Read a thread at the forum I frequent at everyday discussing about how much a person should make before buying an entry level luxury car. Obviously there is not much of a black and white guideline, because luxury is very subjective, but the usual consensus is that people should not purchase a car that is worth more than their annual salary. In other words, if you make $50,000 a year, then a $50,000 car is all you can afford. I do not know how logical people are, but the reasoning behind basically says it should take no more than 5 years to pay off a car by using a car loan and a person can spend 20% of his or her annual income to fund that purchase. It does sound reasonable, but then if you think about it more carefully it is not very feasible at all for an average Joe to do that. Let me explain to you why, as a veteran financial planner who have seen many people's financial pictures. The average income earned in Toronto is $38,000 a year and with personal exemption of about $10,600 then $27,400 are liable for tax at about 25% and additional 3% to EI premium and 5% to CPP contribution on the whole salary amount. Therefore, $6,850 for income tax and $3,040 for EI and CPP, so Joe is left with $28,110, approximately. Now, the rent for a dwelling in Toronto is about $1,000 a month for a single person so Joe is left with $16,100. Automobile insurance in Toronto averages about $2,800 a year, and $2,000 for gasoline so Joe is left with $11,300. Now, let us go back to a car that costs $38,000 with a 5 year term car loan at 3.8%. The after tax with freight for the car should be around $45,000. In a nutshell, Jeo will have to pay $824 a month to fund the purchase leaving $1,412 for food, entertainment, utilities, RRSP, personal savings, cellular phone, cable tv, internet, etc. There is no way a person can live in Toronto with that amount left from his salary in one year. I do not know how people do it, but there are still many people driving very expansive cars on the roads, but no matter how I calculate it the maximum amount we should spend on a car should be about 50% of our annual income, and not 100%! I guess only people who live with their parents, or they have a free place to stay would be able to afford buying a car that worths 100% of their salary per annum. I wish I could buy a new car that is worth 100% of my annual income! : )