There's an old saying in golf, “drive for show, putt for dough.” Hitting a massive 300-yard bomb looks beautiful, but what really counts is accurate putting. Well let me introduce you to a new saying, “Own one car for show and another car for dough.”
I can't tell you how many times I've lost money on the golf course because I three-putted instead of two-putted. I've also occasionally won money squeezing in an eight-footer. Those knee-knockers, when all is on the line during an Aloha bet, are intense!
Give me a regular 250-yard drive and incredible putting accuracy over a 300-yard drive and putting yips all day long. The same goes for cars.
One Car Or Two Cars?
I'm a one car type of guy. Owning a car is expensive, especially if you don't follow my 1/10th rule. With the proliferation of cheap ridesharing options that have emerged since 2009, not owning a car is making more and more sense.
But over the years, I've had a tremendous number of complaints that my 1/10th rule is too restrictive. Instead of limiting the median American household to only spending $6,200 on a car, many people feel the typical American should be able to spend much more.
If you want to spend more, it's totally up to you. Don't let me tell you what to do. I'm just offering a simple rule to follow to help you achieve financial independence sooner, rather than later.
For those of you who love cars and want to own two or more cars, I suggest owning at least a Dough Car. If you do, you might build your net worth quicker than the rest. You might even better keep yourself out of trouble.
The First Car For Show (to show off to everyone)
Your Show Car is also known as your splurge car. No one really needs more than a five-year-old Toyota Corolla to get from one place to the next. Thus, your Show car might be a new luxury sports car or a rare classic car. Or your Show Car may just be simply nicer than a used economy car.
A Show Car is your choice ride on the weekends. You may take it on the backroads with your buddies who are in your car enthusiasts club. This car is really just for your personal pleasure.
Even though you adore your Show Car, you don't want to be seen driving it by people who could cost you money. For example, colleagues, competitors, school administrators, etc.
The Second Car Is For Dough (economical to save money)
Alternatively, your Dough Car is your every day, unassuming ride. It is your 8-year-old Honda Civic with a dent in the passenger side door. Or, perhaps your Dough Car is a dirty old truck with dents in the side and mismatched tires.
This is a great car to drive around town because you don't care what happens to it. If someone bashes your bumper when parallel parking, who cares!
Your goal is to be seen in your Dough Car by everyone. Ideally, your show car is your beater car and not some fancy electric car.
Benefits Of A Dough Car (economy car)
I'll give you two recent examples which demonstrate why having a Dough Car is important. I'll also give a third example from when I was working.
1) Gain Customers
Once when I was remodeling, I had an appointment for a window treatments saleswoman to stop by my house. The consult was free with the hope that she would sell me a bunch of window shades.
When she arrived, she rolled up in a brand new ~$70,000 BMW X5. As soon as I saw her car, I frowned. Based on her expensive car, it was likely her products would be very expensive. I was hoping to make a good deal but now had doubts.
When she came up to my house, I was even further dismayed. She was wearing $800 Manolo Blahnik shoes and $600 Prada sunglasses.
We spent the next hour looking at samples until I picked my favorite. As she departed, she said she would email me by the end of the day with a quote.
My budget for 11 windows was $5,000 but she came back with a quote for $9,181!
Wow that's expensive. All I could think about was how huge her profit margins must be. Even though I was able to change a few options and get the price down, I decided to look at a different vendor.
When want to win customers, driving up in a Show Car could be detrimental. Every financially savvy potential client will think your fancy car is from profiting too much from your clients.
2) Increase Your Chances At Financial Aid
Three preschools we applied to asked what type of car we drive. The reason they ask is related to seeing who qualifies for financial aid. It wouldn't make a lot of sense to subsidize parents driving a luxury automobile versus those who are driving a used economy car or taking the bus.
So perhaps you can increase your chances of getting financial aid if you own a Dough Car. But you'll likely have to provide a copy of your tax returns or pay stubs in any case.
However, one potential downside is a Dough Car could lead an elite school to perceive you as too poor and lacking in status to be admitted. Ridiculous yes, but that's the BS, competitive society we live in today.
Ultimately, be aware that many academic institutions and employers make assumptions about your wealth based on the car you drive.
3) Get Paid More And Promoted Faster
I've told this story before, but while I was in banking, I once hired a 22-year-old first-year analyst. Unfortunately, he turned out to be a pretty cocky and immature guy.
He drove a $50,000 Acura MDX SUV to work, which was more expensive than 70% of the cars in the employee parking lot. Everybody quickly found out that his parents bought it for him. He already had a bad attitude working against him. And then his expensive car made things even worse.
His year-end bonus was slashed by $10,000. The bonus committee felt that not only was he underperforming, he didn't need the money since he was already rich. That $10,000 went to pay someone else.
Later, he ended up getting fired after his second year.
Owning Only A Show Car Is Not Ideal
If you are only going to own one car, you should own a dough car that will help you get ahead and make money. Owning only a show car is a suboptimal financial move.
If you only own one car, and it is a Show Car, this could put you in a bind. On the one hand, you want to own the nicest car possible since you will only have one. On the other hand, however, owning a Show Car might make you a target.
Although nobody thus far has given me any grief for owning a Tata Motors SUV, I sometimes feel like an oddball when I drive to my Saturday softball meetup games. Everybody is pretty down-to-earth, with the nicest car in the lot being a Tesla Model 3, a ~$50,000 car fully loaded.
I also feel kinda bad when teachers see me picking up my son from preschool. Preschool teachers only make between $40,000 – $70,000, depending on experience. Further, there are several parents who bike their kids to school.
I've tinted my windows black so it's difficult to see me while I'm driving (illegal in California). But that's not enough to stay stealth because I've inevitably got to get out of my car.
When I drove a Honda Fit for three years, I always felt great everywhere I went. Although I experienced a lot more car bullying on the road, it felt great blending in with my surroundings. Most of the time, my Honda Fit was also the cheapest car in the parking lot.
Too bad I had to give it up because there was no way I was going to drive a baby in a car with such small crumple zones and thin doors.
You Will Grow Into Your Show Car
Even if you only own a Show Car, know that things will get better because of three things.
The first thing is that your car will depreciate in value every day. If you hold on to it for at least 10 years, it will eventually not be worth much at all. If you follow my House-To-Car Ratio for financial freedom, you will be celebrating the depreciation of your car because your ratio will go up!
My plan is to own Beast Master for at least 10 years and then consider buying an electric vehicle. In 2027, when my Range Rover Sport will be 12 years old and be worth less than $20,000. At this time, I'll consider buying another car because my House-To-Car ratio will be well into the hundreds.
Your Income Will Increase Over Time, Making Your Show Car Less Expensive
The second thing is that you will probably make more money every year. Part of the reason why following the 1/10th rule for car buying is so important is that you won't feel as guilty buying any type of car.
As the car's value becomes a smaller and smaller percentage of your annual income and net worth, you will stop feeling as embarrassed about owning a Show Car.
The final thing is that you will get older. Nobody really cares if a 55-year-old drives a $110,000 Porsche 911S. If you're in your 30s or younger, however, sometimes people will give you grief for driving a Show Car out of envy. Don't drive a Show Car alone at night in Johannesburg or Manila. Chances are high you will get mugged at a stop light.
If you must own more than one car, make sure one of them is a Dough Car to help you blend in. On your road to financial independence, you never want to stand out too clearly. Protruding pegs tend to get knocked down.
Invest In Real Estate Instead Of Nice Cars
As you might realize by now, cars are a money pit. Everyone should consider owning the cheapest, most reliable car they can and invest the rest of their money in real estate.
Real estate is my favorite asset class to build wealth. It generates income, provides shelter, is tangible, and is less volatile. In my opinion, real estate is much more desirable than stocks. In fact, investing in real estate since 2003 was my top financial move.
To invest in private real estate, take a look at Fundrise, my favorite private real estate investing platform. Fundrise was founded in 2012 and manages over $3.3 billion with over 500,000 investors. The firm focuses on residential properties in the Sunbelt, where valuations are lower and cap rates are higher. For most investors, investing in a diversified private real estate fund makes the most sense.
Another great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside. Crowdstreet is a solution where you can build your own select real estate portfolio.
Personally, I've invested $954,000 in private real estate since 2016 to diversify my exposure and earn more passive income. Both Fundrise and CrowdStreet are affiliate partners of Financial Samurai, and Financial Samurai is currently invested in Fundrise.
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Note: for those wondering how the 1/10th rule for car buying applies to owning a Show Car and a Dough Car, the best practice is to have the total price of all cars be 10% or less than your annual gross salary.
Samurai Help!
I’m a devotee of 1/10 rule who drives a Honda civic but find myself needing a larger vehicle for work (ride-sharing/ livery)
I also have about $6000 tax benefit to purchase a vehicle by end of year but prices are bananas!
How should I recalculate things to take in account that the vehicles bring in income and the tax benefits? Add right on top? Calculate anual earnings of vehicle and add to 1/10?
Help Sensei!
( love your website and advice, thank you for all you do!)
In my youth we repaired & raced old MG’s, Sunbeams & Rover vehicles that burned more oil than gas. I regret selling any of them especially the ’48 Riley convertible we rebuild. Each cylinder head had the cylinder # stamped on it with an Initial.
After 35+ years invested in real estate I only drive p/up trucks that I buy a couple of years old. BUT I have always Sect. 179’d them as did my wife for all her SUV’s in her S-Corp. We both paid cash & then run them up to 200K plus & then hand them down to one of the kids. Now my wife leases anything she wants & I plug away with my well used Ram 1500.
Our only ‘show’ car is a yellow 1995 Mustang Gt convertible we bought in ’97 as the wife always wanted one. Each kid learned to drive standard in it & it only has 30,000 miles on it. Our grandson hopes to ‘buy’ it from us one day.
A good friend of mine sold Jaguars & several years ago he told me the story of a couple who leased a Jag & when he gave them what he thought was a high /month lease their comment was, “that’s nothing, we spend that on cigarettes & liquor a month”.
I always like BIG trucks & I still remember one of my wife’s patients, who was injured when T-boned in a large p/up. She asked my wife what type of injuries do you treat when people in small cars are hit. My wife replied “I usually don’t see them”.
I figured about everyone already knew rule number one in life.
1. You do you. And don’t give a good god damn what anyone else thinks. Because whatever you do, and whatever decisions you make, you can bet someone out there will have an issue with it. So don’t waste your time on others opinions. Do what makes you happy.
Driving a crappy car doesn’t mean you aren’t an a-hole.
Bet that kid at the investment firm would have been fired either way.
Love that philosophy! And it’s also a great philosophy for those who have a proclivity to judge others.
Collector cars are also solid investments that can be fun along the way, without the pitfalls of the gambling stock market. Hemi cuda, Shelby mustang etc. And yes you can get them quite low at times it just take some work. My friend got a Shelby Mustang a few years back for 10k and its now appraised at 210k.
Will make a car work in my area no matter my income you need a car around here period
Loved this article. It reminded me of my brother, who is a highly successful plastic surgeon in Southern California. He owns a high end sports car and a vintage muscle car, but he never drives them to work, instead driving a nice, but moderate sedan, for fear that his staff will think he has money to burn (as if a plastic surgeon in So Cal doesn’t?) and expect higher compensation. As for me, I’ve owned Korean cars for the last 15 years or so because I put reliability over status. But recently, Korean cars can also be very high-end. But they aren’t “status” cars. My “fun” car is a fully loaded Kia Stinger which is a great performance car with just about every bell and whistle you could ask for. The Stinger has won several awards from the automotive press. I follow a Stinger group on facebook, and it amazes me how many other owners “re-badge” their Stingers to hide the fact that it’s a Kia. Like who are they trying to impress? I’d rather downplay the brand – the only people who are impressed with my car are people who know cars, i.e. “car guys”.
Great points about cars and show vs. dough. We’ve had good success following your guidance in terms of how much car to buy – our newest one at the moment is a 2011 Lexus RX.
One tip I’d suggest to you and your readers about “show” cars is that if you do it right you can have your cake and eat it too: you can buy a really cool sports car, drive it, own it, and even make money on it, or at least not lose a dime to depreciation.
For us, that would mean a Porsche. Back in the 1990s I was telling my nephews they should quit lusting after the latest and greatest $30k Japanese sports car of the day, and instead find themselves an early 1980s Porsche 911. Back then these could be had all day long for $15-18k. That vintage was air-cooled, mechanically pretty simple and bulletproof. Each series had a couple of known foibles – and they were easy and inexpensive to remedy before they became problems. Unfortunately my nephews failed to take my advice. Had they done so they’d own a car that is still fun to drive – and has tripled in value since then.
No need to despair, though, if you missed out. You can still pick up a Porsche 911 for reasonable money now that will not lose value, and may also (likely will) increase in value over the years. Aim for a 1999-2004 model 911 (liquid cooled now) with milage in the 100k or fewer area. These cars are also bulletproof and pretty low maintenance, especially if you don’t mind changing your own oil. They do have a well-known Achilles heel: the dreaded IMS bearing. Most owners know about this, and when posting them for sale will say something about the IMS having been changed/replaced in the ad. If you don’t see that, it’s a $4k deduction from the asking price.
We’ve got one of each – an 80s air cooled and a later water-cooled 911. My wife likes driving the newer one, and I love driving the older one. Happy family :-).
I laughed out loud when I saw the estimate of preschool teachers making 40,000-70,000. Not in Ohio! I may show this estimate to my boss to advocate for myself. I fully expect her to laugh out loud as well. And we are considered to be a top-of-the-line Center who pays staff well. (Most of us have 4year degrees, some have masters)
As far as the article… my husband and I purchase new, reliable cars, with Great warranties, always under 20,000, BABY them, and drive them for as close to 15 years as we can, until they literally give out. It has served us well.
Cool. So how much do preschool teachers in Ohio make? Don’t be shy!
Great article, in Miami 75% of people are driving vehicles they cannot afford. Consider taking over their ridiculous lease agreements, let someone else pay downpayment and fees. Currently driving an Infiniti Q50 ($42000 msrp) for $325 a month including taxes/maintenance with 1300 miles a month allowance. $2 million net worth, $200k in income but i park that bad boy on street if plumber is stopping by the house.
Years ago I blew that 1/10th rule out of the water and bought a brand spanking new RAV4. Even got a loan for it. It was my first brand spanking new car (I was in my 40s at the time). I’ve not regretted it – personally or financially.
It is pushing 12 years old and recently passed 100k miles. I expect to drive that baby for another 5+ years. And though it may fit the “dough” definition, I do give a rat’s patootie if it gets a ding – I got royally pissed when some numbnutz dented it in the parking lot at work. Fortunately, I got it 90% fixed for less than $50 rather than the dent pulled and touched up for $250.
Great post!
Our household income is around $300k and I do feel pretty guilty driving around in my wife’s new expedition $60k, way to expensive! I rationalize it because we live out in the country so 4×4 is needed, we have 2 kids with a third on the way so I want everyone to be safe and be able to get into town no matter what the weather throws at us, especially when I’m out of town for work.
My wife and I saved a ton of money when we just had a focus before we started to have kids.
I agree with keeping the show car on the down low. Whenever I go to work on our rental I always take our 12 year old Ford Focus or the old beater farm truck, I don’t want contractors or my tenants seeing the nicer vehicle. My wife also takes the focus to work whenever she can, to save money and keep miles off the suv.
Did you just call a ~$1.6 million dollar Mclaren P1 a 570gt? XD
Got to keep things stealth!
I sold my 2010 Audi A3 recently to move to Brazil and I was quite sad. It was a weird feeling watching the new owner drive off in my car of 10 years.
If I never had the opportunity to move to Brazil, I would have kept on driving that Audi A3 for years to come. I only had about 83,000 miles on it. Now the thought of having to buy a car in 4 years when I return to the US is a bummer. I’ll see how much Tesla will cost then, otherwise I’ll get a Dough Car. I do miss my Audi though.
Here I just take the metro or Uber. I am saving a lot of money on transportation!
I worked very hard not to ever let the financial status of an employee impact their compensation. I mean I had engineers married to medical doctors and engineers doing the same job married to stay at home moms. Certainly the “need” of one paled compared to the other but I tried to base pay and bonuses strictly on the value/replacement cost they represented to the company, which had zero to do with other family sources of income. So the fact that the guy married to the Doc drove a Porsche Carrera didn’t hurt his pay at all. So I’m curious, do you think driving a show car to work should impact your pay or are you just saying it isn’t smart because it very well might have an impact, even if it shouldn’t in a perfect world.
Because there is no true meritocracy at work or in life, I’m saying people need to be smart about what they show off to other people who control their destiny.
While I agree perception can appear to be reality, the fault lies with ppl thinking that somehow owning an expensive car is more of a sign of wealth than owning a larger home or a huge boat. As ppl who own 4 cars ( 3 of which are exotics, purchased used and at their greatest pt of depreciation), I take it as an opportunity to educate ppl on how poor of a perception that truly is. And yes, we’re engineers (wink).
In Texas, I tend to see more show cars then in NY. The reasons I’ve heard are centered around the amount of time people here spend in their cars. I get the argument to some degree. If you are spending 2 hours a day in your car commuting, make it an enjoyable 2 hours.
Personally, I buy 2 year certified pre-owned cars with cash or something like that lol. When we bought our Nissan Altima, they had a $1,000 credit if you took out a loan with them. So paying with cash would have increased the price which was a bit surprising. So, we got the loan and then paid it off a month or two later. I try and not pay for the high depreciation cost in the first two years. After moving to Texas, we now have 2 cars. We did buy one higher end car (Jeep Grand Cherokee).
The car you posted a picture of is a Mclaren P1 worth over a Million dollars! Huge difference from a 570 GT
I remember you making a similar post 5-6 years ago. At that time I was rationalizing to you, me buying S65 AMG that was 5 years old that I bought for 50k when I only earned 250k at that time. Looking back I do not regret it , being 26 and being accused of being a professional football player was fun.
Flash forward to today, we are purchasing a GLE63 AMG for my wife, 2 years old, but this time it is less than 10% of our income. I was thinking of trading in my two year old truck and getting my wife a more reasonable vehicle maybe just a basic GLE instead of the AMG. But my truck is only 2 years old and there is no reason to replace it other than there is a new body style. I didn’t feel like it would send the right message to my employees either. I walk about how we like to save money and be frugal as a company.
Honestly next year around this time I will get a new truck because my current one will have 100k miles on it. Being in the construction industry and owning a company I feel like it is important for me to drive a nice truck, but getting a new one every year like some of my competitors is just wasteful. My 2017 GMC 2500 Denali is a nice clean truck and having a new 2020 wouldn’t change anything.
On another note when I looked at the math of a used truck and new one, buying used didn’t make sense with all the driving I do. But I love buying used luxury vehicles and might get myself a weekend car someday. My wife’s new car will only cost 60k for a 120k sticker with 30k miles. It’s a deal in my mind
Such a timely post for me. Over the weekend I hit 200k miles in my 2003 honda accord that I’ve had since college.
I was so proud of the moment I recorded it along with my son in the back seat!
I’m in sales and as much as it hurts my ego I still show up in this car to take my customers out. However, I have rented cars for sales calls ONLY after I have previous shown up in my humdinger.
Customers appreciate that I regard them highly enough to rent a nice car to take them out in.
Cant agree more. Our Show car is the M4 and dough car is an Odyssey!
You must be nuts, make 200k to 250k a year and dont recommend a car that you want? What’s the difference from paying $350 $800 or $1200 if you make 15k or more a month. Not everyone lives in New York and san francisco…
I make $650-700k/year in the SF Bay Area but I can’t imagine paying $1200/month on a car. $900 is a few nights at Hyatt, or one night at an ultra luxury pool villa. Burning that much money every month just so that I can drive / own a slightly nice car doesn’t seem right. Not to mention that $10k/year will make a huge difference to your retirement fund over 10-20 years (it can shorten your retirement by 1-2 years!)
I’m in the process of buying a new car but I’m so taken back by the prospect of having to shell out $40-50k to get an entry level luxury car when a basic Toyota Camry provide the same utility.
The more I earn & save money, the more I realize the uselessness of spending so much money on a car.
It is true, I am a nutty guy. But at least I’m financially free. The difference between $1,200 and $350 is $850/month.
What is your income and cost of the car you drive?
Great post, Sam! My husband and I are about $300,000.00 household gross income family. No kids. We drive one car, dough car, which is a 10 year old Prius. 140, 000 miles strong and going. Three years ago, we sold our convertible Mini Cooper S because having an extra car when we only needed one car seemed wasteful. Best decision, ever!
My dough car is a 2016 Jeep Grand Cherokee 4×4 with the Hemi V8. Before you laugh, keep in mind I haven’t had a car payment in 8 years as my work pays for my car payments. Prior to the Jeep I drove two BMW’s.
Haven’t decided what my show car will be, but once I purchase a home in Montana to relocate and the Jeep is paid off, I’ll purchase my show car. Haven’t decided what though, but it will be luxury as sportscars are way too much maintenance, uncomfortable on long trips, and too low to the ground.
My dough car is a 2006 4Runner with 165k miles. I plan on driving it to 300k.
I bought my show car for way cheaper than my dough car… 74 Datsun 260z.
Gets plenty of looks everywhere I go. Who says the show car has to break the bank? I went on a canyon cruise in Los Angeles with my Lambo buddy. The Z got more attention than the Lambo sitting right next to it ;)
For your ‘show’ car, would you recommend private plates? So that people can’t tell how old the car really is?
I understand this is also a rather strange request, but would you consider doing an article on private jets? Something entitled “Becoming Financially Free- Private jet, Yay or Nay?” I think this article would be great!
I would personally love to see your opinion on it!
Would love this as well.
Thank you! I’ve been preaching this for years to my friends. My dough car is a 12 year old VW and I still enjoy driving it. Yes, it sticks out like a sore thumb in my company’s parking lot (even my boss tells me to get a better car), but I can freely park it anywhere I want, especially when we go to rougher parts of town.
Great post. I purchased a 2015 Toyota Camry Hybrid nearly a year ago (with 90k miles) and plan on keeping that as my only car until the wheels fall off.
The price fit below the 1/10th rule, even before I knew that existed. Now at 110k miles, I find myself driving less than the first year, and the loan will be paid off in six months.
I drive 50 miles to and from work each day so hunted down an economical dough car. Spent £2,500 on a 2003 Audi A2 that had done 80,000 miles. It gets 70 MPG and I love it.
Having the show car for weekends actually makes the whole thing more palatable from an emotional stand point to me. It goes from, “this is all I can have” to “this is what i have chosen to have”. I think this only applies to those who care about cars though.