Is $700/M too much?

[Oliver@triplezoom]

GST credit is maximized at an income of around $34k. So I'd guess most seniors get the GST credit.

[GeoffD]

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?.

I've been doing that with cars since 1986. With my typical car, I have run the thing well beyond the 100K warranty to the point where I stop feeling comfortable on long winter drives where a breakdown would really suck. 165,000, 142,000, 118,000, 141,000. I have an SUV as my winter beater with 112,000. My driving pattern has changed since I now telecommute. My Faherenheit GTI will likely run out of time (7 years) before miles. I will eventually collapse the two cars down to one but that will be maybe 3 years from now.

My 2001 GTI was the only car where I didn't come out way ahead on the warranty. It is great because you bring the car into the dealer at 95,000 miles and tell them to make the car perfect. It's then usually pretty solid for a bunch more miles.

[vwconvert]

I also started doing what Geoff does around 2007. Part of what made it easy is with growing family responsibities, I started caring a lot less about cars and don't need to have the latest and greatest. In fact its kinda nice not having to worry about keeping your car spotless at all times. I used to get all worked up when my kid got in the car with dirty shoes and such but that attitude is just not sustainable. One of our cars is approaching 100k and I have no desire to replace it. I suspect we'll drive it til it doesn't feel safe like Geoff does. One way to extend this is to stagger the car purchases by a few years so you have one newer safe road trip car and another one you drive around town.

[AIRider]

I had a 800$/m car payment once upon a time. Never again!

I started to resent the car.

[Merc-MarkO]

......... 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.

That's interesting to hear. I, probably like many others, despised these cars when they came out. That and the smug owners with their '61 MPG' personal plates. Nowadays, they're .............. just another car. Normal people drive them.

[ChrisMD]

At some point, you have to weigh whats important to you. ... OP, you're making $160,000 , the money is there, its just how you allocate it.

I generally feel this way. Everybody has something that they probably spend a little too much money on when you look at that one budget line item. Gadgets, clothes, going out to restaurants, an expensive sport or hobby, etc. People have different things that they like, those things bring them enjoyment in life, and they're willing to pay for it. As long as the entire budget works out, meaning that the other line items are lower to make up for the one that's high, then who cares? Statements like "A car payment should be no more than x% of your income" aren't very useful because they completely ignore EVERY other factor and those other factors can make a big difference. You might be able to spend 2x% if your other expenses are very low or your income just that high. On the other hand, you could spend x% on a car and it might still be too much even though the "rule" says that is affordable. It's about the whole picture.

That said, there is a problem when your something is a car. Priorities can change, sometimes quickly, sometimes unexpectedly. If your something right now is going out to fancy restaurants and your priorities change, then you just stop going out to fancy restaurants. When your something is a car that you financed for five years and your priorities change, you might be stuck with an expensive car that is no longer important to you. Selling it isn't always an option.

What I'm saying is that it seems possible to buy the car if that is how you choose to allocate your money and the whole picture works out but be sure that you will still want it five years from now and hopefully several years beyond that.

What many others are saying, particularly those who have been experienced the priority changes that come with having kids, is that it's quite likely that you won't value this car as much over the next five years as you do right now.

Perhaps the sheer fact that you're questioning it is a good reason to not spend that much on a car.

[ctrapeni]

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.

Same for me. When I could be saving for my daughter's college, it is tough to spend extra money on a fun car. I replaced my bought new A4 for a very used WRX. BIG financial savings, but I do still have a fun car.

[Mike!]

For what it's worth, my wife and I are at about 6-figures gross combined (not individually), share one car, and its payment is $239.16 biweekly, or $518.18 a month. $700/month, an extra $84 biweekly, wouldn't pose any financial stress to us in its stead.

Everyone's got different things they like to spend money on. The delta between $700 a month and a typical Honda Civic-type car payment in Canada is only $300-$400 more a month, so it's less steep than it sounds like. Likewise, I could have gotten the base model of my car (which I went into it intending to buy) for only $400/mo, but that extra ~$120/mo is getting us something that we better enjoy day-to-day.

[blue70beetle]

I don't understand why someone who can afford to shell out $700/mo for a car wouldn't just save $700/mo or more until they can buy a car. Putting that kind of money away, it wouldn't take long until you had a really nice car.

In addition to this, why would a person who can afford to just buy something willingly enter into an agreement by which they must earmark $700 for a specific purpose for the next five years? Yes, I understand...people do this all the time for houses, but a house is something far more likely to appreciate than a car, and most people would be hard pressed to save enough to do that in a reasonable amount of time. But making >$150k, it should be a no brainer to just buy a car, not a payment.

[Oliver@triplezoom]

I don't understand why someone who can afford to shell out $700/mo for a car wouldn't just save $700/mo or more until they can buy a car. Putting that kind of money away, it wouldn't take long until you had a really nice car.

Well, it would take 4-5 years, right?

In addition to this, why would a person who can afford to just buy something willingly enter into an agreement by which they must earmark $700 for a specific purpose for the next five years? Yes, I understand...people do this all the time for houses, but a house is something far more likely to appreciate than a car, and most people would be hard pressed to save enough to do that in a reasonable amount of time. But making >$150k, it should be a no brainer to just buy a car, not a payment.

If you're buying new and have good credit there's a good chance of getting very low financing rates on a new car, so financing might be the prudent thing to do.

[blue70beetle]

Well, it would take 4-5 years, right?

Yes, but everyone assumes a car payment is just a part of life, something you should accept as a condition of owning a car. Get past the instant gratification and save a bit; maybe pass on the $40k car this time and buy it in a few years to replace the $10k car you bought. And by then it will only cost you $25k and can still be readily obtained in great condition with low miles.

If you're buying new and have good credit there's a good chance of getting very low financing rates on a new car, so financing might be the prudent thing to do.

Financing a car is not the prudent thing to do. If you make a lot of money (and the OP definitely does), there's no good reason to become a slave to the lender for the next 5 years, and if you don't make a lot of money, you definitely can't afford to be, although most people do...

And for those pointing out the low interest rate means a relatively low finance charge, yes. But it doesn't account for risk...if there is a job loss, if something else comes up that requires a big chunk of cash...if you own the car you're golden. If you are on the hook for the car, that's just one more thing to add to the stress level associated with the unexpected event.

Also, the ridiculously low (or even free) financing is only available when the car is brand new, at the top of its ridiculously steep depreciation curve.

People don't borrow their way to vast wealth. Our society has been brainwashed into thinking that they should always borrow money to get what they want, to the point that most people think it's either necessary or better than not borrowing. It has been a fantastic deal for the banks, etc.

I'm not going to tell someone I think they're morally wrong or a bad person for borrowing money, but I'm not going to be convinced that it's a good idea, either, and I (obviously) don't believe it to be a wise thing to do.

I'm also not going to blame someone for wanting to buy a new car...I can't think of any reason why it would ever be a smarter financial decision than buying a newer used car, but someone has to buy the new cars so one day there will be a car for me to buy!

[Mike!]

Financing can often be prudent. You're not a slave to the lender... Really you're utilizing them for the purposes of financial leverage. My car is financed at "0%" but cost eligibility for a cash purchase rebate, yielding an effective interest rate of 3.x%, still less than my mortgage rate. In other words, it's down with the cheapest interest available. That frees up cash to be put in a TFSA (or Roth IRA for those in the US) on any number of stocks with dividend yields higher than that on top of equity appreciation. Or if you're already topped up on investments, it helps you keep a large amount of emergency savings on hand with a simple, predictable monthly payment against cash flow.

Financing is a tool that can be used for good or bad.

[jnm2.0t]

In addition to this, why would a person who can afford to just buy something willingly enter into an agreement by which they must earmark $700 for a specific purpose for the next five years? Yes, I understand...people do this all the time for houses, but a house is something far more likely to appreciate than a car, and most people would be hard pressed to save enough to do that in a reasonable amount of time. But making >$150k, it should be a no brainer to just buy a car, not a payment.

We make a good amount over that and wouldn't be buying a car either. I would never tie that money up in a car with 0% interest available on many models. You also presume that people making over $150k just have $40k laying around to throw at a car.

[blue70beetle]

No, I don't presume that a person making that kind of money has cash sitting around. I just presume that if they wanted to, they certainly could.

[jnm2.0t]

No, I don't presume that a person making that kind of money has cash sitting around. I just presume that if they wanted to, they certainly could.

You would be surprised then.

[SAPJetta]

My paid off Rabbit makes me happier each day. Gives me more disposable cash to spend on the kid and prepare for the next one.

I could probably swallow $700/mo for a couple years (maybe.....) but certainly not 5. I'd be pissed off and get rid of the car long before then. Add in cost of gas and maintenance and you are putting out way to much per month for a car.

I'd look at a 1-5 year old example of whatever you are considering. Low mileage, depreciation has already hit the hardest and you could probably pick up a clean example for significantly less.

[blue70beetle]

You would be surprised then.

Surprised by what? A strong earner's inability to fund an account to purchase a car if they wanted to do so? It's not that they can't; it's that they don't want to. That's their choice; I'm just saying it's not a wise choice. But 10k/mo after taxes will cover a nice lifestyle and still leave some money to save for a car.

[ValveCoverGasket]

You would be surprised then.

$160k+ likely puts you in the "high amount of disposable income" bracket in indiana.

not so much in the bay area...

[blue70beetle]

So we address a lack of disposable income by taking on a $700 reduction in disposable income, every month for the next 5 years?

I'm having a hard time getting my head wrapped around the logic in this.

[jnm2.0t]

Surprised by what? A strong earner's inability to fund an account to purchase a car if they wanted to do so? It's not that they can't; it's that they don't want to. That's their choice; I'm just saying it's not a wise choice. But 10k/mo after taxes will cover a nice lifestyle and still leave some money to save for a car.

After fed/state/fica/health ins/retirement/etc. 150k can easily be less than 10k take home, particularly if you have high state taxes (like CA) or save a large amount to retirement. Our decent amount over 150k doesnt result in 10k after all that. Take out housing, daycare, food, general savings, student loans, etc. and that starts to erode pretty quickly. Of course everyone is different but the point is don't assume that income of that level equates to massive amounts of discretionary money.

Also, presuming you can hack $700/mo you could save that for 60 months and then buy a car in 5 years or just buy it now and instead direct it to the car debt. Budget for car savings or budget for car spending is still $700/mo. Personally I don't like shelling out large amounts of cash at once even if it were sitting in an account specifically for it, particularly if it can be financed at 0%.

$160k+ likely puts you in the "high amount of disposable income" bracket in indiana.

not so much in the bay area...

That and your family situation. Childless like the OP vs someone with a few kids in daycare are entirely different. I can tell you that our housing + daycare takes up about $70k worth of pre-tax income, and it isn't lavish by any means.

[HI SPEED]

I will buck the trend and say go for it. You only live once and if you think that having a flash car will make you happy then go for it. I don't regret driving nice cars through my 20s even though I should have been buying more rental properties with the money.

When your young you can really enjoy things in a way that subsides as you get older. Sounds like you have a good foundation so why not.

As some have said you need to work out a budget. That $700 is pretty much your entire fun fund. If you are willing to offset vacations, and nights at the bar to drive a fancy car then go ahead.

Just realize that you will need to sacrifice something somewhere. Life is all about balance.

[SteveMKIIDub]

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.

Was just going to reply to jnm1.8t but yours jumped out even more!

In our situation, her car is around $600 a month which is way too high. But this is because she financed it over 3 years and it's paid for this December. Let me say that a 3 year old Toyota still has a lot of life left in it and it will be nice to have paid off (plan is to take a chunk of increased cash flow and dump on mortgage every other week. He he.). But I see a lot of people I know spending way to much on a car. Buy something cheaper, put the extra cash in savings or on your mortgage. You'll be thankful you did.

I agree with the car fund and I have the exact same thing. Basically, I expect to replace my Kia in 3 years (at the most!). There will be repairs along the way. But, BUT, when that day comes, I want to either have a good chunk to put down on a new car or outright cash to buy a gently used Yaris or something. Either way - having money saved up for the time comes is better then having nothing.

[SteveMKIIDub]

Personally I don't like shelling out large amounts of cash at once even if it were sitting in an account specifically for it, particularly if it can be financed at 0%.

I've tried to go over this one with a coworker before as well. If you have 20k to spend on a car that's great, but I would rather take the hit and finance it (provided rates are low). You never know what will change in those 5 years that will require some major cash. Or maybe a bit of both.

Ideally, you would maybe drop 10k on a used commuter and keep the other 10 in the bank. Who knows? But I agree with you.

[Dirty Hatch]

Personally, I would open up a savings account and drop $700 a month in it for six months and see what affect it has on your daily life. If you find out you can afford an extra $700 a month, then take that six months you saved, put it towards the car and buy it.

I don't believe there is a perfect formula in buying a car, because we all have different spending and driving patterns. My car payment is less than 5% of my gross income, but I have a high student loan and an older GTi that likes to steal from my wallet.