Is $700/M too much?

[Zorro83]

Would like to purchase a car but wondering if $700 a month is too much in my situation, have never paid over $470, but after crunching some numbers it seems to be ok...alright here goes and oh yeah this is dual income with the fiancée.

After paying for:

Mortgage (new build, therefore I assume nothing will go wrong right now)
Utilities
Insurance
Food
Pension
Gas
Fiancée's car

I have leftover $1250 and she has $900... we do want kids but probably in a couple years. I'm 29 and she's 26. The house we purchased is a good size, so we have no problem raising a family and staying there till paid off. We are going to put money aside for a rainy day, but that's where the 'is $700 too much?'

Would like some recommendation and/or opinions...thanks!!

[GeoffD]

Your consumer debt (car, credit cards, installment loans, etc) shouldn't be more than 5% of your gross. Do you make $160,000? If not, you probably shouldn't be locking yourself into $700 per month for a depreciating asset.

[Zorro83]

We have no CC debt and no loans beside her car...jointly we make close to 160k but not quite.

[Hostile]

What is the term of the loan? Paying $700 for 5 years is a bit different than $700 for 2...

[bubbagti]

You make close to $160k and yet you only save $2150 a month?

It seems insane to me that you are considering assuming a $700/month payment to further reduce your monthly savings. This will bring you to only being able to save ~11% of your gross, barring any emergency needs that may arise

[rich!]

didn't mention emergency fund - especially considering kids in the future; work towards a 1 year pillow.

once ya have kids - expensive cars seem silly

[Zorro83]

What is the term of the loan? Paying $700 for 5 years is a bit different than $700 for 2...

It would be for 5 years

It seems insane to me that you are considering assuming a $700/month payment to further reduce your monthly savings. This will bring you to only being able to save ~11% of your gross, barring any emergency needs that may arise

We get taxed heavily in Canada hence why we only have 2150 after everything has been taken care off...both of our jobs also have guaranteed yearly raises, so that $700 won't be as significant in a couple of years.

Thanks for the comments!

[Zorro83]

didn't mention emergency fund - especially considering kids in the future; work towards a 1 year pillow.

once ya have kids - expensive cars seem silly

We do have a pillow though, so we would be adding to that

[jnm2.0t]

It would be for 5 years

Can? Sure. Should? Eh that really is up to you, $700 seems ridiculous for a car to me, especially for 5 years, but your money.

[GeoffD]

It would be for 5 years

So at zero, or near-zero interest rates, you're borrowing $35,000+. People who have their financial act together have a 'car fund' and pay cash for their car.

[BetterByDesign]

Something doesnt seem right about your picture.

Consider leasing to give you some flexibility; if she is 26 and you are having kids, this will be sooner than later and $700 a month for car for 5 years would generally suck when you look at your kid then back at your car.

[Hostile]

So at zero, or near-zero interest rates, you're borrowing $35,000+. People who have their financial act together have a 'car fund' and pay cash for their car.

It's actually $42,000...

OP, I hope that $700/month doesn't include a down payment. There is no way in hell I'd pay a $700/month car note for 5 years.

[Zorro83]

Thanks for the comments...definitely food for thought!

[justinclark]

I am pretty analytical when it comes to finances, as it seems many on this thread are... I have spreadsheets of every financial aspect of my life since I was 18.

I am young too - mid-20's... Personally, I get a lot of enjoyment out of my car - I get almost no enjoyment out of going out w/ my fiance to a nice dinner, or sbux everyday or $300 day trips...

What I am trying to say is that you should view depreciating assets the same as fun $ and develop an overall budget to stay under. My fun budget includes new furniture, date nights, cars and trips. I keep it around $1.5k a month averages(which includes vacations). If you get enough joy out of the car itself - it's worth it... If you can't justify it, there are a lot of ways to get the same high. I am finding more and more that I do whatever it takes to raise my endorphins every day, and I am living a better life because of it.

[dunhamjr]

So at zero, or near-zero interest rates, you're borrowing $35,000+. People who have their financial act together have a 'car fund' and pay cash for their car.

wait... what?

why would i ever post out $40k cash, if i could borrow the money for 0%?

[mrothwell]

wait... what?

why would i ever post out $40k cash, if i could borrow the money for 0%?

I was thinking the same thing. Even if it was 5 grand, I'm going to take the loan if its <1-2%. Liquidity is the name of the game in an uncertain economy, I'd rather the car get repo'd in the event of an emergency than be stuck with no money when I need it.

[Mtl-Marc]

Can? Sure. Should? Eh that really is up to you, $700 seems ridiculous for a car to me, especially for 5 years, but your money.

This. New cars are never a good financial move.

[GeoffD]

This. New cars are never a good financial move.

I disagree.

I buy new cars paying cash and put a 100K mile extended warranty on them. I run them as far beyond the 100K extended warranty as I feel comfortable and then unload the car for another new one. To earn a living, I need a reliable car. A new car with an extended warranty bounds the overall ownership cost to the routine service in the owners manual, tires, and brakes. It's one less thing to worry about and have to project manage. I don't buy luxury or premium brands. I tend to buy leftovers at the end of the model year. My Fahrenheit GTI was a leftover with a $3K marketing incentive invoice deal so I only paid $23K for it. The GTI before that one was also an invoice deal leftover.

I question the financial wisdom of going $40,000 in debt to buy a depreciating asset since that price point is sport/entry-luxury. 5 years from now, that car with 100,000 miles on it is going to be worth almost nothing. It's the same thinking that has people buying McMansions.

The OP has a fiancee with a car payment. The reality is that their combined debt payments should be no more than 5% of their combined income. That won't support a car payment on $40,000+ car.

[Vision33r]

I make over $160k by myself and I would never get a $700/month car. I rather buy a car outright and my last purchase was made with the profits I got through dumping stocks.

What is the OP's investment and retirement savings portfolio?

If you don't contribute much then you better start soon.

[Oliver@triplezoom]

I make over $160k by myself and I would never get a $700/month car.

Hardly a surprise coming from someone who lists their phones where you're supposed to list your vehicles.

[beng]

once ya have kids - expensive cars seem silly

once ya have kids - expensive cars seem silly

once ya have kids - expensive cars seem silly

once ya have kids - expensive cars seem silly

Quoted multiple times to stress the significance of this statement. I would never have thought that I'd feel that way (hell, Ive spent countless hours on this automotive site I love cars so much). ...but my daily driver is now a Honda Civic. ...its not because I couldnt afford something nicer... its because I dont really get the kind of enjoyment out of car ownership anymore. With work, kids, house... I have very little time for anything else. I think Ive washed my Civic like 3 times. My prior car was a meticulously maintained TL-S. Tuned, modified. ....before that... a modded A4 1.8t. Loved them both. I sometimes miss having them... but most of the time Im just happy I pay practically nothing to own the Civic. Free maintenance, good gas mileage... barely any monthly payment. All of that $$ saved is going other places.

My two cents. If you're thinking of having kids in say the next 3 years.... Go for a lesser payment (you can still get a helluve lot of car in the 300-500 range)... and bank the rest of that cash. You'll be happy you did once a kid comes along.

[dunhamjr]

Quoted multiple times to stress the significance of this statement. I would never have thought that I'd feel that way (hell, Ive spent countless hours on this automotive site I love cars so much). ...but my daily driver is now a Honda Civic. ...its not because I couldnt afford something nicer... its because I dont really get the kind of enjoyment out of car ownership anymore. With work, kids, house... I have very little time for anything else. I think Ive washed my Civic like 3 times. My prior car was a meticulously maintained TL-S. Tuned, modified. ....before that... a modded A4 1.8t. Loved them both. I sometimes miss having them... but most of the time Im just happy I pay practically nothing to own the Civic. Free maintenance, good gas mileage... barely any monthly payment. All of that $$ saved is going other places.

My two cents. If you're thinking of having kids in say the next 3 years.... Go for a lesser payment (you can still get a helluve lot of car in the 300-500 range)... and bank the rest of that cash. You'll be happy you did once a kid comes along.

along the same lines for me.

just before the boy was born in June, we got rid of 2 car payments.
personally i went from a purchased new, perfectly mint and modified 2008 GTI with only 22k miles on it.

to a 2004 Saab 9-5 arc wagon. its reliable. quick enough. and was completely paid off with just the equity from the two trade-ins.

we do still have too many cars, but one of them is actually leaving to a new home this afternoon.

[rich!]

only having time to clean your car once or twice a year makes it fun - how much kiddie snack food you can find.

[BetterByDesign]

Hardly a surprise coming from someone who lists their phones where you're supposed to list your vehicles.

I think Galaxy was actually a car that is also a phone.

[Vision33r]

Hardly a surprise coming from someone who lists their phones where you're supposed to list your vehicles.

I daily drive a Prius and it puts money back in my pocket every time I fill up.

[mrothwell]

I daily drive a Prius and it puts money back in my pocket every time I fill up.

You're also driving a prius. Just saying.



At some point, you have to weigh whats important to you. If driving a sweet car is worth cutting other things in your life out, thats fine. From the posts above, it seems that once you have children you stop caring so much about a fancy car, so its not worth so much. If skipping fancy dinners, expensive coffee and booze, and home upgrades is worth it, doo it. OP, you're making $160,000 , the money is there, its just how you allocate it.

[beng]

You're also driving a prius. Just saying.

Haha! ...and not to mention. The extra cost of a Prius (when compared high MPG economy gas powered car) isnt easy to recoup through fuel savings unless you drive it for a really long time. Just sayin.

[dunhamjr]

Haha! ...and not to mention. The extra cost of a Prius (when compared high MPG economy gas powered car) isnt easy to recoup through fuel savings unless you drive it for a really long time. Just sayin.

or sell it.

resale! people. its just as important as every other number you consider when making a purchase.

[mrothwell]

or sell it.

resale! people. its just as important as every other number you consider when making a purchase.

I tend to agree with you dunham, the prius is pretty much the smartest automotive financial decision when you factor in resale. While it saves money though, its not much fun to drive. The point I was making was that the OP needs to decide if having a fun to drive car is more important than having a bit more disposable income

[maskedSONY]

I buy new cars paying cash and put a 100K mile extended warranty on them. I run them as far beyond the 100K extended warranty as I feel comfortable and then unload the car for another new one. To earn a living, I need a reliable car. A new car with an extended warranty bounds the overall ownership cost to the routine service in the owners manual, tires, and brakes. It's one less thing to worry about and have to project manage. I don't buy luxury or premium brands. I tend to buy leftovers at the end of the model year. My Fahrenheit GTI was a leftover with a $3K marketing incentive invoice deal so I only paid $23K for it. The GTI before that one was also an invoice deal leftover.

I actually mulled this strategy two years ago, but then I tossed it out the window when I got my Accord CPO. Since I'm in a position to project manage (no kids or fam) it's not a big deal to me, but I actually liked your strategy here. The keys are obviously keeping the car until its useful life/ warranty have ended, and making sure that if you have a major incident that the warranty will cover it and that you don't have to pay out of pocket. Obviously, if you can just limit such items to tires, fuel, oil and filters that should make for smooth sailing with car ownership. Have you been doing this for some time and has it worked well for you?

OP - I gotta ask you this - what kind of car were you looking at? When I replaced my Protege, I got a 2007 Accord which provided me with more than I ever wanted in a car at $15K. Is there a car at a lower price point that would suffice?

Unless it's your lifelong wish to have some high end car, I would not spend $700 per month on a car especially with the life you and your lady are expecting to have in the next couple of years. I would say that for maybe $300 per month you can get a car that provides you with 75% of the comfort, content and features of whatever a car with a $700/month payment provided. But then again I don't know what your tastes are. IF you have a very high end taste, then go for it. While I can appreciate a high end vehicle, I can live just fine with the top trims offered by Honda, Toyota, and Nissan versus their upmarket counterparts. Once you get above the $30K threshold with me, the returns being to diminish per increasing dollar.

Also, congrats on having a new house being built. Just remember that the housing market is far from being robust, and you still run a considerable risk of losing equity in the years to come.

[AZGolf]

Honest question here - what is Canada's retirement structure like? For example in the US you basically have:

Social Security: $900-2500/mo payout depending on an income of $35-120k/year. However is is on track to only be able to pay out something like 42 cents on the dollar by the time a 30yo reaches age 67.
Traditional IRA: Once your combined income is over $100k or so you can't even contribute. Otherwise you can do upto $5k. A bit of a scam IMHO because those who are least able to contribute can put in the most, and those who have the most income can't contribute at all.
Roth IRA: Post tax, up to $5k per person as long as you have $5k of taxable payroll income.
401k: Pretax up to $17,000 payroll contribution per person, $5k more if you are 55+, limits don't kick in until $400k/yr or something.
Post-tax savings: Very few tax sheltered options outside of select lame municipal bonds.

So basically for someone who is under 55 years old today, Social Security will likely be restructured either to pay out half as much or not pay out several years later in order to keep the system from going belly-up. Alternately, they will just raise the payroll tax from 12.4% to some unknown (higher) value to keep it afloat with payouts relatively close to current. IRAs basically suck if you're in the top 10% of earners. 401k ends up being where you need to sock away as much as you can. I'd recommend at least 10% of gross income into 401k to anyone, and 20% would be even better up until you hit the legal limit (assuming income >$85k to hit the limit at that contribution rate).

For Canada I have no idea what retirement looks like. Hopefully it's not as badly messed up as the Greek retirement benefit system, although the US & UK systems I know are on track to be unable to make payments based on current actuary data and projected labor participation rates.

[AZGolf]

I tend to agree with you dunham, the prius is pretty much the smartest automotive financial decision when you factor in resale. While it saves money though, its not much fun to drive. The point I was making was that the OP needs to decide if having a fun to drive car is more important than having a bit more disposable income

My wife and I found the solution: One Prius ($189/mo lease from December 2010) and one 10-year old Miata. The Prius was cheap, has a full warranty, and is very safe for family driving. The Miata is my car, and our fun car when it's just my wife and I. The 3rd gen Prius really does have better handling than the ones before it and if you're willing to give up a couple MPG and put genuine grippy tires on it, it should feel almost like a normal sedan in handling.

[a_riot]

Honest question here - what is Canada's retirement structure like?

Elderly Canadians are much better off than their US counterparts. Here is an article comparing the two systems. The US should follow the Canadian system I think.

http://www.ssa.gov/policy/docs/ssb/v68n2/v68n2p53.html

"The first component is quite similar to what is termed Social Security (the Old-Age, Survivors, and Disability Insurance program) in the United States:

Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) is a compulsory, earnings-related social insurance program providing income for retired and disabled workers and their survivors. Its benefit formula also contains significant flat-rate components for the disabled and survivors under the age of 65.

The second component has no close parallel in the U.S. system:

Old Age Security (OAS) is a nearly universal pension financed from general revenues and paid to almost all Canadians aged 65 or older. The principal exceptions are those who do not meet residency requirements or who have very high taxable incomes.

The third component is an income-tested SSI counterpart:

Guaranteed Income Supplement (GIS) is a non- taxable benefit paid to low- and moderate-income seniors—about one-third of the elderly population. It is a form of guaranteed annual income (benefits are reduced according to other income received). Like the OAS, the GIS is financed from general revenues."

[Oliver@triplezoom]

Old Age Security (OAS) is a nearly universal pension financed from general revenues and paid to almost all Canadians aged 65 or older. The principal exceptions are those who do not meet residency requirements or who have very high taxable incomes.

"Very high" is right. I think we need to cut back OAS, drastically. You get up to $540 in OAS per month, which is fine. But, your net income can be as high as $69,562 before they start to claw back payments. That's insane. Why are we taking money from general revenues and paying it to seniors who clearly don't need it? The clawback rates aren't even that bad; for every dollar you make over that $69,562, they only reduce your OAS by $0.15.

We also have a Tax Free Savings Account (TFSA) which is simply an investment vehicle into which you put after-tax dollars and any gains are tax free. You can contribute up to $5k per year to it, and it's very flexible - you can make withdrawals at any time and then recontribute the money, for example. So it isn't specific to retirement savings but obviously it's good to use it for that purpose.

We also have the Registered Retirement Savings Plan (RRSP). I believe this is similar to your 401k. You can contribute up to 18% of your before tax income annually, to a maximum of $22,970 (dollar value rises each year). It's a very nice way to reduce your tax obligations. Obviously, withdrawals are taxed as income. Some employers offer group RRSPs and match contributions (my company matches contributions up to 5% to a total of $4k per year which is pretty damn good).

There are some handy programs offered with RRSPs, such as a first time homebuyer plan that lets you "borrow" up to $25k from your RRSP for a down payment on your first property. You pay back into the plan over 15 years with no penalties. There's also some sort of lifelong learning program but I'm not too familiar with it.

[a_riot]

Do seniors get their GST back at tax time as well or do the CPP, OAS and GIS put their income above the level where they would receive a GST credit?