Can I afford it?

[psuicyde king]

Hey guys, appreciate any help you can provide. I've been doing a ton of budgeting, consulting, reading, everything, and still haven't come to my own conclusion. Any perspective you have would be very helpful. Thanks in advance.

28 years old
Gross income 110k (decent % in annual incentive)
15% into 401(k) - currently at 25k
5500 into roth ira annually
25k in savings
No car payment, though i pay on a motorcycle
After rent and expenses, separate from retirement, I'm currently saving 2k per month (55% of net)

In the next 5 years, I do have some specific goals:
Y1 (2010) 10k expense
Y2 (2011) 15k expense
Y5 (2014) Buy a house, 100k down

The question is if I can afford a new car priced at 45k. I could, for example, put 15k down, which would mean 800/month in total cost (maintenance etc) for the car as a conservative estimate. Or I could put 5k down and budget 1000/month, or similarly, 20k down and budget 700/month.

This would leave me with about 25% monthly net savings, not including retirement savings (%s might be a little off and I add buffer here and there, creating inconsistencies).

Part of me says keep saving 50+% to set myself up further down the road, and part of me says quit being a tight a** and buy your dream car.

Again, thanks for any thoughts or comments.

[MonkeyMama]

I wouldn't buy the car, personally.

You are young and SO MUCH can happen in your future.

You can certainly splurge on something less expensive.

I would make it a goal to save up the cash, say in a decade. If things are still going so well, then treat yourself to the car.

If you could gurantee your current income and expenses, for many years, that is one thing. But if life happens!

At the least, sleep on it for a few years. IF you still REALLY want it in a few years and you have more substantial savings...

[disneysteve]

Absolutely not!

1. You are only 28 years old. You shouldn't be looking to own your dream-anything at that age.
2. 45K is a ridiculous amount of money to spend on a car. I'm 44 and earn more than you and both of our cars put together didn't cost 45K.
3. You say that a decent % of your income is "annual incentive." I'm guessing that means a bonus, meaning it isn't guaranteed that you will get it. You need to budget based on your base salary, not including bonus money.
4. Your 5-year plan requires saving up $125,000. That is just over $2,000/month for 60 months. If you blow 45K on a car, you won't meet your other goals.

By the way, you state you are putting $5,500 into your Roth. Was that a typo? The Roth contribution limit is $5,000/year.

[Pitman]

Originally Posted by psuicyde king

part of me says quit being a tight a** and buy your dream car.

I agree 100%, I say buy the car. Go enjoy the fruits of your labor.

btw, what kind of car is it, if you don't mind me asking?

[boosami]

Originally Posted by psuicyde king

Gross income 110k (decent % in annual incentive)

What's the breakdown here?

[arthurb999]

DO NOT BUY THAT CAR!

Buy a 3-4 year old certiified pre-owned something for cash...

[Inkstain82]

My rule of thumb: If you have to wonder if you can afford it, wait until you don't wonder anymore.

[disneysteve]

Originally Posted by arthurb999

Buy a 3-4 year old certiified pre-owned something for cash...

I think a mildly used model is definitely worth considering. If the car you want is 45K new, I'll bet you can get a 2-year-old certified pre-owned model for somewhere in the neighborhood of 36K or so, figuring 20% depreciation plus a premium for it being certified. If you buy from a private party, you can probably find one for under 35K. Personally, I still think that is way too much for a car, but it is a whole lot better than 45K.

[arthurb999]

Originally Posted by disneysteve

I think a mildly used model is definitely worth considering. If the car you want is 45K new, I'll bet you can get a 2-year-old certified pre-owned model for somewhere in the neighborhood of 36K or so, figuring 20% depreciation plus a premium for it being certified. If you buy from a private party, you can probably find one for under 35K. Personally, I still think that is way too much for a car, but it is a whole lot better than 45K.

I am not recommending getting a car that price either... you could get something pretty awesome for 20K certified pre-owned... I got my Lexus ES300 loaded (premium sound, navigation, etc) for 23K iwth less than 30K miles...

[feh]

This isn't so much about finances, but rather frugality. In other words, it's about mindset, not dollars and cents.

$45K is a ridiculous amount to spend on a vehicle (IMO, of course). It's a status symbol, and as such, a complete waste of money. You could have a really nice used car for $15-20K.

Save your extra cash. Money you save when you're young will grow by leaps and bounds over the years, and if you act frugally, you'll be able to retire early. If your maxed out on 401K/Roth/IRA, then open a taxable account. This is a fabulous time to buy equities.

[Merch]

Personally, I like the 2009 BMW 750 ($80k base). The issue for me is not so much the price of the car but that you aren't paying cash for it. You are talking about financing at 700 – 1,000 per month. And it sounds like a lot of your pay is commission.


In my opinion, you should pay cash for a car and also have a 3 – 6 month emergency fund.

[techguru]

Experience is the best teacher. Buy the new car (if you can afford it). If it is a bad investment (and we all know that automobiles are probably the worst investment you can make), you'll know it in due time. Keep in mind that you might eventually have kids one day...this means a potential education savings plan.

[kork13]

I'd say your best idea would be to: 1) buy the car 1, 2, or 3 years old -- there's almost ZERO luxury cars that holds its value well in the first 2-3 years off the lot, so you can get a significant discount getting something very lightly used. and 2) wait a little longer -- save up a larger down-payment, which will significantly decrease your monthly payments. Try to save up at least 50% for your down-payment.

[maat55]

Dave Ramseys rule of thumb is to own no more than 50% of your annual income on all your autos, cycles etc. combined. And only when you can pay cash.

I personally think 50% is liberal. I vote no on your request. You buying this auto under these circumstances screams vanity over sound financial wisdom.

[psuicyde king]

Originally Posted by boosami

What's the breakdown here?

25k incentive, which we've received all 5 years i've been on the job

[psuicyde king]

Originally Posted by Merch

Personally, I like the 2009 BMW 750 ($80k base). The issue for me is not so much the price of the car but that you aren't paying cash for it. You are talking about financing at 700 – 1,000 per month. And it sounds like a lot of your pay is commission.


In my opinion, you should pay cash for a car and also have a 3 – 6 month emergency fund.

Same thoughts I have, except over the term of the loan it's only 3k or so in interest. No commission, salary + company bonus.

[psuicyde king]

Thanks guys, last night I actually came to the same conclusion. I'm going to try to hit my house goal early, then save and pay cash for whatever my new dream car is!

[disneysteve]

Originally Posted by psuicyde king

25k incentive, which we've received all 5 years i've been on the job

Just because you've always gotten it doesn't mean you will always get it or that it will always be the same amount. What happens to your budget if it is only 20K this year? How about 10K? If not getting the full bonus that you expect would pose a problem, then your budget needs to be reworked to not include that bonus money.

If the bonus comes, great. Spend it, save it, do whatever you want with it. But make sure that you can still pay all of your bills and meet all of your savings goals even if the bonus doesn't come.

[boosami]

Buying that car is not going to put you in financial hardship. However, here is how I think of it...

If you had enough savings in your account to purchase that $45k car flat out, would you buy it? Or would it bother you to spend all that money on a car knowing you would have been almost as happy with a much less expensive one?

It is really easy to justify financing something you want because you don't have to front all the money. I've talked myself out of many superfluous purchases by looking at it like that.

If I'm willing to finance, but wouldn't be willing to buy flat out, it's not a good buy. I'm not trying to talk you out of it... I'm a single person and I own two expensive cars for personal use--both bought flat out--so I understand

[GREENBACK]

Originally Posted by boosami

Buying that car is not going to put you in financial hardship. However, here is how I think of it...

If you had enough savings in your account to purchase that $45k car flat out, would you buy it? Or would it bother you to spend all that money on a car knowing you would have been almost as happy with a much less expensive one?

It is really easy to justify financing something you want because you don't have to front all the money. I've talked myself out of many superfluous purchases by looking at it like that.

If I'm willing to finance, but wouldn't be willing to buy flat out, it's not a good buy. I'm not trying to talk you out of it... I'm a single person and I own two expensive cars for personal use--both bought flat out--so I understand

I like your line of thinking and operate the same way on major purchases. Writing a check for 45k or handing over 45k in $100 bills is way different than sending off 1k to some bank every month.
I don't think anyone gets this idea until they truly have to do it. You really get to see how much this guts your savings when you pay major cash like this.