Financial Responsibility 101: How much is too much for a car payment?

[roastbeef]

Originally Posted by Skiptomylou37

I am a young guy, mid 20's, who works in medical sales. No wife, no kids, no serious relationship, I make good money, have a retirement plan + full benefits through work and also have a side job coaching hockey privately that I make about 1k from a month. I have a company car and currently have an Evo X MR for a fun/weekend car and am thinking of stepping it up a bit. I had an e90 M3 before the Evo and am considering getting another M3 but for only a little bit more a month I could get a new or almost new M3, get a couple year old M3 and supercharge it, 911 turbo, GTR, etc. I guess my question is is it stupid of me financially to consider having a $600-$700/month car payment instead of my $400/month payment now to drive something newer that has more flare? Two things before you answer. This car payment money is all disposable income. Like I said before, I have a retirement plan, 401k, mutual funds, the works, plus money I put away every month to eventually buy a house. Also, my dad passed way unexpectedly at 50 and always wanted a Porsche 911 but never got one and because of that, I don't want to say I am a "I want it now" person, but I definitely think you really have to go after what you want in life and get it. That all being said, I would appreciate some wise advice.

i was ok with everything until i came to the part about you renting. drive a car that is "just ok" to save more money and buy a place before you buy an expensive car (payment, maintenance, gas, insurance- all four categories are going to go up). and then you're going to want to mod it.

don't spend a dime on another car until you get a house. its the strongest financial base you can create for yourself. just my opinion, since you asked.

[Roundown]

Originally Posted by UCBPhD

OP:

So, one of the common themes here seems to be "house first". I think this is ridiculous, for numerous reasons, not the least of which being that I have seen _way more_ people being house poor than car poor, although I don't think either is a good idea. Don't force the house situation; do it when you are ready. Maybe the people that say "house first" should rather say "be clear about your priorities, and act on them appropriately".

Another (less common) theme is "if you have to ask, then you can't afford it". Again, nonsense. If no one has ever discussed it with you, you wouldn't know . . . I would analyze the situation as follows: take your after tax monthly income, subtract amounts commensurate for things that you must pay for, and for reasonable entertainment. You can probably spare _all_ of the remaining money, but you probably shouldn't; maybe half of the remainder would be better.

Good Luck.

+1

Everything is relative. If you can buy a nice house outside of Pittsburg for $150,000 - it might be worth considering. That said, if you live and work in a place like NYC (or much of Europe), owning your own home may be impractical -- even on a high income/without exogenous debt.

Buying a car, while definitively a depreciating asset (a home is a bit of a toss-up), is a much less permanent, far more liquid asset/liability (assuming you put enough money down).

[Roundown]

Originally Posted by Goat Rodeo

People here think a 200K/yr salary is enough to afford a Lambo?

That's hilarious.

When you have to borrow money to cover the break-in service... you know you've made it.

[Lorde]

It all depends on location/personal situation. $200k in NY or DC is not the same as $200k in South Dakota.

[pkimM3r]

Originally Posted by Skiptomylou37

Evo X MR is pretty dope. I like it a lot more than the 335xi I had a few years ago, just don't like the Paul Walker/Brian Spilner image it portrays. Also, I recently got my company car too so now I don't need something that can go in the snow. Definitely agree with you that it's hard to pick a location when you are young on where to buy a home. That mixed with the above mentioned possibility I could have to relocate for work make me think purchasing a home will happen later on.

For your information, paul walker has been tracking his e92 m3 for quite some time now at streets, buttonwillow etc. i wonder if hes on these boards. LOL

[roastbeef]

Originally Posted by persian54

Buying a home = large down (we are young, so usually need at least 20, if not 30+ % down).

perhaps its a specific lender rule, but age (as a number) typically isn't a requirement for obtaining a loan. maybe if you're referring to financial history, but i've never heard of any lender charging more for age. 20% down will work if all other financials are squared away.

[xcharlesy]

I'm 23, and you seem more than able

[persian54]

Originally Posted by roastbeef

perhaps its a specific lender rule, but age (as a number) typically isn't a requirement for obtaining a loan. maybe if you're referring to financial history, but i've never heard of any lender charging more for age. 20% down will work if all other financials are squared away.

Financial history, or lack of it, is the main issue.

It's been an issue I've been force to deal with :/

Originally Posted by thhddd

Some inputs from me since I am also at your age

I make ~7800 after tax each month in paycheck, and I drive a 2013 M5 with monthly lease payment of 1169, and since I live in VA, I am also responsible for about 4.5k car tax each year

But I already own a house that's paid down in full by my parents...so I kinda don't have to worry about savings, otherwise I don think ill make big investments in car at this age

HOW did you get such a low payment?!

[Jch99]

At the end, it all depends on what you are comfortable with. If you feel you can continue to live the way you are living with a higher car payment then go for it. Everyone's situation is different. If things change, just sell the car.

With the whole thing of buying a house.........it's not as great as it sounds. Having to pay taxes every year, $ maintaining, $ interest on the loan, locked into a place. Saving that money for a bigger down payment is the way to go.

[Darth One]

lol. sometimes I think some of these responses come because some members don't want younger people driving m3's.

there's no magic number like $200k salary before you can afford an m3. or no rule like "buy house first" that applies in 100% of situations (and especially not after the real estate debacles of the last 5 years)

it just boils down to how much discretionary income you have and how much of it you can comfortably put into a car. stability of your cash flow and the opportunity cost of other uses of that money also factor into the decision

OP, you're the only one who can accurately make that determination. certainly if I were in your situation it sounds doable if income is stable (I myself would be a bit worried about my entire income coming from commissions/coaching, but maybe it's a stable industry), and if you only need a modestly priced house when you buy one later on

the more unbelievable part of your plan though is thinking you can find a new or near new M3 for $600-700 a month, unless you're planning on making a massive down payment

[thekurgan]

Must be that time of the month

[Goat Rodeo]

The "buy a house first" thing is totally location dependent.

I live/work in the DC area.
- any house worth living in is at least 800K.
- need minimum 160K cash just for down payment
- 20K year in real estate taxes
- Expensive maintenance and upkeep
- 200-300/mo per car for decent parking

BRB renting in 700k condo for 2K/mo, live wherever I want, never pay for any kind of maintenance or real estate tax, saving and investing >1/2 my income since first day of career, liquid net worth > house, invest tax free in 401K which can be used to buy a home.

If I lived in a place where you can buy a mansion for 200K I would have done that years ago.

[PetoM3]

Originally Posted by roastbeef

i was ok with everything until i came to the part about you renting. drive a car that is "just ok" to save more money and buy a place before you buy an expensive car (payment, maintenance, gas, insurance- all four categories are going to go up). and then you're going to want to mod it.

don't spend a dime on another car until you get a house. its the strongest financial base you can create for yourself. just my opinion, since you asked.

Actually I was, or am, going through the same. I'm in mid 20s, renting an apt, and my colleague telling me to buy a house first. Supposedly you can write off taxes off your house or car that way. So it does sound like financially better decision, but it may not. I don't know where I want to own the house in the city, I want to have a family on the horizon when buying a house, I'm still early in my career and will just grow up, so I might be considering a totally different house 4-5 years down the road, just because I may be getting married, I might have much higher income, or I might be in a totally different city etc....then I'll just own a house I don't want, I may sell it, but will I make profit? Who knows. So I don't agree with Don't buy a car, buy a house no matter what.

[chili555]

Originally Posted by 05Mdriver

my 2 cents.

Sell the MR. Remove CC debt. Buy house. Then get car.

Many young people discount the great advantage of buying a house, building equity and appreciation, moving on to a bigger house as salary increase permits, and so forth until, many years later, one finds himself living in a large and very comfortable home with little or no mortgage.

[Skiptomylou37]

Originally Posted by Goat Rodeo

People here think a 200K/yr salary is enough to afford a Lambo?

That's hilarious.

Ouch! You guys are harsh. Maybe I should have been more clear. When I say Murcielago, I am referring to a preowned one that costs around 120k. I would NEVER purchase a new car, let alone drop 400k on a vehicle. My late father was a wholesale manager for a few different dealerships and I learned at a young age how foolish it is to buy a new car.

[Skiptomylou37]

Originally Posted by roastbeef

perhaps its a specific lender rule, but age (as a number) typically isn't a requirement for obtaining a loan. maybe if you're referring to financial history, but i've never heard of any lender charging more for age. 20% down will work if all other financials are squared away.

Because of the weak real estate market right now, it is very easy to obtain financing for a home and with little money down. I have a friend with good credit who just bought a 250k home and he only had to put 6% cash down. Another friend of mine did the same thing and he only put 5% down. Might not be the smartest thing to do because then you have to get mortgage insurance until 10% of the home is paid off, but it's a nice way to acquire a home sooner than later.

[LarThaL]

Originally Posted by Skiptomylou37

Ouch! You guys are harsh. Maybe I should have been more clear. When I say Murcielago, I am referring to a preowned one that costs around 120k. I would NEVER purchase a new car, let alone drop 400k on a vehicle. My late father was a wholesale manager for a few different dealerships and I learned at a young age how foolish it is to buy a new car.

"Foolish" depends on your perspective. My DD is a Porsche Cayenne that I bought used. It was 15 months old, had 8900 miles, and was over $25k off the MSRP. It still had a new car smell inside!!

My M3, however, was purchased as a pure toy. I wanted it exactly how I wanted it and that was that. There are also very few people that are as meticulous about detailing their vehicles as I am, so used was not in the picture for my M3.

[thhddd]

Originally Posted by persian54

Financial history, or lack of it, is the main issue.

It's been an issue I've been force to deal with :/

HOW did you get such a low payment?!

I paid 5k down but it's a frozen black m5 fully loaded with 115k msrp, so I'm happy with it

[W///]

One of the few times I didn't bother reading the entire thread (gotta run soon), but I will give me 2 cents.

- You can buy an 08 and have a very "reasonable" monthly car payment
- As a rule, don't spend more than 10% of your monthly income on a car payment.

That's about where I'm at and do just fine. And also keep in mind I do my own work on the car too.

[Koldun]

Originally Posted by Skiptomylou37

P.S. I should add that I don't have any debt besides some very minor credit card debt, all my college loans have been paid.

Go for it, you only live once and you seem to be in a good financial position with no loans, a safety net, and extra disposable income.

You'll find a lot of the naysayers will be old fogeys who fear "those riffraff and durn meddlin' kids" encroaching on "their" M3 ownership club. Don't mind them, when you have a melon-sized prostate, you can't help but be ornery.

[Kwando]

You have disposable income to consider a M3 but you have credit card debt? I don't understand.

[Roundown]

Originally Posted by chili555

Many young people discount the great advantage of buying a house, building equity and appreciation, moving on to a bigger house as salary increase permits, and so forth until, many years later, one finds himself living in a large and very comfortable home with little or no mortgage.

Without increasing availability of financing, appreciation (at a pace greater than inflation), is far from a guarantee. In fact, depreciation, in real-terms, is even a possibility in the coming years (i.e. rising in price slower than the pace of inflation).

Rates are at cyclical, if not all-time lows (in real and in some cases nominal terms), the private market for mortgages continues to whither under stricter underwriting standards, and the capacity for the government (via Fannie, Freddie and Ginne) to continue subsidizing mortgage financing (currently >95% of new origination... through guarantees, insurance or lending credits) is becoming politically unpalatable.

If public/private financing becomes scarce and/or more expensive (i.e. rates rise faster than inflation/wages) it's unclear to me that homes prices appreciate -- IMHO, I would expect them to do the opposite.

Of course, no one knows for sure... but I can say with a high level of confidence that the returns achieved by my parent's generation will differ from that of the mine (and the OP's).

If you're suggesting he invest, rather than spend... sure, I can get behind that. But telling him to buy home may not be as prudent as your experience over the last 20-40 years may have led you to believe.

OP - put some money away for a rainy day, fully fund your 401K and, if it doesn't consume the bulk of your disposable income, live a little. These are irrational purchases...no matter how much money you have. GL.