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    New (used) car - stupid idea?

    Hi All,

    After spending a couple hours reading through a handful of threads - I decided to share.

    So, I'm 29 and not in a great financial position. I'd like to figure out what I can spend on a used vehicle. I should be able to get $7K out of my current car.

    Here's a snapshot of where I am:

    Income: $70-80K (variability due to commission)
    Cash Savings: $4K (unfortunate personal circumstances led to a big loss here, nevertheless I'm at $4K)

    Debt: $60K student loan @ 3.2% ($411 /mo.)
    No CC Debt

    Living Expenses: approx $1,500 /mo.

    I assume the first question is: what is wrong with my current car? It's a '05 Scion tC with 120,000 miles on it (had it for 6 yrs). Great shape, no problems, accidents, etc. and I have a buyer lined up. There isn't anything wrong with it, but it's a little small for me and having a two door increasingly becomes less practical.

    That being said, I've been thinking about a next car, but first I want to understand what makes sense financially. I go back and forth on what I should do. I take care of my stuff and like to buy my larger ticket items (cars, furniture, etc.) for the long-term. So, I want to get a car that I'll be happy to hang on to for the next 6-8 years.

    The vehicles I am interested in are between $20-25K. It feels like too much, but again, I don't really know and I'm thinking about the next 6-8 years. I'm fairly career oriented and plan on an increasing income this year and in the coming years.

    I'm not in a rush to do this. I'm going about it slowly and trying to make sure I do it right...

    Anyway, any thoughts are appreciated...

    #2
    current car paid off? if so...keep driving it and save the "payment" in your own investment of your choice.
    Gunga galunga...gunga -- gunga galunga.

    Comment


      #3
      Originally posted by qbcincy4 View Post
      I assume the first question is: what is wrong with my current car?
      Well that would be one of my 1st 2 questions. The other being: what does your financial picture look like?

      You have next to no savings. No emergency fund (EF), no amount saved for down payment/cash offer, no retirement (nothing posted at least).

      A $20-25k car is a luxury item. It honestly is. Your car works fine. No technical problems, just don't like that it's two-door. A $20-25k car will lose a lot of its value over the next 3 years.

      So you are going to make an investment guaranteed to lose like $10k in 3 years, but aren't making any investment towards your own retirement?


      Step 1: get personal financial picture in order first. EF of 3-6 months expenses in cash. Retirement savings on track (by age 30, you'd expect .6-1.0x your salary to be considered adequate pace).

      If the 4-door issue is a major concern, get a $7k 4-door car by selling your current one to pay for it. Once the rest of your picture is in line, then you can consider a splurge luxury purchase.
      Last edited by jpg7n16; 04-22-2012, 02:38 PM.

      Comment


        #4
        Thanks for the feedback. To answer a couple of the questions presented so far:

        IRA is sitting at just over $20K.

        I'd put down the $6-7K from the sale of my car now, which is paid off.

        I'd like for this to happen by the spring of '13. At this point, I'm able to sock away about $1K per month into savings. So my savings from this point forward, should start to look better and better. Ideally, I'd like to put $10K down on a car between the sale of my car and some savings.

        I don't believe the general statement is true...that every $20-25K vehicle is guaranteed to lose $10K in value in three years.

        Nevertheless, your point is well taken. I definitely need to have the EF locked down before I think about doing anything.

        Comment


          #5
          Originally posted by qbcincy4 View Post
          I don't believe the general statement is true...that every $20-25K vehicle is guaranteed to lose $10K in value in three years.
          That's very true. How much do you expect the one you have in mind will lose over that timeframe?

          Obv $10k won't happen on every car, but my estimate isn't too crazy:

          2012 Ford Taurus SEL on Autotrader: $25,000 (Autotrader Results)
          2009 Ford Taurus SEL on KBB.com w/ 36,000 miles, excellent condition: $14,025 (KBB: 2009 Ford Taurus)

          And I didn't hand pick this scenario. Searched autotrader for 4-door sedans in my area between $20-25k, ran with the first search result. 3 year loss in value of approx. $11k.
          Nevertheless, your point is well taken. I definitely need to have the EF locked down before I think about doing anything.
          I agree. If you can build up the EF first, then it's not as bad - but consider a cheaper car. Something in the $10-15k range. The exact amount they lose is debatable, but they sure don't go up in value The less you have invested, the less you lose.

          I'm glad to hear you are building an IRA. Definitely a step up from $0 in retirement savings. Do you have a 401k as well?

          Comment


            #6
            Maybe I'm missing something - but are you saying that any car (new or used) will drop in value like that over a 3 yr period?

            A few things I should probably add:

            -In my career (sales), I am to a point where I have to transport clients and potential clients at times. Recently, I am beginning to feel that I can leave a better impression on clients driving a different vehicle.

            -I know what car I want at this time. For the last month or so, I've began my due diligence relative to good/not so good values on the used market. I plan to buy from a private seller - and don't have a timetable to buy. Hopefully I can find a great deal having done my due diligence and taking my time (all the while I'll be adding to my savings)...

            -I'm driven, committed to my career, etc. That being said, I tend to justify this purchase when it's probably a move that is premature to make at this time.

            I'm glad to hear you are building an IRA. Definitely a step up from $0 in retirement savings. Do you have a 401k as well?
            I do not.

            Again, appreciate the help and response jpg.

            Comment


              #7
              Originally posted by qbcincy4 View Post
              Maybe I'm missing something - but are you saying that any car (new or used) will drop in value like that over a 3 yr period?
              No.

              Originally posted by jpg7n16 View Post
              Obv $10k won't happen on every car
              The point I'm making is that you really need to consider how much your car will fall in value during the timeframe you own it. And it can be faster than many people think. $10k in 3 years is not out of the question.

              Generalities I'm basing my opinion on:
              - The more you pay for a car, the farther it has to fall.
              - The newer the car, the faster it falls.
              - The more you drive it, the faster it falls.

              All those things can easily cost a couple thousand each year.
              Originally posted by qbcincy4 View Post
              A few things I should probably add:

              -In my career (sales), I am to a point where I have to transport clients and potential clients at times. Recently, I am beginning to feel that I can leave a better impression on clients driving a different vehicle.
              Well that could be. But how much of an impression difference will a $25k car make over a $10-15k one? What amount does that translate to in commissions per month/year?

              I have an '06 Accord. Worth about $11k right now. It's clean, well kept, and my friends/family like it just fine. You can make a good impression by taking care of it.

              If a salesperson had to drive me to a location, here is what I would expect from the car:
              - that it not be beat up, dented all over, rusty, dingy, missing mirrors, etc.
              - that it be clean, inside and out
              - that it not be absurdly expensive
              - that it be sensible/professional (no lowriders, tie-die bugs, etc.)

              If he was driving a new Benz, I would think he was successful as a salesperson, but I would also think he's a bit irresponsible with his wealth. That's my viewpoint. Maybe your client thinks like me, maybe they don't. But I don't think your car alone will not make the sale.


              I understand the need for a reliable, professional car. Especially when you're driving potential clients. I just don't see enough benefit to offset the cost. Which you as a salesperson could easily identify as - I'm not sold on the $25k car

              I mean, how much of your net worth do you want tied up in an asset that's going down in value? With a $25k car that would be more than your current savings and IRA combined.

              Comment


                #8
                If you need a sedan (4 door) car to do business, then you should be able to pick up a gently used (2 to 3 years old) model that will more than meet your needs and impress your clients just fine.

                I would continue saving until you can pay cash for it. $1K a month saving plus your car worth around $7 are the numbers you gave.

                You basically have endless choices of vehicles. I wouldn't worry about luxury vehicles. No one is going to care about that. Honda Accord, Toyota Camary, Hyundai Sonata, Nissan Altima, Ford Fusion, Chevy Malibu, Kia Optima, would all be fine choices, and you can pick up a used model of any of them for less than $20K. Save for a year, then take that money pluss the money that you get for selling your current ride and you will own it outright. Impress your clients by telling them that you don't have an auto loan.
                Brian

                Comment


                  #9
                  Originally posted by qbcincy4 View Post
                  I'd like to put $10K down on a car between the sale of my car and some savings.
                  If you can "put down" 10K, then you should be shopping for a car that costs 10K, not one that costs 20-25K.
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                    #10
                    Ok guys - disneysteve, bjl584, and jpg7n16,

                    Thanks for the advice. Points well taken. As I mentioned, I think I'm getting a couple years ahead of myself.

                    ...the saving shall continue.

                    Comment


                      #11
                      Originally posted by qbcincy4 View Post
                      Ok guys - disneysteve, bjl584, and jpg7n16,

                      Thanks for the advice. Points well taken. As I mentioned, I think I'm getting a couple years ahead of myself.

                      ...the saving shall continue.
                      That would be the best strategy that you can take. Make due with your current car, then continue to save and buy when you are ready.
                      Brian

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