How do you make the decision between a new car or a used car? Because, look, we all love that new car smell, and we love the thought that you were the only person that has owned this vehicle. But that doesn't mean that that's always the right decision for you. Well, normally, we love recommending that you buy a car that's somewhere between four to six years old. The reason is very logical; we know that cars depreciate substantially in the early years of their life. On average, an automobile drops by nine percent when you drive it off the lot. In the first five years of ownership, it can drop as much as 60 percent. So, if you can buy a car between that four-year and six-year realm, historically, you're letting someone else pay for that depreciation, and you're getting a great deal.
However, we're living in a very unique place right now where the historical norm is not necessarily what we're seeing right now. Yeah, I was actually shocked when we were doing show prep on this. We still have some weird things that are going on in the marketplace. Especially when you look at the Hondas, the Toyotas, and even some other brands, you're seeing that used car prices are actually right in spitball distance of what a new car is. So, you need to pay attention to that. But I do think this is very viable if you are needing a larger vehicle. If you're needing a cheaper car, say sub $15,000, there's still ways to go to the used car marketplace because a lot of these cars have gotten to the point of reliability that they can go two to three hundred thousand miles. So, look on the two, you, the I. My favorite rule back when I first graduated college was to go buy a two or three-year-old used car. Because you could get a little bit of variability. Right now, though, you might have to go older than that. You might have to get beyond that six years or higher mileage to actually take advantage of the used car opportunity.
So, if what we're saying is okay, used cars have now become, or at least gently used cars are now as expensive as new cars. It's a difficult decision to make. Okay, I can pay the same for a two to three-year-old used car as I can pay for a new car. Perhaps I should buy the new car. So then that leads into how much car can I afford if I am going to approach this. And I want to add here 23.8. What does that mean practically based on my income, based on where I am in my financial journey? What kind of car am I looking at? So, we wanted to break this out by different income stratifications to talk about where should you be thinking.
And so, if we just start right at the very beginning, let's say that you're making forty thousand dollars a year, and you're going to finance either a new or a used car. You can afford a monthly payment of about $267 a month. That means that the maximum car price you can afford, again assuming 23.8, is a ten thousand nine hundred dollar car. So, about an eleven-thousand-dollar automobile. There's a really good chance to find something for eleven thousand. You're probably going to be looking at a used car. You're probably not going to find a new automobile. But like you said, with reliability, they can go to 200-300,000 miles now. You can still find deals out there. Yeah, I think you're definitely going to have to lean into the used car marketplace. And that leads to the next price point, just sixty thousand dollars. Now, this is even though you're now making 50% more money, sixty thousand dollars, your car payment has now increased up to four hundred dollars a month. But unfortunately, we're still in a place where $16,436 is the maximum price of a car that's still, once again, going to lean heavily into the used car marketplace. But now what you're able to do is maybe, instead of finding that car that's six or seven years old, maybe you can find one that's three, four, five years old. You are able to move up the used car spectrum.
Well then, as your income continues to grow, and once your household income hits around eighty thousand dollars, if you're going to follow 23.8, you can afford a maximum monthly payment of $533 per month. That means that the maximum car price you could afford is somewhere probably around twenty-one thousand nine hundred dollars. Well, if we're just looking at new automobiles, now we're talking about cars like maybe a Hyundai Elantra or a Toyota Corolla. You can actually find the base level of those models inside of that price range. Yeah, and a lot of you are probably saying, why did y'all list models for $80,000 and above but you didn't for $80,000 and below? It's because, look, there's a lot of variability in used cars. It depends on mileage, options, brands, and so forth. However, when we get to the new car marketplace, there's enough data out there that we could actually look at what are the price points of brand new cars. So you can actually use real-world examples so you can actually visualize how far your money could go.
Okay, now let's look at the next income strata. If you're not a household making a hundred thousand dollars, well, now the monthly car payment you could afford is $660.7 per month. That would buy a car that's a little over twenty-seven thousand dollars. Now you've opened up the new car spectrum. Now you're talking about Honda Accords, Toyota Camry, Chevy Equinox, Nissan Rogue. There are a number of different sizes and styles of automobiles. Again, this is if you are strictly adhering to 23.8. Obviously, if you have more of a down payment, you can influence this decision one way or the other. But now you are starting to see where the realm of possibilities lies.
And then let's close out with the last category, and I'll tell you why this is the last category on this list. We have a hundred and twenty thousand dollars worth of household income. This is a maximum car payment of $800 a month. You could find, you could actually buy a car around thirty-two thousand eight hundred seventy-one dollars. Now this opens up the Honda CRV, the Toyota RAV4, the Hyundai Santa Fe, and the Ford Escape. So you start, this is the first time we start seeing SUVs on the price list. But I do want to tell you the reason this is the end of the list. I do think once you get beyond this level of income, I really want to encourage you to go back to leaning heavily towards paying cash for your vehicle. It is known behavior that millionaires do not finance their cars. And once you're in the higher income situation, the bigger thing I'm always trying to encourage you is not to let your ego or just the higher income to persuade you to go much higher on what you think will be perceived as a nicer car, to the detriment of the financial order of operation and what you can save and invest for the future.
Yeah, bro, we get this all the time. Someone said, "Hey, I did the mathematics, and 23.8, I can afford a $2,500 car payment." Well, just because $2,400 on a car payment falls into 28 does not mean you are doing what you're supposed to be doing. And in incomes at that level, I agree with 100%, you ought to be paying cash for your car. Remember, 23.8 is about reliable transportation. We're talking Corolla, Civic. We're not talking about back when Toyota had the Land Cruisers and those types of things. Just because it's a Toyota doesn't mean it was actually an affordable car or a reliable car. It was not entry-level, and that's the big thing I want people to know. 23.8 is a bridge to reliable transportation. For more information, check out our free resources