Anyone who thinks truck affordability is just a question of price needs to shift their brain into high gear.
Long before trying to determine how much truck you can afford, you should be asking if this type of vehicle is even the correct choice for your lifestyle. Trucks make sense for contractors or people with hauling needs. But if you are choosing a truck as a fashion statement, you need to understand the extreme costs associated with that choice. Used trucks also need to be especially scrutinized due to the likelihood of past wear. And truck owners tend to over emphasize the value of a particular brand, when in reality market factors mean the brand itself is largely irrelevant.
Before we consider the question of how much truck you can afford, let's first explore if a truck is a reasonable choice.
Is a Truck the Right Choice?
Determine how you use a vehicle for the majority of the time. Many drivers spend 1 hour or less per day in their vehicle. If that sounds familiar, you should realize that means your car will be idle 96% of the time. Idle - as in doing nothing but waiting to be driven somewhere. If your car is going to be in use for 4% of each day, then the work it completes had better be pretty important. If that work is driving you to and from your office, then the extra cargo room - and gas you will burn to haul it around - is an extreme waste of money.
Is the truck going to be used for weekend projects as well as weekend getaways? It may make more sense to purchase a van that can handle a 4 foot by 8 foot sheet of plywood. That way, you can have the space you need for project materials as well as have your passengers ride in comfort when your driving to your weekend getaway.
Is your truck going to be used to haul heavy loads? For example, a boat you have on a trailer that you take to the lake on weekends? If so, it may be that the frequency of these trips makes it logical to get a truck for recreational purposes. After all, trucks are built with commercial use in mind, so hauling a boat is like second nature.
Do you have the opportunity to write off a portion of the depreciation or mileage on the truck as part of your employment situation? If so, you will need to factor those considerations into how affordable a truck can be based on the reduction those tax credits will have on your take home pay. For some, that benefit will significantly change truck affordability.
Will You Purchase New or Used?
Many buyers will avoid used cars due to the risk that the previous owner mistreated it. After all, that thinking goes, if someone is selling it, there's probably a reason why. In reality, that reason is most often based on financial motives - like selling a car to pay off a debt - not because the car or truck is a lemon.
Having said that, buyers of used trucks have good reason to be skeptical: trucks are often driven hard. Hauling, heavy loads, and even off road use can all cause wear and tear and result in future repair bills.
Like all cars, trucks depreciate quickly after they are driven off the lot. However, truck depreciation slows after the first 30% is lost, and hold they their value well over time.
Do You Have "Brand Allegiance"?
If you are a Ford Man, just like your Daddy and his Pappy before him, then this really becomes a more specific question: How much Ford truck can you afford? With truck manufacturers competing as fiercely as they do, brand allegiance may mean you are setting yourself up for a worse deal than you would get on an otherwise equal truck from a competing brand.
Of the 69.3% of light weight vehicles sold in the United States that qualify as pickup trucks, the division among the big three of Ford, General Motors and Dodge is fairly even at 45%, 30% and 25% respectively. That division of sales indicates that all three manufacturers compete strongly for sales of this category of vehicle. The odds of one manufacturer having a radically different feature set than any of the others is very slim: Ford, GM and Dodge all clearly understand the desires of their customer base.
Trucks Should Never Be a Fashion Accessory
The average price of gas in the United States is $2.96 per gallon. In some states, the price will be lower than $2.96, and in some it will be higher. In the case of California, the price is significantly higher than the average with a price of $3.69 per gallon. Gas prices have been trending up consistently for the past 2 years. Buying a truck based on the assumption that gas prices will continue to average at today's prices will result in disappointment down the road. Gas prices will very likely continue their upward ascent.
According to data from FuelEconomy.gov, pickup trucks have a combined EPA Fuel Economy ranging from a low of 14 miles per gallon for a 2018 Dodge RAM 1500 4WD to a high of 25 miles per gallon for a 2018 Chevrolet Colorado 2WD. Compare those numbers with those for family sedans with a conventional gasoline drive-train: the low end of the range is a 2018 Ford Fusion AWD at 20 miles per gallon to a high of 2018 Toyota Camry at 34 miles per gallon. The impact you'll feel at the pump is significant if you drive a pickup truck. The average annual estimated fuel costs are $2,625 with a pickup truck versus $1,825 for a family sedan. That's a difference of $800 a year, based on today's prices.
And we didn't even consider hybrid or electric vehicles. Fuel efficient drive trains have yet to really make in roads into the pickup truck segment. There are no pure electric pickup trucks for sale in the United States, and just 4 hybrid models. Although it is positive to see attempts being made to improve fuel efficiency in pickup trucks, the numbers so far are less than impressive. Hybrid pickup trucks achieve between 18 to 20 miles per gallon, which is actually a lower number than some conventional gasoline pickups.
Compare those numbers with options available to sedan drivers. 16 vehicles in the family sedan segment have hybrid or electric dive trains. And in this segment, the numbers are pretty staggering. A 2018 Toyota Prius Prime gets 133 miles per gallon. Even the bottom performer in this category is fairly efficient: a 2018 Build LaCrosse eAssist averages 29 miles per gallon.
So How Much Truck Can I Afford?
In How Much House Can I Afford in 2018, we introduced the notion of a homebuyer's profile. Within that profile, transportation costs were set at 6% of your take-home pay. Insurance was broken out as a separate item within that profile, but was intended to cover both home and auto insurance. If we split the difference, we can assume you will devote 3% of your take home pay to auto insurance, resulting in a total amount available for your truck to equal 9% of your take-home pay. Assuming your only vehicle is a new pickup truck, we can calculate the amount it can reasonably cost you per year, without impacting your ability to meet your other financial obligations.
If your take-home pay is $50,000 per year, 9% of that amount is $4,500, or $375.00 a month. Given that in some cases, gasoline costs alone will take up $3,350.00 of that amount, a truck is either not affordable with a take home pay of $50K, or you are going to have to make sacrifices in other areas of your life.
Looking at this from another angle, a 2018 Dodge RAM 1500 4WD costs approximately $38,820.00. Should you qualify for a 0% financing option, over a 5 year term the costs to purchase the truck will be $647.00 per month. The estimated annual fuel costs will be $3,350.00, or $279.16 per month. Depending on where you live and your driving history, your estimated insurance premium will be approximately $1,750.00 per year or $145.83 per month.
Adding up those amounts results in a monthly cost of $1,071.99. I think you see where this is going. If you earn a take-home pay of $50,000 per year, you have just $375.00 per month to devote to your truck. Your annual budget for a truck will be consumed completely by May of each year. In order to afford a $38,820.00 truck in 2018, your take-home pay will need to be at least $142,932.00.
Now I know what you're thinking: that's ridiculous. Lots of people own brand new trucks and they don't have a take home pay of $142,932.00 per year. And in a way, I agree with you. But my perspective is this: they can't actually afford that truck. As of March 2018, the level of consumer credit outstanding in the United States totaled $3,824,000,000,000.00, or $3,824 billion. That is an increase of $183,000,000,000.00 since March 31, 2017. Clearly, many Americans are living beyond their means, and over-spending on a brand new truck is a great way to do it.
If you are not concerned about affordability, or you are willing to make sacrifices in other areas of your personal finances to purchase a truck, perhaps you can make it work on a take home pay of $50,000 per year. Otherwise, to be able to reasonably afford a new truck in 2018, your take home pay will need to exceed $142,932.00. Beyond financial considerations, you should review if a truck really is the appropriate choice for your lifestyle. With so much of the day consisting of time not driving, exceeding your spending beyond what you actually need in a car is an unwise choice.
And if you need a new accessory to compliment your look, put a feather in your cap - both literally and figuratively - by not buying a truck as a fashion statement.
Do you own or plan to own a new pickup truck? How did you adjust your personal budget to help make the purchase more affordable? Are there any tips you have for people considering a truck purchase in 2018?