Can I afford this car?

**Ima saver** · 04-03-2010, 11:46 AM

Too bad you were not on here sooner. I just traded my 2004 (loaded)corvette (red) with extra glass top in on a 2010 red vette. I am a little old lady who has never driven over 5o mph, so the car was well taken care of. I am a corvette lover too. I have a 1978, purchased new, (blue tue tone)a 2008 yellow vette with 8000 miles and I got a new red one on St. Patty's day. I believe the dealership is selling my old vette for $21,000. My husband's motto is" Life is too short to drive an ugly car"
I say go for it!

**creditcardfree** · 04-03-2010, 12:17 PM

What percentage of your income are you contributing to your 401k?

**tsubouzuke** · 04-03-2010, 12:32 PM

My employer will contribute 5% of my salary. Also, I may put a couple hundred additional in per month.

**creditcardfree** · 04-03-2010, 12:38 PM

What percentage of your gross salary is a couple hundred a month? You should not rely on your employers contributions only. At the minimum, you should be saving 10% of your gross income for retirement. The earlier you establish this habit the better. If you save 10% and there is still room in your budget for this car then you can probably afford it. We can give better advice if you list more of your expenses and debt.

**tsubouzuke** · 04-03-2010, 12:42 PM

I will save at least $500 (9%) per month from my salary in addition to my employer's 401k contribution. I will split that money between the bank and 401k, but I am not sure how much yet.

My wife also works now and earns an additional $2300 per month after taxes, which we are saving. She will however, quit her job in September, but by that time we will have 20K in the bank and her first year of tuition saved.

We also have no other debts. No credit card balances, no student loans, etc.

**disneysteve** · 04-03-2010, 12:44 PM

Originally posted by tsubouzuke View Post

I plan to put 6k down and have a payment of $500 per month for 60 months.

My employer will contribute 5% of my salary. Also, I may put a couple hundred additional in per month.

If you have to finance for 5 years, you can't afford it.

If you aren't putting a minimum of 10% of your gross into retirement savings, you can't afford it.

I'd say you are getting in way over your head if you buy this car.

**tsubouzuke** · 04-03-2010, 12:51 PM

"If you aren't putting a minimum of 10% of your gross into retirement savings, you can't afford it."

please see updated post. I will save 9% + the 5% from employer.

"If you have to finance for 5 years, you can't afford it." That is a point to consider. What should be the maximum finance length?

Wow, I thought at 85k per year I could easily afford such a car. It always thought that money would go farther than it does... I had a car salesman tell me that I could afford a 35k car on a 60k salary. Sounds like he was trying to sell me a noose...

**tsubouzuke** · 04-03-2010, 02:00 PM

Doesn't contributing to a 401k reduce my taxes? Can someone explain to me how that works?

**creditcardfree** · 04-03-2010, 02:15 PM

Yes, contributing to your 401K reduces the amount that is reported in Box 1 on your W2. This is also the money you report on your income tax return, the line you report your wages on. Take a look at your current tax return that you recently filed or are about to file. The taxable amount of income after deductions and exemptions is shown on Box 43 of the 1040.

Then take a look at the income tax brackets at here to see where you fall for taxes. The rates will be similar for 2010, but feel free to google those. If you fall into the 15% tax bracket, then for every $1000 you contribute to your 401K you will shave $150 off your total tax.

Contributing to your 401K also changes how much money is withheld from your paycheck for taxes. You can find online calculators to see how changes will affect your net income. One is called paycheckcity.com.

We earn about the same as you and we have nearly a $500 car payment on a five year note...so likely you can afford it, but the quicker you pay it off the better. Ours will be paid off in t2.5 years after the original purchse. The main point I think is to make sure that you don't make a habit of buying large depreciating assets just because you can afford it. The more you can invest the better.

**disneysteve** · 04-03-2010, 02:22 PM

Originally posted by tsubouzuke View Post

please see updated post. I will save 9% + the 5% from employer.

$500 is 9% of take-home. The recommendation is to save at least 10% of GROSS. The actual goal is 15% of gross.

The formula you will often see used here is 50/30/20. That is 50% of income to needs, 30% to wants and 20% to savings. Of that savings, it is 15% to retirement and 5% to other saving needs like vacations, cars, home repairs, etc. It doesn't sound like you are close to this guideline.

"If you have to finance for 5 years, you can't afford it." That is a point to consider. What should be the maximum finance length?

Personally, I'd say 36 months. Some will say 48 months but I tend to be pretty conservative when it comes to taking on debt for luxury purchases. Yes, you need a car but you don't need a $28,000 sports car. A $15,000 sedan will meet your needs just fine. Anything beyond that goes in the Wants category IMO.

Wow, I thought at 85k per year I could easily afford such a car. It always thought that money would go farther than it does... I had a car salesman tell me that I could afford a 35k car on a 60k salary. Sounds like he was trying to sell me a noose...

Taking affordabiity advice from a car salesman is like taking mortgage advice from a banker and you see where that got people. If a salesman tells you to spend more than 50% of your income on a car, turn and run away.

Keep in mind that you DO NOT earn $85,000/year. You earn $67,200/year. You only get to spend what you bring home after taxes.

Originally posted by tsubouzuke View Post

Doesn't contributing to a 401k reduce my taxes? Can someone explain to me how that works?

Yes, the money that you contribute to the 401k is not taxed as income. If you earn 85K and contribute 6K to the 401k, your taxable income is 79K. if you are in the 25% bracket, you save 25% of 6K or $1,500. Of course, when you withdraw that money in retirement, it does get taxed then.

**maat55** · 04-03-2010, 06:43 PM

I think you are putting the cart before the horse. How much EF do you have? How much other debt do you have?

I agree with Steve, 3 years is tops(personally if you do not have the cash and would not be willing to write that check if you had just enough, you can't afford it).

You should prioritize your retirement and housing before a car.

**wincrasher** · 04-06-2010, 07:33 AM

Just price tires for that car and you may change your mind. Cheap insurance on a Corvette? Are you serious?

Save more money. Get your wife thru school. If you don't start having babies, then maybe think about a cool car.

**feh** · 04-06-2010, 10:45 AM

Originally posted by wincrasher View Post

Just price tires for that car and you may change your mind. Cheap insurance on a Corvette? Are you serious?

Save more money. Get your wife thru school. If you don't start having babies, then maybe think about a cool car.

+1

You shouldn't spend that much on a want, and that's what the Corvette is. Save money and be frugal, and you may be in position to buy a frivolous sports car someday.

PS - never, ever take financial advice from somebody who's trying to sell you something.

**disneysteve** · 04-06-2010, 10:50 AM

Originally posted by wincrasher View Post

If you don't start having babies, then maybe think about a cool car.

A few years ago, a friend of ours bought himself a Porsche, real sleek turbo Boxster. His wife complained that it only had 2 seats (they have 2 kids). I asked if she knew why he bought a car with 2 seats. She said no, why? I said because they didn't have one with only 1 seat.

Can I afford this car?