicated income, the Audi A4 will change its design, or it will stop being produced altogether. Therefore, the Audi A4 in this case means any car of a similar class.

Well, I kind of outlined the concept. Now let’s move on to the table, finally :) I won’t publish here on a monthly basis (although I have monthly calculations in Excel) , otherwise the table turns out to be too large. I'll do it year by year. Figures have been rounded.

family finance expert

7 numbers you need to know before buying a car

Buying a car is one of the biggest financial decisions of a family's life, and often one of the biggest financial mistakes.

It is important to clearly understand that “the car you want and can even buy” and “the car you can afford” are often very different things.

By buying a more expensive car, we try to appear richer to ourselves or other people, we try to have something that we have not yet earned.
The euphoria from a cooler car will pass in a few months, and the bitterness of financial mistakes associated with the purchase will last for several years. So, let's look specifically at what numbers you need to know before buying a car.

Number No. 1. The cost of a new car should not exceed 40% of your household's annual

This value includes the cost of the car and additional equipment, transaction costs (registration, notaries, registration, etc.), winter tires, alarms, body kits and tuning, one-time loan costs - in general, all one-time, initial expenses. At this level of cost of the car, the cost of maintaining it (insurance, repairs, etc.) will be approximately equal to 10-15% of the net income (read point 2) of your family, and if you have a car loan, the cost of the loan will also be at an acceptable level (see paragraph 3) .

Example: Your family’s net monthly income (“on hand”) is 100,000 rubles. This means that the optimal cost of the car will be 100,000 x 12 months. x 40% = 480,000 rub.

Number No. 2. Monthly car expenses, excluding car loan payments , should not exceed 10% of net income (after tax)

By “monthly expenses”, I mean the amount of expenses for gasoline, parking, comprehensive insurance + insurance, repairs, transport tax, car wash, fines, etc. regular expenses, divided by 12.

Number No. 3. Monthly car expenses, including car loan payments , should not exceed 20% of net income

This is provided that the total amount of payments on all loans (cars, credit cards, mortgages, etc.) does not exceed 25% of net income.

Bankers consider it normal when the amount of your loan payments does not exceed 40% of your income (before taxes). But this level of loans does not take into account the many circumstances that occur in a person’s life (loss of job and income, illness or death of loved ones, loss of assets and other emergencies). My recommendation, proven by time and experience, is 25% of net income.

Number No. 4. The term of the car loan should not exceed the period of use of the car before its sale

In any case, it should not exceed 5 years. With a 5-year loan, with a rate of 15% per annum (currently rates are 16-17% and higher), you will pay the bank about 40% in interest. At the same time, the cost of a car over 5 years, according to statistics, will fall by 40-50%. As a result, you will pay almost half the price for something that will cost half the price at the end of the term! The optimal period is 3 years. Pay less interest to the bank and sell the car for a higher price.

Number No. 5. The car loan amount should not exceed 30% of your annual (pre-tax) household income

With such a loan amount (at a loan rate of about 15%), loan payments will be approximately equal to 10% of your net income (read point 3). But, more importantly, the car won't eat up a huge portion of your family's income.

With a family income (before taxes) of RUB 150,000, the maximum loan you can take out (at a rate of 15%) will be RUB 540 thousand.
(150,000 rubles x 12 months x 30% = 540,000 rubles).

Because rates may be different, remember number 3.

Number No. 6. Interest rate

15% and above is an extortionate interest rate on a loan, but we live in the countries in which we live and have what we have. I know from the experience of many people and my own that you can save up for a car, at least most of it - you will have to wait a little and perform a series of actions in a disciplined manner (save, give up something, etc.). If you can’t do without a loan, then:

a) The rate must be fixed and not change under any circumstances - read the contract carefully.

b) The contract must stipulate your right to refinance a car loan (get a cheaper loan from another bank)

c) And of course - never take foreign currency loans - only in the currency of your salary, i.e. for the majority it’s rubles!

Number No. 7. Depreciation

A new car loses 10-20% of its value as soon as it crosses the border of a car dealership. Further, within 3-4 years, it will lose another 30 to 40% of its value. This figure is important to understand because... after a while you will have to sell the car.

If you want to change your car every three years, have a good estimate of how much your car will cost in 3 years (information can be easily found on the Internet), what kind of loan it will have, and approximately how much a new car and associated expenses will cost.

Conclusion

When buying a car, you should know these 7 numbers. It is important to pay attention not only to the cost of the car, but also to the additional costs that you will incur upon purchase, and then on a monthly basis. When choosing a car based on emotions, and not on the basis of numbers, you will overpay tens or hundreds of thousands of rubles during ownership. This is the money that you could spend on travel, your education and the development of your children, health and other things that are much more important than a car.

A car that costs more than 10%, and in the case of a car loan, more than 20% of your income, can be called “toxic”; it is a real financial parasite, gradually sucking your money.

👋 And I wish you well-being in finances, family and in life!
Timur Mazaev was with you, aka MoneyPapa - an expert on family finances.

Car sales tax in 2020

Good afternoon, dear reader.

Every car owner sooner or later has to face the need to sell his own car. The reasons for the sale can be completely different, but today we will not talk about them.

I think it’s no secret to you that currently all transactions for the sale of property are subject to income tax. This also applies to transactions aimed at selling a car.

The amount of tax on car sales depends on several factors, which will be discussed in this article. In addition, we will talk about situations in which income tax on the sale of a car can be avoided for completely legal reasons.

Even if you are not planning to sell your car in the near future, I recommend that you read the text of this article. The information received will help you avoid unnecessary problems in the future.

For clarity, I propose to consider in this article several examples of car sales:

The Yenisei 1 car was purchased in January 2019 for 500,000 rubles and sold in September 2019 for 450,000 rubles.
The Yenisei 2 car was purchased in January 2015 for 300,000 rubles and sold in September 2019 for 450,000 rubles.
The Yenisei 3 car was purchased in January 2019 for 200,000 rubles and sold in September 2019 for 450,000 rubles.
The Yenisei 4 car was purchased in January 2019 for 350,000 rubles and sold in September 2019 for 450,000 rubles.
Yeniseichik’s car was purchased in January 2019 for 200,000 rubles and sold in September 2019 for 250,000 rubles.

In the process of studying this article, you will learn how to determine the amount of tax on the sale of any car and will be able to easily calculate the amount of contributions to the state for Yenisei cars.

Note. If you want to sell a car that you did not buy, but received as a gift or inheritance, then I recommend studying the examples from the article “Paying taxes when selling a gifted car.”

Amount of car sales tax

The personal income tax is currently 13 percent .

In relation to Yenisei brand cars, the amount of income tax is:
450,000 * 0.13 = 58,500 rubles.

Agree, the amount is quite impressive. However, none of the sellers will have to pay this entire amount.

Car sales tax

Let's consider the main situations in which the tax amount can be reduced:

1. Lack of income

Let's take a closer look at the situation with the Yenisei 1 car again. This car was bought for 500,000 rubles and sold for 450,000 rubles. Obviously, the seller did not receive any income at all, i.e. the income tax amount is 0.

However, in this case, you should pay attention that in order to be exempt from paying tax on the sale of a car, you must submit a declaration to the tax office with attached sales agreements (or copies thereof). We will talk more about the deadlines for filing a declaration a little later.

In this case, there must be 2 contracts. One of them was drawn up when buying a car (in January), and the other when selling it (in September). If the car purchase and sale agreement has not been preserved, then you should turn to other ways to reduce the tax.

2. Long-term car ownership

Consider the Yenisei 2 car, which was sold for 150,000 rubles more than purchased. This car will also not be subject to income tax, because... it was owned for more than 3 years . Tax Code of the Russian Federation, Article 217:

The following types of income of individuals are not subject to taxation (exempt from taxation):
.
17 1) income received by individuals for the corresponding tax period:

from the sale of real estate objects, as well as shares in the said property, taking into account the specifics established by Article 217 1 of this Code;
from the sale of other property owned by the taxpayer for three years or more.

Thus, long-term ownership of the car can completely exempt the seller from paying tax.

If 3 years or more have passed between the purchase and sale of the car, the seller does not have to pay tax or file a return.

3. Tax deduction

The owner of a car can count on receiving a tax deduction if he was unable to completely avoid paying taxes using one of the above methods.

This item includes cars Yenisei 3 and Yeniseichik, which were sold for more than they were purchased and were owned for less than 3 years. In addition, the owner of the Yenisei car 1 also applies to this point if he has lost the contract for the purchase of the car.

Article 220 of the Tax Code:

Article 220. Property tax deductions
.
2. The property tax deduction provided for in subparagraph 1 of paragraph 1 of this article is provided taking into account the following features:

1) property tax deduction is provided:
.
in the amount of income received by the taxpayer during the tax period from the sale of other property (except for securities) that was owned by the taxpayer for less than three years, not exceeding a total of 250,000 rubles ;

So, what does a tax deduction of 250,000 rubles ? In this case, 250,000 rubles will be deducted from the cost of the car upon sale, and tax on the sale of the car will need to be paid from the remaining amount.

Yenisei 1: (450,000 - 250,000) * 0.13 = 26,000 rubles.

Yenisei 3: (450,000 - 250,000) * 0.13 = 26,000 rubles.

Yeniseichik (250,000 - 250,000) * 0.13 = 0 rubles.

Please note that a car sold for 250,000 rubles or less is not subject to sales tax. However, keep in mind that a tax deduction in the amount of 250,000 rubles is provided only once a year .

For example, with the simultaneous sale of Yenisei 3 and Yeniseichik cars, the tax amount will be:

(450,000 + 250,000 - 250,000) * 0.13 = 58,500 rubles.

4. Reducing income by the amount of expenses

There is another option for reducing the tax amount - reducing income by the amount of expenses. Article 220 of the Tax Code of the Russian Federation, part 2:

2) instead of receiving a property tax deduction in accordance with subparagraph 1 of this paragraph, the taxpayer has the right to reduce the amount of his taxable income by the amount of expenses actually incurred by him and documented in connection with the acquisition of this property.

This option makes sense to use if the car is sold for more than it was purchased.

The method is well suited for selling the Yenisei 4 car (it was purchased for 350,000 rubles and sold for 450,000 rubles).

In this case, the tax amount will be:

Yenisei 4: (450,000 - 350,000) * 0.13 = 13,000 rubles.

If in the same situation you use a deduction of 250,000, then the tax amount will be significantly higher:

Yenisei 4: (450,000 - 250,000) * 0.13 = 26,000 rubles.

However, there are times when you have to use the second option. For example, if the car purchase agreement is lost and it cannot be provided to the tax office.

Note. Starting from 2019, you can reduce the cost of sale not only by the amount of your own expenses, but also by the amount of expenses of the previous owner. However, this only applies to cases where the car was received by inheritance or as a gift. This issue is discussed in a separate article.

Please note that you cannot take advantage of the 250,000 deduction at the same time (for the same car) and reduce income by the cost of expenses. You are only allowed to select one of the options.

So, once again I will give a list of situations in which tax on the sale of a car may not be paid:

The cost of the car when selling is less than the cost when buying;
Owning a car for 3 years or more;
The car's selling price is 250,000 or less.

In all other cases, you will have to pay tax when selling a car. By the way, starting from 2011, the sale of a car can be carried out according to a simplified scheme, without deregistering the car.

Which tax reduction option should I choose?

The following table shows the best options for the most common situations:

Not in every situation the tax can be reduced to 0, but using the table above you can achieve the minimum payment amount.

Procedure for paying tax when selling a car

Please note that even if, according to your calculations, you do not owe anything to the tax authorities after selling the car, you will still have to file a declaration . The only condition under which you do not need to file a declaration in 2020 is that you have owned the car for more than 3 years.

The tax return for the current year (2019) is due at the beginning of the next year (2020). The deadline for the tax office to accept your return without penalties is April 30 . I recommend filing your declaration at the end of February or beginning of March, because... By the end of March, the season of queues begins at the tax office.

When selling a car, a tax return is filled out using a special program that can be downloaded from the tax office website. Let me emphasize that the program for 2019 will appear only at the beginning of 2020. It makes no sense to use last year's programs, because... Tax laws can change significantly over the course of a year.

In addition to filing a tax return, the car seller must also pay income tax. This can be done either immediately after selling the car or after filing a tax return (but before July 15 ).

Tax on car sales for non-residents of the Russian Federation

The payment of tax on the sale of a car by non-residents deserves special attention. First, let's figure out who is recognized as a tax resident of the Russian Federation (Article 207 of the Tax Code):

2. Tax residents are individuals who are actually in the Russian Federation for at least 183 calendar days over the next 12 consecutive months. The period of stay of an individual in the Russian Federation is not interrupted by periods of his departure outside the territory of the Russian Federation for short-term (less than six months) treatment or training, as well as for the performance of labor or other duties related to the performance of work (provision of services) in offshore hydrocarbon fields raw materials.

All other car sellers in the Russian Federation are not tax residents.

Features of tax payment by non-residents:

1. The tax amount is 30 percent of the cost of the car.
2. Non-residents of the Russian Federation cannot take advantage of the tax deduction, i.e. must pay tax on the full amount of the sale.
3. If a non-resident owns a car for 3 years or more, then he is exempt from paying tax. This clause applies to transactions concluded after January 1, 2019.

Attention! Until January 1, 2019, non-residents of the Russian Federation had to pay tax on the sale of a car even if they owned the car for more than 3 years.

If you sold a car in 2018 or earlier and were not a tax resident of the Russian Federation, then keep in mind that you will have to pay tax on the sale of the car in any case. And its value is 30 percent of the sale price.

So, let's summarize this article :

After selling the car, you should choose a method that will minimize the amount of tax.
File your tax return by April 30 of the year following the sale.
Pay the tax by July 15th of the year following the sale.

I am sure that after reading this article, calculating tax on the sale of any car will not be difficult.

Living “beyond one’s means”: how much should a Belarusian’s car cost?

On the abw.by forum, discussion of many issues often comes down to one topic - living “within one’s means,” status and so-called “show-offs.” In our latitudes, cars are often used as a yardstick. Some believe that you need to drive even older, but certainly premium cars, others - that the car simply must be new or “fresh”, others are sure that as a means of transportation everyone should choose a vehicle that suits their pocket and that only in this case can talk about the correctness of life and proper management of finances. However, the same Europeans may be slightly shocked by the ratio of the salaries of our citizens and the cost of the cars they own, as the results of our survey confirmed.

According to some sources, the European approach to purchasing a car is such that its cost should not exceed the annual income of its owner; according to others, it should not exceed 6 months’ income. It is under such circumstances that owning a car is considered as easy as possible, and its owner will be able to maintain it without any problems. However, Belarusian realities are such that the cost of personal cars for almost 30% of respondents exceeds two years’ earnings. According to Europeans, this is an unaffordable luxury. But our citizens, apparently, have a slightly different opinion on this matter.

What is curious is that further the indicators drop sharply: those who value their car at 21-25 monthly salaries turned out to be only 8%, and at 16-20 - 11%. In total, 48% of the total number of respondents turned out to own a car “beyond their means.”

Among those who took part in the survey, there were only 13% of those who fit into the strictest “European” framework. Slightly more (21%) of those whose car costs from 6 to 10 salaries. In total, 34% were living “within their means”.

Another 18% of respondents whose vehicles cost from 11 to 15 monthly salaries can be put aside, since they do not fit into the yearly framework, but also slightly exceed it.

You shouldn’t judge car enthusiasts strictly based on survey results alone – different people may have different circumstances. In addition, it has long been known that Belarusians are patient and economical people, and the size of their wages cannot always be directly compared with the amount of money they actually own.

Savings can be considered more or less significant if you manage to save 30-50% of your salary for the purchase of a car, but even in this ideal scenario, with an average salary of “everyone at five hundred,” the average Belarusian can afford a car for $3,000, because in this situation it is really possible to save for a year just for this. Lending is helping all over the world, but residents of countries where loans are offered at 3-5% are unlikely to understand those who take out a loan to buy a car at 50-70%. And this is also a factor of expediency.

But don’t forget that spending isn’t limited to buying a car. Registering a car, undergoing maintenance with payment of state duty, insurance, expenses for fuel and maintenance (if we take the situation that the car does not break down) - all this places an additional burden on the owner and cannot be ignored.

However, the survey results speak for themselves: Belarusians are not afraid of difficulties and probably know what they are counting on.

HOW MUCH SHOULD A CAR COST?

The discussion was postponed at the request of conference participants.

Where in Europe have you seen a person who spends 10% of his annual salary on a car?

I offer an estimate. The average salary of a highly paid specialist in Germany is 70 thousand euros.

Taxes - 52%. Taxes are higher only for Lufthansa pilots and members of the board of directors of German companies.

In your opinion, such a specialist should then travel:
1) By tram
2) By 10 year old Peugeot.

In fact, he drives:
1) BMW 3 series
2) Mercedes C class
Plus, his wife drives a car. Usually a new Fiat or a 3-4 year old BMW/Mercedes.

Therefore, I am very surprised by your calculation about 10%. Please explain with examples.

Let me look at this topic differently.

I think, taking into account our realities, a car should cost a maximum of 4th part of the cost of a person’s (family’s) real estate. IMHO!

Posted by
Pessimist: Let me look at this topic differently.

I think, taking into account our realities, a car should cost a maximum of 4th part of the cost of a person’s (family’s) real estate. IMHO!

As we all love to refer to civilized countries: “And in Europe.
". Do you know that in Europe an economist cannot afford an expensive car, a new 735 for example? The boss drives something. at 5, then buy yourself a modest 3. And we have? Further.
Is our mentality similar? No. Nothing in common. Motives and arguments for choosing?
Actually a drastic difference. They scrap cars for money, and we repurchase them! So, alas, we have our own economy and reasons:
1) In Russia, IMHO, a car is the most powerful means of self-affirmation.
Where else are there so many expensive cars, especially executive cars? Agree with what little satisfaction you answer “BMW:super:” when asked about your car. 2) We have a tradition of changing cars often.
In this case, the arguments do not always lend themselves to logic. Obviously, each subsequent d.b. cooler 😎 or at least different. 3) Who are we buying for? 90% for yourself, 10% for your family. The fact is of course controversial, but observations on the roads are avg. number of passengers 1-2 people

To make arithmetic simple, you can imagine a situation: you need a car, take your free savings + loan and buy it. Questions: What is a reasonable monthly contribution in relation to monthly income? And for how long does it make sense to burden yourself with such obligations?

There doesn't seem to be a right answer for everyone to questions like these.
For our family man IMHO max = 30% of income and no more than 1 year.