When can I afford to buy a new car?

[optimist]

I really think I'm overthinking this. Please help me.

I am a 38-year-old professional, living in a high COL area, but making a fairly good salary ($130K). I have $285K in my retirement funds and $46K in my emergency fund. My monthly expenses are about $5K. I also owe about $19K in a TSP loan, which I took to refinance a rental condo I own, and which will be paid off in 2 years. No other debts besides mortgages.

We live close to the metro, so I don't drive a whole lot - mostly to run errands and to child's after school activities. Nevertheless, my 12-year-old Mazda Protege, which I've owned since grad school, has started to periodically break down, which makes me extremely nervous and irritated. I want a new car, a new Mazda3, which is efficient and inexpensive, but I want to buy it for cash. After I trade in my old car, I would need to take about $20K from my emergency fund to make that purchase. I feel apprehensive about doing that - who knows what real emergency might come up? At the same time, I feel frustrated that I can't let myself buy a new car.

At what point do you think it would be reasonable for me to go ahead and allow myself to make that purchase?

[corn18]

My thoughts: keep 6 months EF ($30,000). Use the remaining $16,000 from EF + trade in to get a "new" car (maybe a 1-2 year old Mazda 3). Or save up until you have enough to buy the new new car. IMHO.

Tom

[snafu]

What type of emergencies have you encountered and what sum was needed from your EF? How stable is your employment? How many months of basic expenses does $ 46K represent? What factors were used to decide $ 46K was the appropriate amount?

If you were to buy the desired car, how long would it take you to replace the sum 'borrowed' from your EF? Alternatively, would you consider a 0% loan for part of the purchase price to reduce the sum 'borrowed' from EF? How long would it take you to replace the sum from your EF? Finally, you can take their financing and pay it off immediately.
Buying a car requires concentration to keep a long list of extra costs being added on. The following is a copy and paste from a Mark Albertson article Car-Buyer's Minefield which you might find useful since you've not bought recently...

Dealership Fees Don't fall prey to fees that line the dealer's pocket. You just bought a car. You did your homework. You did your shopping. And you negotiated a great deal. Before you start patting yourself on the back, know you're not out of the woods yet. For now is the time you have to tip-toe through the minefield known as dealership fees. These are incidental charges that pad your deal for the owner. They are the inevitable cost of doing business, or so you'll be told. And you have to pay them. Or do you? Well, the car business is where everything is open to discussion.

Conveyance Fee: Every dealer has this one, either Processing Fee, Dealer Documentation or Doc Fee. Whaevert it's called, your dealer assesses this charge to your deal to cover the cost of processing the paperwork ranging from $100 to $400. Your dealer will tell you that this fee is non-negotiable. Whether it is or not could actually depend upon your deal. If the dealer is making a real score, then he might waive the fee so you don't think he's the cutthroat capitalist he actually is. If his profit is negligible, then don't expect any favours. However, getting this fee waived is no different than any other aspect of your deal. If you don't ask, you don't get.

Prep Fee : This is charged to your deal to cover the cost of preparing the car for you to pick up. Is it kosher? No. At all well-run dealerships, the service manager assigns one of his mechanics to prep every new car that comes off a truck. Except for setting a few fuses, verifying the fluids and checking the tires, all new cars are literally ready to drive when they leave the factory. So don't think the car you bought was prepped especially for you. It wasn't. And as far as paying the wash kid, most dealer principals consider this employee a cut above an indentured servant. So the cost of readying your car is negligible.

At the last dealership I worked at, the conveyance fee was $229, and that included prepping the car. So if your dealer tries to pick your pocket twice, tell him you'll pay one fee not two.

Delivery Charge Many customers confuse this with Destination. A delivery charge is a sleight-of-hand designed to prey upon your wallet, as opposed to the vehicle's destination charge that is built into the price and can be found on the window sticker. For instance, a Acura TL has a destination charge of $760. A Ford Taurus X costs $750 to ship. So if your dealer tries to hit you with a delivery charge on top of destination, tell him to pay it.

Advertising Fee A dealership advertising fee is as bogus as one of the dealer's unwritten promises. Advertising appears on the invoice of the car you're purchasing. Like destination, it is built into the price. It is the charge by the manufacturer to the dealer for advertising the car on TV, radio, Internet and so forth. So refuse to be double-dipped.

VIN Etching Etching is an anti-theft countermeasure. It is security that is relatively inexpensive and well worth the cost. The process entails having the vehicle identification number or some other series of numbers etched into the glass. This is accomplished with a stencil and paste. Once the numbers have been branded into the glass, they cannot be removed, advocated by police departments and insurance companies. If windows are etched and the car is stolen, the thief must replace all the glass before selling. This impacts his profit and makes your car less attractive to steal.

Your insurance company should offers policy discounts for window etching. Many dealers offer VIN etching as a convenience but this could be an expensive convenience. It could cost $200 to $300. I know of a customer who paid $999 for etching at a dealership in New York City. You can buy a do-it-yourself kit and saved a whopping $960! Negotiating a good price gives you a good deal, but falling prey to fees puts some of your savings back into the dealer's pocket. When treading the minefield of dealership fees, stay focused and alert to turn a good deal into a great deal. Go armed with knowledge of the fees that pad the deal in favour of the dealer.

Get a CarMax report. This service and others like it have done more to arm consumers with useful information about used cars -- whether they've been wrecked or had other problems -- than any single innovation in the last decade. But be warned that CarMax doesn't catch all vehicles that have been damaged. If no insurance claim was filed, it's possible a car could have been in a wreck and it won't show in the report.

[MonkeyMama]

My thoughts: keep 6 months EF ($30,000). Use the remaining $16,000 from EF + trade in to get a "new" car (maybe a 1-2 year old Mazda 3). Or save up until you have enough to buy the new new car. IMHO.

Tom

Agreed.

The nice thing about the "cash method" is that you don't have to overthink it. If you have an ample emergency fund and you have the cash, then you can afford it. If not, you scale down your car purchase or you save more money. There's not a lot of thought that needs to go into it. If it feels uncomfortable on a gut level, simply wait a while longer or buy a slightly used car.

[optimist]

Agreed.

The nice thing about the "cash method" is that you don't have to overthink it. If you have an ample emergency fund and you have the cash, then you can afford it. If not, you scale down your car purchase or you save more money. There's not a lot of thought that needs to go into it. If it feels uncomfortable on a gut level, simply wait a while longer or buy a slightly used car.

Waiting is the hardest for me. Yet I can't make a purchase I don't feel ready for yet either.

[HappySaver]

My thoughts: keep 6 months EF ($30,000). Use the remaining $16,000 from EF + trade in to get a "new" car (maybe a 1-2 year old Mazda 3). Or save up until you have enough to buy the new new car. IMHO.

Tom

I agree with Tom that you should keep the 6 months of EF. But considering that you drive your cars for 12 years, I think it's perfectly reasonable for you to buy the new car now and finance the difference ($4000?).

Rates are low and you can pay it off quickly, and this way you don't risk costly repairs. Peace of mind is invaluable - I know what it's like once you lose trust in an old car.

P.S. You are overthinking this. You can afford it given what we know (admittedly, we don't have the entire picture, such as total mortgage debt).

[bjl584]

I agree with the others. Keep 6 months in the EF. Use the rest plus your trade to get a "new" car.

[JoeP]

I'm with tom on: save for it. Can you put aside a couple thousand a month and still meet your financial obligations? Maybe you can even cut some expenses in such a way that you can save up for the next 10 months and pay cash with no trade. Then sell your old car, and use some of that money to treat yourself to something nice as a reward.

I'm the kind of person who ignores car age and street value, and will keep putting "some" money into keeping it alive, provided safety is not compromised, and it remains reliable. An old car with major engine or transmission issues, or a rotted frame? Ditch it. An car that needs some mechanical work for ~$800 to keep it going another year, I'll probably do one of those.