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

[i001947]

Have a little patient first and build up your net worth. Paid the credit card off and live on cash first. Buy the house second. Then if your not married by then get the M3.

Buying the car is far easier than keeping it when you are young.

[MisterEm]

Originally Posted by RudyP

Interesting post MisterEm - I think you have a pretty inspirational story that a lot of us can learn from. I too badly wanted a new E46 M3 10 years ago when I was 25 but decided it was not financially prudent. It can be hard to delay gratification but it is often the smart move.

I'm trying to tell myself the same thing now about another big purchase I really WANT to make but is probably not 100% financially wise.

Thanks for reading it! If it helps just one more person (likely future family) to gain their financial freedom in the future it is worth it.

Sounds like you have already done the math and you are looking for justification? Just a hunch... if so go with your "assets and liabilities" brain. Imagine if you spent the additional $30,000 (just a guess) on that M3 10 years ago? For me, I would have never been able to afford a move - or to take a chance on a job that completely changed my career 1500 miles away if I committed on the M3. The equity gain and investment property stuff just fell in my lap due to the economy but it truly started the "snowball."

For you, the sacrifices for the M3 over your career/house/$$-future were probably different.

It is VERY hard to delay gratification even today. If it makes you feel better, now that we live in the high-altitude of Denver, I want MaxPsi's DME tuned turbo kit! My N/A screamer only "yells" now at 5,900 feet if you know what I mean. However, I also want to have a few more munchkins and still live comfortably without sleeping on the couch.

In my middle 20's I couldn't even fathom having a family - let alone truly enjoying all of its rewards and inevitable sacrifices.

Originally Posted by i001947

Have a little patient first and build up your net worth. Paid the credit card off and live on cash first. Buy the house second. Then if your not married by then get the M3.

Buying the car is far easier than keeping it when you are young.

Great advice. Keep it simple stupid is alive and well. The New M3 is something to acquire after you've whacked off all debt, built the nest-egg, maxxed the 401k and purchased a home or property (if able).

Your last point about "KEEPING" the M3 is huge. If I bought that new M3 in 2008 - I doubt I would still have it today in 2013. I still have my old turd of an M3 today as it is cheap, easy to DIY and still 80% of the fun at 11 years old and 97XXX miles.

[nujabes24]

Originally Posted by bga23

At the end of the day, OP, it is your money so you should do what makes you feel comfortable. A lot of people can tell you what THEY'd do but we all have different values, risk tolerances, goals and priorities so what works for them may not be right for you.

+1

[pinipig523]

Just be careful with your money the first 2 years you graduate and set yourself some good financial foundations. Save for an emergency fund of 6 months of your expenses, set up a maxxed out 401K through work, get good term life insurance for you and perhaps some long term disability insurance incase you get injured... AND set up a budget and watch every bit of $ that leaks through.

You'd be surprised what you'd be saving if you got control of your expenses.

A smart guy who was into cars gave me this advice, I think he was 10 years older than me, I was 26 at that time.

Now that I finished training last year, I took his advice to heart and lived like a college student for the first year and will be doing similar this second year. So far, I've been doing very well in terms of my finances.

I could probably buy an m3 outright, but I'm kinda in "cheap mode" right now so I think I'm just going to lurk on these forums.

[k-lo]

4 letters.... YOLO

[Kong Sheng Han]

Originally Posted by k-lo

4 letters.... YOLO

Those four letters bother the shit out of me.

[auggiem3]

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

I hate va property tax - October always ticked me off. I moved to dc and know I pay more in aggregate tax (property and income) but at least it's in wages and my house...mentally the car tax iterated me.

[BigTasty]

Originally Posted by Kong Sheng Han

Those four letters bother the shit out of me.

[auggiem3]

My advice is get or keep a sports car and a daily driver so you have a precedent for 2 rides when you get married....

[Lorde]

Originally Posted by auggiem3

I hate va property tax - October always ticked me off. I moved to dc and know I pay more in aggregate tax (property and income) but at least it's in wages and my house...mentally the car tax iterated me.

The East coast. More years experience taxing the shit out of residents. They really know how to squeeze blood out of a rock.

You would love the taxes in New Mexico.

[Endless619]

Originally Posted by Snig

The East coast. More years experience taxing the shit out of residents. They really know how to squeeze blood out of a rock.

You would love the taxes in New Mexico.

So true and sad..not to mention the bullshit tolls they charge you and turnpikes... I have to tell you California, Arizona, Oregon, Washington, Hawaii, Utah, etc residents would laugh at the state government if they tried to bring toll roads there. We have some bridges and thats a no brainer but it cost me over $100 dollars in tolls to get to Maine and they are state/public highways. What a load of shit and east coast folks keep paying the bullshit fees, thus they keep enforcing them. You cats need to learn to stick up for yourself and petition this crap. It's unacceptable.

Now getting back to original poster; REGARDLESS of what you take home per month the max you should be paying for ANY vehicle, short of super car status, should be $500-$600 a month for a car payment. Anything over that means in reality you cannot afford the car in hand, period. I don't care if you clear $19,000 a month...and you have a $699 a month car payment? WTF is that? Ghetto... You should be able to pay cash for that car.

I was looking at a $115,000 Gallardo .
Vehicle price ($): $114,999
Down payment ($): $7500
Trade-in allowance ($): $70,000
Tax Rate (%): 0%
Interest Rate (%): 2%
Number of payments (# months): 60

Loan amount: $37,000
Monthly payment amount: $657.29

To me this is too much of a car payment. Realistically I can't afford it. Could I? Sure, but its not worth it this close to retirement. I would do $500 a month on the 2011 Gallardo (probably could sell 2 firearms and come up with $10k but not right now). I am on the edge but right now I am about to retire with a paid off home and 3 vehicles. To me thats worth more than owing on one car and having 1 paid off with a paid off home.
Bringing debt into retirement is something I don't want to do, period.

[Darth One]

^ that's probably the right strategy for you, being close to retirement, but that's not a hard and fast rule that applies to everyone

[thekurgan]

Originally Posted by pinipig523

Just be careful with your money the first 2 years you graduate and set yourself some good financial foundations. Save for an emergency fund of 6 months of your expenses, set up a maxxed out 401K through work, get good term life insurance for you and perhaps some long term disability insurance incase you get injured... AND set up a budget and watch every bit of $ that leaks through.

You'd be surprised what you'd be saving if you got control of your expenses.

A smart guy who was into cars gave me this advice, I think he was 10 years older than me, I was 26 at that time.

Now that I finished training last year, I took his advice to heart and lived like a college student for the first year and will be doing similar this second year. So far, I've been doing very well in terms of my finances.

I could probably buy an m3 outright, but I'm kinda in "cheap mode" right now so I think I'm just going to lurk on these forums.

This thread was resting nicely since 19 April ... why necro this???

[Endless619]

Originally Posted by Darth One

^ that's probably the right strategy for you, being close to retirement, but that's not a hard and fast rule that applies to everyone

You are right, but just saying I hate to see leases in the $1000+ a month or purchase at $1000+ a month for an M3 or M6. Honestly thats most peoples mortgage payment. LOL $1000-$2000 a month for a house. Why would you pay $1200 a month on an M3? Does that make sense? lol If I am paying $1100-$2000 a month on an automobile the car would be $300k minimum not $50k-$80k. But like you said, everyone is in a different situation.

Ok, I'm done..

[Kung Fu English]

Originally Posted by Endless619

You are right, but just saying I hate to see leases in the $1000+ a month or purchase at $1000+ a month for an M3 or M6. Honestly thats most peoples mortgage payment. LOL $1000-$2000 a month for a house. Why would you pay $1200 a month on an M3? Does that make sense? lol If I am paying $1100-$2000 a month on an automobile the car would be $300k minimum not $50k-$80k. But like you said, everyone is in a different situation.

Ok, I'm done..

How are you gonna get a 300k car for 1100 a month? Put 220k down? Or finance over 200 months? 300k for 72 months is 4300/month.

Your post actually doesn't make sense.

I'd imagine those in position to pay 1100/mo on a car are also already paying a mortgage or whatever they need to live on. You are combining the two for some reason but they are mutually exclusive.

Why wouldn't you pay 1200/mo for an M3? Financing at 3%, that down payment can probably make more being invested. And 3% is probably lower than any of the other debts people have, hell even undergrad stafford loans are 3.4%.

Saving up for a down payment means you can't invest the money when you earn it nor when you spend it. It's actually kind of a waste.

[apexkingjusto]

The Ferrari wagon has a great lease special right now, $50K down with taxes and $2,700 a month! I would just so that if I were you . Think about it, whatever work you do I'm sure the more confidence you have the better you do and the more you make. You will attract a ton of chicks as you will have a hot car that is practical showing your not just making up for small things, and imagine going into a meeting with your top client or boss and feeling into your pocket knowing you have a Ferrari key in there!

You need to be on a game plan to get you north of $500K a yr once you are in your 30's. screw savings and invest in yourself!



Or just buy a civic and call it a day

[pinipig523]

Originally Posted by Kung Fu English

How are you gonna get a 300k car for 1100 a month? Put 220k down? Or finance over 200 months? 300k for 72 months is 4300/month.

Your post actually doesn't make sense.

I'd imagine those in position to pay 1100/mo on a car are also already paying a mortgage or whatever they need to live on. You are combining the two for some reason but they are mutually exclusive.

Why wouldn't you pay 1200/mo for an M3? Financing at 3%, that down payment can probably make more being invested. And 3% is probably lower than any of the other debts people have, hell even undergrad stafford loans are 3.4%.

Saving up for a down payment means you can't invest the money when you earn it nor when you spend it. It's actually kind of a waste.

I think it's mostly mental... some people just don't feel comfortable with a payment above a certain number especially if you're used to that payment.

I would be hesitant to put that much down on a car, especially if on an M3, you can get 1.9% financing. You could do far better on a low key mutual fund with the down payment.

I'm not very comfortable paying $1,000 or more on a monthly for a car - though I could easily do so. Just a mental block for me.

[JWE90]

I needed a new car and I had to have a stick shift sedan with room for a car seat in the back. There aren't many choices out there except BMW and some Audis. The M3 happened almost by accident-- I saw a great deal on it back in 2010 and bought it off Craigslist. It was $40k at the time and had 16,000 miles. Mint. Still the best car I've ever owned.

I can't really speak to what constitutes a reasonable monthly car payment because I've never made one...

[pinipig523]

Originally Posted by JWE90

I needed a new car and I had to have a stick shift sedan with room for a car seat in the back. There aren't many choices out there except BMW and some Audis. The M3 happened almost by accident-- I saw a great deal on it back in 2010 and bought it off Craigslist. It was $40k at the time and had 16,000 miles. Mint. Still the best car I've ever owned.

I can't really speak to what constitutes a reasonable monthly car payment because I've never made one...

Paying cash for a car is easier said than done.... especially if you're not 31 yo. Sure it'd be easier if I was older or perhaps those nearing retirement if you've saved along the way.

Cash isn't the best way of doing it either, you can make more than the measly interest that you can get with great credit.

[JWE90]

Originally Posted by pinipig523

Paying cash for a car is easier said than done.... especially if you're not 31 yo. Sure it'd be easier if I was older or perhaps those nearing retirement if you've saved along the way.

Cash isn't the best way of doing it either, you can make more than the measly interest that you can get with great credit.

Yeah.. maybe in theory. I have plenty of investments so I didn't really think too much about it. Just kind of fell in love with the car and wrote a check. I was 34, married, 1 child and a $5600/mo mortgage. I did think about the house purchase but cars aren't really worth bothering with financing. You can get a much better deal as a cash buyer by avoiding dealer markup and finding the right seller who "needs" money (who doesn't?). I paid about $10k less than similar cars were selling for at that time.

[pinipig523]

Originally Posted by JWE90

Yeah.. maybe in theory. I have plenty of investments so I didn't really think too much about it. Just kind of fell in love with the car and wrote a check. I was 34, married, 1 child and a $5600/mo mortgage. I did think about the house purchase but cars aren't really worth bothering with financing. You can get a much better deal as a cash buyer by avoiding dealer markup and finding the right seller who "needs" money (who doesn't?). I paid about $10k less than similar cars were selling for at that time.

You're probably making more than I am now. $5600 mortgage is pretty heavy. Congrats though.

I guess I can't seem to part with that much cash, I'd rather pay a monthly on a low interest loan.

[JWE90]

My point was basically that a car is a depreciating asset. Even the precious M3 is eventually destined for the car crusher.

A cash buyer can usually pay less; in my case, it was a lot less - around $10k and you are minimizing your capital losses on the purchase. Your loss on the purchase will eventually be 100% if you keep the car long enough as the capital spent on the car is converted into driving entertainment.

Houses are different, because at least in this area, they appreciate in value and yield rental income (or some equivalent value as shelter). So paying interest on that asset class can be justified.

If you are seriously doing this calculation you should factor in the astronomical cost of ownership for this vehicle which includes about 32 cents/mile for gas at 14.2 mpg and 20 cents/mile for tires (the Neovas are good for about 6000 miles plus a couple of track days). I go through 1 set of brakes per year (6000-8000 miles) which even with aftermarket parts is about $1500, or roughly 25 cents/mile. Including depreciation this car probably costs upwards of $1/mile to operate, not including opportunity cost on the purchase price. As with everything, your mileage may vary.

So ... if those kind of numbers will significantly impact your monthly budget then I would not even consider owning this car.