Please knock some sense into me

[jenn_jenn]

Hey guys! So I'm a long time lurker and I have found myself wanting to spend more than I know I should, however my friends and family think I should go for it, but I know it's not financially responsible sooo I'm hoping you can please knock some sense into me.

I'm 22 and graduated college in June of last year . I went to our local UC and lived at home to save money. My parents were kind enough to cover my tuition so I graduated debt free.

I interned over the summer and in September landed a $50k/yr + bonus job. I currently still live at home (rent free) to save money. I get along really well with my parents so it's a good situation but I am looking to move out mid-summerr. My expenses are minimal and I've been able to save a decent amount.

I have $20,000 in savings

I don't know how much is in my 401k, not much since I'm just starting out but I contribute up to my employer's 5% match.

I closed my Roth IRA last year because of crazy high fees. (Approx $200/yr) I'm going to open a new account and plan to max out the contribution this year.


Net I take home $2700 a month.

Expenses:

$30 gym
$40 pet care plan
$20 pet food
$250 food/eating out
$200 gas
$100 phone and car insurance
$100 beauty


I probably spend another $200 a month on slush and "fun money". This is usually covered by side jobs not included in my income above.

I would really like to purchase a new (to me) car and have my eyes set on a 2010 Mercedes C300 which is about $20,000. I currently have a 2003 Mercedes C230 and it has been a great car. I've had it since I was 16 and put a LOT of miles on it. It currently has over 200k on the engine and will need to be replaced soon.

$20,000 is just so much money. I wouldn't buy the car until I also had at least 30 grand (so around June). This means I would have 3 months of pay in an emergency fund after buying the car in cash. Or I could finance a small portion of the car to build credit.

But I know the opportunity cost of spending that much money on a depreciating "asset" is incredibly foolish esp given my age and relatively small income. I should start saving more for retirement to maximize the benefits of compound interest. I'm also looking to going back for my Master's in two years and need to factor that cost in.

Please just tell me I'm being stupid and should not even consider this car purchase in any way shape or form! If you were in my situation, what would you do?

[disneysteve]

I love the title of your post.

Let me start by saying this:
I'm more than twice your age. I earn more than double your income. I bought my last car in July 2012 and did not spend as much as you are considering spending.

That said, is 20K a ridiculous amount? No, not really. You have no debt, low expenses, and clearly know how to save money which is all great at your age (or any age).

You are putting 5% into your 401K which is a good start. You plan to open a Roth and max it out. That will be another $5,500 or roughly 10% of income (depending on the bonus and side jobs). That would take you to 15% going toward retirement which is perfect.

That's $458/month for the Roth. Add that to the $940/month in expenses that you've listed and you're at about $1,400. You earn $2,700 (plus the side jobs - how much is that?). So that still leaves you $1,300 which can go toward rent and any new expenses that come with having your own place, as well as some additional non-retirement savings for things like vacations and such.

Sounds to me like you're in great shape. If I were in your shoes, I wouldn't personally be comfortable buying a 20K car but I think if it is something you really want, you can afford it (if we're playing Suze Orman here).

[SeanH]

Here's sort of a weird thought. The next time you are at a car dealership, Costco, or driving by a Discount Tire (or your state's equivalent) stop in and ask them how much a new tire and an oil change costs on whatever model of Mercedes you are considering buying. Nothing on cars is cheap to replace, but if I was a gambler I'd wager Mercedes tires cost more than Corolla tires.

[Nika]

Here's sort of a weird thought. The next time you are at a car dealership, Costco, or driving by a Discount Tire (or your state's equivalent) stop in and ask them how much a new tire and an oil change costs on whatever model of Mercedes you are considering buying. Nothing on cars is cheap to replace, but if I was a gambler I'd wager Mercedes tires cost more than Corolla tires.

This.

We bought a 28K new Toyota, instead of paying a little more and getting and luxury car because of lifetime maintenance cost. And we didn't want to have to buy premium gasoline.

[cardtrick]

I don't own a car and don't plan on owning one anytime soon. But, if I were to buy, I'd look at maintenance costs and fuel economy more. That said, you can get a more reliable car for cheaper. You're doing yourself a huge favor by starting to save so young. Keep at it and you will have the option to quit working when you're still young. You won't have to take crap from anyone! To me that's more valuable than a car.

[jenn_jenn]

Steve - I was definitely thinking of Suze Orman when I wrote this! My side odd jobs are so variable, but I'd guess it averages out to a couple hundred a month. Maybe a little less. I tend to justify want purchases with this money so I don't include it in my income total.

Sean and Nika - Good points! I have only ever known these expenses as my current car is a Mercedes so it wouldn't be any additional car maintenance expenses than what I already pay. Insurance will go up though.

Cardtrick - I wish I could live without a car! Unfortunately my situation doesn't allow for this. Fuel economy is a factor in my decision. I like a $12k Jeep almost as much as the Mercedes but the gas on a SUV would be a killer.

I'm still torn. Champagne taste on a beer budget

[jenn_jenn]

I don't own a car and don't plan on owning one anytime soon. But, if I were to buy, I'd look at maintenance costs and fuel economy more. That said, you can get a more reliable car for cheaper. You're doing yourself a huge favor by starting to save so young. Keep at it and you will have the option to quit working when you're still young. You won't have to take crap from anyone! To me that's more valuable than a car.

Such a good point. Not necessarily early retirement (although I would LOVE that, I just don't know how possible it is for me) but the financial freedom that comes from being financially responsible is worth more than a car. I really need to stay focused on the bigger picture.

[humandraydel]

When I first started reading this post, I thought I'd get to the end and you'd want to buy a house with only 10% down or something. Boy was I surprised when you wanted to spend your entire net worth on an overpriced depreciating asset!

You know you shouldn't do it - wouldn't you rather save for a house?

[scfr]

Assuming that your parents will not be paying your tuition when you go back to school for your Masters in 2 years, save your money to pay for that. Right now you are financially free. Why would you want to surrender that freedom by having to take out student loans because the money you could have used to pay your tuition had been spent on a car? Keep the money you currently have in savings, and keep saving as much as you can over the next 2 years, enough to pay cash for school. If you can get through graduate school debt free you will be in a terrific position to start the rest of your life.

[HappySaver]

I currently still live at home (rent free) to save money. I get along really well with my parents so it's a good situation but I am looking to move out mid-summer.

I'm also looking to going back for my Master's in two years and need to factor that cost in.

Please just tell me I'm being stupid and should not even consider this car purchase in any way shape or form!

You are being stupid and should not even consider this car purchase in any way shape or form.

1. You currently live at home to save money. To what purpose? To blow it all on a car?
2. You're looking to move out mid-summer. Your expenses will go up substantially. If you spend most of your savings on this car, you won't have enough of an emergency fund. 3 months is bare bone, especially if you need to put security deposits/last month rents/etc on an apartment.
3. How are you factoring in the cost of the Masters degree? It seems like you're ignoring it. If you are truly saving for that, you should be placing x amount of money away per month to save for it.

You would be smarter to buy a more inexpensive, low mileage, and reliable car that will work for you while you're in school. There's plenty of time for a nicer car in your future.

[HappySaver]

If you can get through graduate school debt free you will be in a terrific position to start the rest of your life.

This.

[disneysteve]

If you can get through graduate school debt free you will be in a terrific position to start the rest of your life.

Agreed. It makes a lot more sense to buy a car for 5-10K but be able to come out of school with little or no debt.

[LuckyRobin]

Umm...so why not just replace the engine in the car you do have when the time comes? Why buy a new used car at all? A new engine is a lot cheaper than a 2010 car. My family got 400,000 miles out of a car that had its engine replaced around 200,000 miles.

[jpham540]

I agree with HappysSaver you should not buy a car especially the Mercedes the gas and maintenance will cost more in the long run. Stick with a used car 5k – 10k that is good on gas and does not require premium gas. You’re planning to move out and go to school so your expense will increase. I suggest you build an emergency fund if you haven’t yet 3 – 6 month. Also I would pay more attention to your 401k since this will be your retirement money that you will rely on later on in life. You have time on your side so investing now you can take advantage of the power of compounding. Also for your ROTH IRA look into vanguard index funds they have very low fees.

[Gailete]

Okay, I admit to choking up every time I read of some young 20 something year old making excellent money (above and beyond the average most American families live on) and they are living at home to 'save' money. Nowhere do I ever see them contributing to the cost of the household so they are living off of their parents incomes and savings.

Then you want to spend what you have saved on a car?!? All you need is reliable transportation. I don't know much about Mercedes other than it would be 5 times more than what we spent for our used care when our other one died completely. If you want one as a status symbol, don't forget that once you park it, no one knows that it is yours or how you got to work that day. You could have taken the bus for all they know.

You need to put your thinking cap on and figure out what you really want in life and set up a long term budget to accommodate that. First of all counting your blessings that you have the choice to make decisions. Many people are trying to get by on far less money for themselves and their household. After all actual needs are accounted for, think about how you can also help others. I'm not saying you are doing this, but I have noticed so many people have become so selfish with what they get that they never contribute to those that are destitute and could use a helping hand. They somehow never see those that are worse off than them. Once you start thinking about how to help others, some of your lifestyle plans might fall into place.

Should you get that car? In my opinion NO. If you had a couple of million stashed away that might be a different story, but this early in your life, an extravagant purchase like that could keep you from fulfilling other dreams that are more important. I have always felt that as long as a car has 4 wheels, I can get into it, and it goes, what else do you need? You just buy the cheapest car that will do that for you and one that also has low enough mileage so you can figure on getting 8-10 years out of it. Rinse and repeat.