Understanding Luxury Cars and the 238 Car Rule

Luxury vehicles should be purchased outright with cash, avoiding the pitfalls of financing rules like 238.

### Understanding the 238 Car Rule and Luxury Vehicle Considerations
* 🚗 Miguel Roy raises an important question about the **threshold for luxury vehicles** in today's inflated car market and the applicability of the **238 car rule**.
* 💰 The 238 rule suggests that buyers should **put 20% down**, finance for **no more than 36 months**, and ensure that the total car payment does not exceed **8% of their gross income** to avoid overextending financially.
* 📊 It is crucial to maintain a balance where **monthly investments exceed car payments**, emphasizing the importance of **prioritizing savings over vehicle expenses**.
* 🚙 The 238 rule is not intended for luxury cars, which complicates the definition of what constitutes a **luxury vehicle**, as it varies across **brands and models**.
* 🤔 Individuals should assess their financial situation and avoid using the **238 rule** as a justification for purchasing a luxury vehicle that may **hinder their long-term financial goals**.
* 💡 If one can afford to pay cash for a vehicle, it is advisable to do so, as cash purchases **eliminate debt and interest payments**, reinforcing the idea that "**cash is always king**."
* 🔍 Ultimately, personal finance is about making **informed decisions that align with one's financial goals**, ensuring that vehicle purchases do not **impede future savings and investments**.

[Music] Miguel Roy talk has a question. He says, Is there a dollar amount where a vehicle is considered luxury, with regular car prices now being so ludicrous? Is there a price point at which 238 is not applicable, and you should just use cash? And I think you should do a brief outline of what the 238 car rule is and how luxury cars fit into that. But the question of, you know, when do you use 238 versus paying cash for a luxury car is a valid question. I'll do 238; you do Luxury. How's that sound? Okay, you can do that. Sweet. All right, so when it comes to buying a car, we think that especially in the environment in like obviously paying cash is always a great solution. If you're able to pay cash, that's a wonderful way to pay for an automobile. But absent your ability to pay cash, we do have a car buying rule that will help make sure you keep yourself inside the guardrails. It's 238. You want to put 20% down on the

purchase. You do not want to finance for any more than 3 years or 36 months, and the total car payment cannot exceed 8% of your gross income. So, if you can follow 238, you'll make sure you don't overbuy a car and get yourself into more car than you should. We actually have a great calculator out on the website moneyguy.com you can go play with to see, Okay, how much car can I afford, and what should I put down? And you can actually do that. Now, there are two little caveats to the rule. Caveat number one is you want to make sure that your monthly investing is greater than your car payment. So, you don't want to have a $700 car payment and only be investing $200 a month. You want those to be flipped. It's okay to have a $200 car payment if you're investing $700. So, you want to make sure that the investment amount monthly is greater than the car payment. That's caveat number one. Caveat number two is you're not supposed to use

238 to buy a luxury vehicle. This is supposed to be for reliable transportation, so therein lies the rub. How do you quantify if something is luxury or not? Well, this is fortunately us humans have this amazing resource. It's called a brain, and I think a lot of systems I don't love that they are absolutes in how they give you guidance because they treat you like you're a baby or an infant in a lot of the processes, and I treat you like you're a human, and I'm hoping I'm turning you into a financial mutant human to understand that these rules were designed so that you can get the Corollas, the Camry's, the Civics, the Accords, so you can really fire up your wealth-building engine, which is your job. That's going to allow you to save and invest for the future. So when you're making the decisions, and look, there's all kinds of gray zones just like there is in everything else we deal with, you know, we could get into is Tesla you

know, especially like a Model 3, a Model Y. Those probably aren't luxury. I mean, but if you're buying the S, if you're buying the Cybertruck, if you're buying the X, yeah, those things are luxury. It's the same thing. We could go through each brand. Toyota, I mean, if you're doing the Land Cruiser, that is luxury. If you, you know, and by the way, if you go buy the Suburban instead of the Yukon, that's not necessarily getting you out of the luxury just because it's the Chevrolet version versus the GMC version. There's all kind of mental games we can play with ourselves. The big thing I need you to keep front and center is what is money doing for you? What are your army of dollar bills doing for you? If you feel like you are using $238 to cut the corner off to get into that luxury vehicle that you think is going to impress your neighbors and friends, you are doing it wrong. Now, if you're at step eight of the financial water of

operations maybe it's okay that you're buying the Yukon or the Suburban or the Land Cruiser or even the Tesla. But if you find yourself that you know that you might be a little aggressive on this and you're not really getting the best deal that gets you in the safest, most reliable car, and you're I just want to make sure you're not driving your retirement because that's what I see most Americans doing. Is when you see car payments $700 to $1,100 a month and you find out that they're only saving $150 a month because they get a match off of it with their employer, you're doing it wrong. Don't fall into that trap. But I'm going to give you the understanding and treat you like an adult that yes, I mean you, you if you've got to buy a minivan, you go look at a Honda Odyssey. Now maybe instead of doing the touring edition, you're getting just the leather seat ones. So because you know the kids are going to rub

goldfish and crumbs all in there, so you might as well get them some leather on there. They will, but you don't have to go do the touring model. I'm going to give you the grace to say that that probably does work for 238, even though the prices are absolutely ridiculous. I'm going to give you that grace because it's reliable transportation to meet you where you need it to in your life. Personal finances are definitely personal. I'm just trying to give you the guidance so you don't get derailed and you're driving around in your retirement, and you get to 60 years of age, and you go, Why? Why do I not have money? And it's because of all those small incremental decisions that you just didn't let the little decisions turn into your Great Big Beautiful tomorrow. So I'm going to give you some grace on this and treat you like an adult, and you need to be honest with yourself because if you're not developing these skills because that's

part of what the financial order of operations is also to do teach you how money works to be better with it so you actually have the skill set to make good critical decision-making decisions and not just have to every time you do something financially you go oh my gosh what did Bri and B say oh my oh no I I I I can't do this because I didn't develop the skill I want you to have legs and walk like an adult that was a more well-rounded answer than I was expecting oh yeah it was great oh that was very good I'm trying to train you to I mean teach a man to fish we want you to have legs and fish I like it no but I mean there's skills here I'm trying to teach you to um the original question though there's really not a dollar amount there's not and this is I do ad that is hard to like this is what mroy said that I thought was so interesting he said with regular car prices now being is there a price at

which 238 isn't applicable, and you should just use cash. I'm going to say, if you're at the position where you could use cash to pay for an automobile, cash is always king. And now you're saying, Oh, well, maybe I could do a different car and do 238. Your self-assess spidey sense ought to go off. I could pay cash for this one, or I could 238 this one. I would immediately say, Am I trying to stretch? Am I trying to go outside of what I should really be doing for where I am and what I really need at this stage? That was a good clarification. You should. I hate car buying. I don't like car buying. No, Mei, because it's a necessity to get you to your job and stuff. I'm not a car guy, though. Okay, I say that, but I drive. I mean, okay, I quit, right? You know, right? I'm not a car guy. That's not true.

At What Price Does a Car Become 'Luxury'? (Ditch the 20/3/8 Rule in 2024?)

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The Money Guy Show

The 238 car rule suggests putting 20% down, financing for no more than 3 years, and keeping the car payment under 8% of gross income.

Paying cash for a car is ideal, but the 238 rule helps prevent overspending.

Two caveats to the rule include ensuring monthly investments are greater than the car payment and not using the rule for luxury cars.

Buying a luxury vehicle for reliable transportation can be confusing, as the definition of luxury is subjective.

The speaker emphasizes the importance of using one's judgment rather than following absolute rules when making financial decisions.

It's crucial to focus on the overall purpose of money and wealth-building, rather than trying to impress others with a luxury vehicle.

The Impact of Car Payments on Personal Finances

Car payments are becoming a significant financial burden for many Americans, with monthly costs ranging from $700 to $1,100.

It's important to make mindful car purchasing decisions, such as opting for a more affordable model or trim.

Small incremental financial decisions can have a long-term impact, potentially derailing retirement savings.

The financial order of operations aims to teach individuals how to manage money effectively and make informed decisions.

The goal is to develop a skill set that enables critical decision-making, rather than relying on external guidance.

There is no specific dollar amount associated with this process, as the focus is on building financial skills and independence.

Using cash to pay for an automobile is always the best option.

If you're considering a different payment method, like 238, it's important to self-assess and determine if you're stretching your budget.

Car buying can be a necessity, but it's not always enjoyable, and it's important to prioritize your needs at this stage.