Average used car requires $120K in income to afford, according to the 20-4-10 rule — advisors call it a 'wealth killer'
There’s an old test for whether you can actually afford a car. Put 20% down, finance for no more than four years and keep everything the car costs you — payment, insurance, fuel, maintenance — under 10% of your gross income. That’s the 20-4-10 rule, and financial planners have ab
There’s an old test for whether you can actually afford a car. Put 20% down, finance for no more than four years and keep everything the car costs you — payment, insurance, fuel, maintenance — under 10% of your gross income. That’s the 20-4-10 rule, and financial planners have abided by it for decades (1).
The problem is passing that test isn’t so easy anymore. According to a new CNBC analysis, you’d need to earn about $120,000 a year to afford an average used car under this rule (2). For context, the median U.S. household earned $83,730 in 2024, according to the U.S. Census Bureau (3). In other words, an affordability rule that was meant for ordinary car buyers now assumes an income most people don’t earn.
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Still, financial planners aren’t abandoning it. If anything, they say it matters more now than ever, because the risk it guards against has only grown.
“Cars have quietly become one of the biggest wealth killers in the middle-class budget,” Mark Stancato, a certified financial planner at VIP Wealth Advisors, told CNBC.
It comes down to how much you spend on the car. According to Cox Automotive, the average used vehicle listed for $26,342 in April (4), up 3% from a year earlier.
