Prior to the crisis of credit, banks made it easier for homebuyers to buy more home than they could afford. But at least homes had been going up in value.

A car is the most expensive asset people buy KNOWING it’s value will go down. Now car manufacturers are making it easy for people to drive cars that tie up too much income. Imagine borrowing money to buy stock in a company you KNEW was going to lose 70% of its value in 4 years?

Here are some guidelines to keep in mind in order to stay out of trouble.

1. 50% Rule

Stuff with engines should not be worth more than half our annual income. A person with an annual salary of $60,000 — the average household income in America — can afford to have no more than $30,000 worth of stuff with engines.

Stuff with engines includes not just cars, but golf carts, snowmobiles, motorcycles, jet skis, bass boats, sport boats, RVs, etc.

2. 10% Budget Rule

Budgeting for stuff with engines also should be more than 10% of a monthly budget. This includes any payment, fuel, insurance, registration, maintenance, and repairs. Whew! That’s a lot. Oftentimes people look only at the car payment only. But it takes more than just the payment to keep a car on the road.

3. The 20/4/10 Rule

This rule is similar to #2, but it includes borrowering guidelines.

The 20 is a reminder that if you are going to borrow money to buy a car, make sure you have at least a 20% down payment. This can prevent going upside-down. The 4 reminds us not to have a loan term longer than 4 years. (Fewer is okay.) And the 10 is the 10% Budget Rule from #2.

Other than that…

An increase in net worth is slowed when buying new cars. Experts say to wait until you’re a millionaire. Then you can absorb the instant loss of driving a new car off the dealer’s lot. And the experts also report that the typical millionaire drives a quality used car. They let someone else take the initial hit on depreciation.