How Rich Should You Be to Buy a New Porsche?

Photo courtesy of Porsche

Depending on the model, to responsibly purchase a new Porsche, you should earn anywhere from $120,000 to $400,000 per year after taxes. Now you might think that this means all of your friends and the social media influencers driving fancy cars are wealthy, but some are probably living above their means. In this article, we’ll help you understand the following:

1. How should you budget for a new car?
2. How much car can you afford?

Here’s a video version of this article, but, more details, check out the rest of the article.

How Should You Budget for a Car?

There are many rules-of-thumb on how people should budget for transportation costs, but most aren’t specific enough for people’s individual situations. Let’s take a look at a few popular budgeting recommendations.

Purchase price as a percentage of annual income

Many financial gurus recommend that you can buy a car that costs up to 20 to 35 percent of your annual, after-tax income. This rule-of-thumb includes taxes and financing costs in the purchase price. However, this method is flawed because it does not consider other car-related expenses like insurance, maintenance, gas, registration, etc. All of these other car expenses can vary drastically depending on the vehicle you purchase. For example, if you drive 50 miles per day on average, you will spend considerably more driving a Porsche Cayenne Turbo S than a Toyota Prius.

Transportation costs as a percentage of monthly income

The next common rule-of-thumb is that people should spend no more than 10 to 15 percent of their monthly, after-tax income on transportation, which includes the car payment, gas, insurance, maintenance, and other car-related expenses. However, this rule-of-thumb isn’t perfect either because it doesn’t consider the length of the car loan. Clearly, the monthly car payment is going to be significantly different if you finance a car for 84 versus 48 months.

The Car Enthusiast Budget (20/4/15 rule)

A versatile rule-of-thumb that we like is the 20/4/10 rule. This rule recommends that you make a 20% down payment, finance for only 48 months, and spend no more than 10% of your monthly, after-tax income on the car payment and other transportation expenses like gas and insurance. While we like this rule because it considers all transportation expenses and financing, it doesn’t recognize that car enthusiasts also see their cars as a hobby.

We think it’s reasonable for car enthusiasts to modify the 20/4/10 rule to 20/4/15, which we dub the “Car Enthusiast Budget.” Most financial experts agree that it is reasonable for people to budget 50% of their monthly, after-tax income to “needs” (housing, transportation, food, etc), 30% to “wants”, and 20% to savings and debt repayment. If owning a Porsche is something you’ve been dreaming about, it’s financially reasonable to allocate 5% of your 30% “wants” budget towards transportation.

How Much Car Can You Afford?

By now, you should have a good sense of why we recommend the Car Enthusiast Budget. To determine how much car you can afford, let’s assume the following monthly operating costs such as insurance, registration, gas, and maintenance.

Based on the Car Enthusiast Budget and these assumptions, here’s how much car you can afford based on your income and the interest rate you qualify for.

For a more precise estimate, make a copy of this spreadsheet tool and input your values.

Conclusion: How Rich Should You Be to Buy a Porsche?

Photo Courtesy of Porsche

Alright, we’re almost ready to answer this question, but we need to make a few more assumptions:

1. The total price of a new Porsche includes an additional 15% and 8% respectively for options and sales tax.
2. The car loan is at a 2% interest rate for 48 months.
3. The monthly expenses vary primarily based due to fuel economy and insurance premiums.

So, how rich should you be to buy a new Porsche? To be financially responsible, you should make anywhere between $120,000 to $400,000 per year (after taxes).

Our mission at eCarGuides

Here at eCarGuides, our goal is to help car owners make the best decisions possible when it comes to maintaining their vehicles. Find a highly-rated Porsche mechanic near you and detailed DIY guides for your Porsche.