Need financial advise

[newguy]

Hello,

I'm looking for some advice and I hope this is the right place. Okay here's a short summary of myself.

I'm still in my early 20's. I'm originally from Asia and fresh out of college (supported by my parents). We moved here in Los Angeles not so long ago. I have no debts and I still live with my parents (but I pay the electricity, gas, and internet and food). I take home around $2900/month in my current job (i know its kinda low) but I literally started from zero. I managed to buy a cheap old car and things I want like computer, cellphone etc. and now I have around $7.5k savings (it was $10k but I just went on an important family vacation) and I have what I need and I don't need to buy anything right now.

I really want to move and buy a new car but I'm not really good in finance. I was thinking of getting a cheap studio around maybe $750 and loan a car around $25k for maybe like $400/month, and I know my insurance would go up. This is what I wanna do.

salary of $2900/month

200 - food
200 - gas
200 - car insurance (estimate for a new car)
400 - car payment (estimate for a new car)
30 - gym
750 - rent (estimate for a new place)
150 - tv/internet/phone (estimate for a new place)
100 - utilities (estimate for a new place)
150 - electric/gas (estimate if I have my own place)
x - misc (if I need to buy or spend money I can just use a percentage from the savings or use my current savings)
25% percent savings goes to savings

Am I doing well right now? Would I be able to support myself, afford a place and a car? Any help would be greatly appreciated. Thanks in advance.

[disneysteve]

I take home around $2900/month

loan a car around $25k for maybe like $400/month

Let me start here.

Nope. You can't afford that car. Your payment should not exceed 10% of your monthly take home and should be for no more than 3 years. That would have you borrowing somewhere around 10K max.

Just as a comparison, I earn three times as much as you and bought a "new" car a few weeks ago. I spent $16,000, put down $5,000 and borrowed the rest.

[newguy]

Thank you Steve.

I've been researching for a while now, I really want to replace my car. I can buy a used one but I don't know any mechanic and I don't know anything about cars. I just want to be comfortable and have a reliable car which is why I want a new one (I'm driving a 97' with 175k miles and its giving me a lot of problems).

The reason I'm asking if I can afford a $25k cause I have 2 friends who bought a brand new car and I don't see any problem and my income is higher.

You are right, some people says monthly payment should be 10% of your net income per year, I can pay around $348/month in 3 years, so if that is the case, I can afford around $13,500 according to Edmunds.com and If can I find a promo with low apr or even 0% apr, I can definitely afford a brand new one. I can afford a $16,500 if I choose to loan it for four years. My best option is to find a used car but as I said, I'm kinda scared to buy a used one.

As for the rent, Does $750 - 1000 sounds good with my current income?

[disneysteve]

I can buy a used one but I don't know any mechanic and I don't know anything about cars. I just want to be comfortable and have a reliable car which is why I want a new one (I'm driving a 97' with 175k miles and its giving me a lot of problems).

I bought a Toyota Certified Used car. I replaced a 1998 with 155K miles that was giving me problems so I know exactly how you feel. I stand by the advice to keep the payment less than 10% for 36 months. You don't need a new car and you can't afford a 25K car on your income regardless of what ill-advised things your friends are doing with their money.

As for the rent, Does $750 - 1000 sounds good with my current income?[/QUOTE]
Yes. Housing should be no more than 28% of income so in the $800 range is reasonable.

[breathemusic]

Newguy... my biggest concern with you buying a new car at such a high cost is not so much whether the math in your estimates works out... so much as how will your budget work out in real life.

Are you planning to buy the new car before you move? Or while you're moving? I wouldn't commit to any sort of car payment until you already have moved and settled into your new place. What if the only place that you can find that works for where you want to live is at the higher end of your range? What about furnishings and all the basics for your first place? Dishes, linens, cook-ware, furniture? Moving to a new place, especially your first place costs money. The last thing you wanna do is buy a car first and lock yourself into a high car payment, and then when you finally move realize that you're eating PB&J sandwiches for 3 meals a day (or just not eating 3 meals a day) because you're so strapped for cash and mis-estimated your costs.

For example, if you have your own place, you really should consider renters insurance. It's not expensive, but it's still a small cost that is easily overlooked when planning a budget. I'm sure there will be plenty of other things that you don't think about until they happen. Or even just one-time expenses with getting settled into a new place. I'd suggest continuing to save up until you find a place to live, then move, and after you're settled in and have a better idea of what your ACTUAL budget is, then figure out the car situation.

Or if you really need a car that quickly, you're better off going with a much more conservative estimate for what your car payment should be.

[disneysteve]

salary of $2900/month

some people says monthly payment should be 10% of your net income per year, I can pay around $348/month

By the way, how is $348 10% of $2,900? By my math, that would be 12%.

[newguy]

Newguy... my biggest concern with you buying a new car at such a high cost is not so much whether the math in your estimates works out... so much as how will your budget work out in real life.

Are you planning to buy the new car before you move? Or while you're moving? I wouldn't commit to any sort of car payment until you already have moved and settled into your new place. What if the only place that you can find that works for where you want to live is at the higher end of your range? What about furnishings and all the basics for your first place? Dishes, linens, cook-ware, furniture? Moving to a new place, especially your first place costs money. The last thing you wanna do is buy a car first and lock yourself into a high car payment, and then when you finally move realize that you're eating PB&J sandwiches for 3 meals a day (or just not eating 3 meals a day) because you're so strapped for cash and mis-estimated your costs.

For example, if you have your own place, you really should consider renters insurance. It's not expensive, but it's still a small cost that is easily overlooked when planning a budget. I'm sure there will be plenty of other things that you don't think about until they happen. Or even just one-time expenses with getting settled into a new place. I'd suggest continuing to save up until you find a place to live, then move, and after you're settled in and have a better idea of what your ACTUAL budget is, then figure out the car situation.

Or if you really need a car that quickly, you're better off going with a much more conservative estimate for what your car payment should be.

Thank you for your reply. Everything you said is right and its actually on my thought. I will buy my car after I move to a new place. I would probably follow Steve's advice and maybe just get a certified used one.

By the way, how is $348 10% of $2,900? By my math, that would be 12%.

Oh, what I mean is per year, so 10% of my income per year is around 2900 x 12 = 34800 x .10 = 348 per month. If it is 10% of my income per month then it should be 290 per month. Do I need to have a mechanic if I buy a certified used?

[newguy]

Hi, I have another question, the recommended is 10% of income for car payment and loan should be 3 years or less. What if it is 0% apr? Does the standard formula applies?

[disneysteve]

Oh, what I mean is per year, so 10% of my income per year is around 2900 x 12 = 34800 x .10 = 348 per month.

No, 34,800 x .10 = 3,480/year. Divide that by 12 and you've got 290/month.

Hi, I have another question, the recommended is 10% of income for car payment and loan should be 3 years or less. What if it is 0% apr? Does the standard formula applies?

10% of your income is 10% of your income. If the loan is at 0%, that 10% might buy a little more car. If the rate is 5%, that 10% will buy a little less car. It probably won't be a significant difference. You also are unlikely to find 0% on a used car. I just paid 2.9% on my purchase.

How is your credit? In order to get those great rates they advertise, you need sterling credit.

[newguy]

No, 34,800 x .10 = 3,480/year. Divide that by 12 and you've got 290/month.

10% of your income is 10% of your income. If the loan is at 0%, that 10% might buy a little more car. If the rate is 5%, that 10% will buy a little less car. It probably won't be a significant difference. You also are unlikely to find 0% on a used car. I just paid 2.9% on my purchase.

How is your credit? In order to get those great rates they advertise, you need sterling credit.

Oh got it. I miscalculated cause I'm kinda busy with work right now.

You are right, if I follow the 10% income, I can only buy a car worth 10k in a 3 year loan. I'm pretty sure its near impossible to find a certified used one worth 10k.

I like the idea of 10% income, but in my case, I don't have any debts, student loan, etc. I have a little savings for emergency and I can make a downpayment of around $5k when I decided to buy a car probably after September.

I've done my research, I search and read a lot of stuff. I think I will be comfortable paying approx 12.9% ($375) of my monthly income for a car. My credit is not so good probably around 700 only.

If I can pay 375/month in a 4 year loan, I can buy a brand new car worth $16 to $19k max. I calculated using Edmunds.com and I used 7% APR as national average.I think I can do that but breathemusic is right, I should find a place first, then if I feel that I can afford it, then I will buy a brand new. If not, then I'll probably buy a certified used one. You are also right and I really appreciate your reply. I hope I'm doing the right thing though. Again, thank you for your advice.

[disneysteve]

You are right, if I follow the 10% income, I can only buy a car worth 10k in a 3 year loan. I'm pretty sure its near impossible to find a certified used one worth 10k.

I can make a downpayment of around $5k when I decided to buy a car probably after September.

I just bought a Certified Toyota Camry XLE V6 fully loaded with all the bells and whistles, moon roof, leather seats, wood trim, very low mileage (26K). A fairly high-end car for $16,000. I'm quite sure with a 5K downpayment and a 10K loan, you would have plenty to choose from in the 15K price range. You'll get a lot more car buying used for 15K than you will buying new for 16-19K.

[newguy]

I just bought a Certified Toyota Camry XLE V6 fully loaded with all the bells and whistles, moon roof, leather seats, wood trim, very low mileage (26K). A fairly high-end car for $16,000. I'm quite sure with a 5K downpayment and a 10K loan, you would have plenty to choose from in the 15K price range. You'll get a lot more car buying used for 15K than you will buying new for 16-19K.

You are right. I think I'm gonna go with a certified used, but do I have to bring it to a mechanic before buying? I just don't want any problem and I'm not sure if all certified are good. I don't know any mechanic either. I searched online and I found 4 vehicles under 15k that I like. Mazda6 2009, Honda Civic 2010, Ford Mustang 2007, Nissan Altima 2011. I'm not sure if I will buy right now or should I wait til I got a new place. Thanks for your help Steve.

[disneysteve]

You are right. I think I'm gonna go with a certified used, but do I have to bring it to a mechanic before buying? I just don't want any problem and I'm not sure if all certified are good. I don't know any mechanic either. I searched online and I found 4 vehicles under 15k that I like. Mazda6 2009, Honda Civic 2010, Ford Mustang 2007, Nissan Altima 2011. I'm not sure if I will buy right now or should I wait til I got a new place. Thanks for your help Steve.

I would wait until you're settled and have a solid idea of your monthly expenses.

As for the mechanic, it certainly isn't a bad idea. Honestly, I did not get mine checked independently but I bought it from a dealership that I've been dealing with since 1994. I trust them and I got an extended bumper to bumper warranty so if anything is wrong, they're going to have to fix it anyway.

[newguy]

I would wait until you're settled and have a solid idea of your monthly expenses.

As for the mechanic, it certainly isn't a bad idea. Honestly, I did not get mine checked independently but I bought it from a dealership that I've been dealing with since 1994. I trust them and I got an extended bumper to bumper warranty so if anything is wrong, they're going to have to fix it anyway.

Again, thank you Steve for your help.

I found a really good deal on the Internet and talk to the guy, I'm really tempted to buy it. Its a certified 2009 Mazda 6 with only 13,000 miles for only $14,000 out of the door. The brand new is around $23,000, I mean, for a certified with a low mileage, that's a steal for a 3 year old car. And its actually on my top 5 for cars over $20,000, kind of a dream car.

favorite in order
1. Camaro
2. Mustang
3. Charger
4. Mazda 6
5. Kia Optima

Anyway with that price, I can make a fair downpayment and loan $10k, which is fine in my budget. And I will still have a little bit of savings for emergency purposes. I will probably test drive the car and if they can give me a good deal, then I will buy it, it is a really good deal in my opinion.

[newguy]

I ended up not buying the Mazda6, I was wrong it was $14,000 + tax so it would be around $15,400 out of the door. I really like the car though, I test drive it, Love the color and everything I'm looking for. It was like a brand new with only 13,000 miles with 1 year bumper to bumper warranty and 7 years/100,000 miles powertrain warranty, 24 hour road assistance etc. But you guys are right, I don't think I wanna loan a huge amount of money. I kinda regret not buying it but I will try to find another car.