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

[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.

[davesaddiction]

Originally Posted by Skiptomylou37

Alright guys, thanks for all the advice! I think I'm going to sell my Evo X and put 8-10k down on a $36-40k e92 M3 and finance the rest at a very low rate over 48 months. I have some equity built up in my Evo and that plus the extra cash down should get my payment to around $600 or so. Really not that much more than my Evo payment now.


P.S. Tell everyone you know a badass, 2008 Evo X MR with 29.8k miles, all the options, and a warranty is for sale! $29,475!!!

Sounds like you've got your head on straight, OP. GLWS, and let us know when you find the new beast!

[Mr. ///M3 RD]

Originally Posted by Skiptomylou37

Alright guys, thanks for all the advice! I think I'm going to sell my Evo X and put 8-10k down on a $36-40k e92 M3 and finance the rest at a very low rate over 48 months. I have some equity built up in my Evo and that plus the extra cash down should get my payment to around $600 or so. Really not that much more than my Evo payment now.


P.S. Tell everyone you know a badass, 2008 Evo X MR with 29.8k miles, all the options, and a warranty is for sale! $29,475!!!

Sounds good to me ... Good Luck ! and enjoy

PS. Make sure the car is inspected by BMW before you make your final offer (unless it is sold from the BMW dealership, if so make sure to review all the past inspection reports). One more thing, don't appear to overanxious during the discussions about price, drop the a line like "I'm looking at this car and another one at another BMW dealership" that usually makes them sharpen the pencil ... they hate to loose there commission I've walked away from deals only to have the salesman run behind me to give me a better deal

[Skiptomylou37]

Originally Posted by Mr. ///M3 RD

Sounds good to me ... Good Luck ! and enjoy

PS. Make sure the car is inspected by BMW before you make your final offer (unless it is sold from the BMW dealership, if so make sure to review all the past inspection reports). One more thing, don't appear to overanxious during the discussions about price, drop the a line like "I'm looking at this car and another one at another BMW dealership" that usually makes them sharpen the pencil ... they hate to loose there commission I've walked away from deals only to have the salesman run behind me to give me a better deal

Thanks for the advice. I used to sell BMWs so I know exactly what you mean. I got the dealership to drop the price of my Evo 2k by simply just waiting around on the phone over a few days (bought the car from Florida) and not acting like I really wanted the car. It's way more fun to be on the buyers' side of things

[anderson616]

Hey OP, im doing exactly what ur doing now too..but mine is an Evo 9. Good Luck!

[Shoney41]

I didn't read the whole thread so apologies if this is duplicative, but my rule of thumb for everything other than my main residence is the following:

"Don't buy it unless you can pay it off in full at any point you wish."

That doesn't mean I don't use debt -- I did finance my car through BMW given the low rate, $1500 incentive, and the resulting opportunity to arbitrage in relatively low-risk investments. However, buying a luxury car based on monthly payments (i.e. coming from monthly income) is not always wise. I focus instead on my balance sheet (net worth) and determine what amount of it I am comfortable having invested in a depreciating asset. Full disclaimer: I am probably much more financially conservative than others given the job and industry I work in.

[davesaddiction]

Originally Posted by Shoney41

"Don't buy it unless you can pay it off in full at any point you wish."

My brother's a financial advisor. I sent him the link to this SNL clip a few days ago - applies to this thread.



If embed's not working, it's here: vimeo.com/60345640

[Shoney41]

Originally Posted by davesaddiction

My brother's a financial advisor. I sent him the link to this SNL clip a few days ago - applies to this thread.

Sorry, that link didn't work for me.

[Shoney41]

Originally Posted by davesaddiction

My brother's a financial advisor. I sent him the link to this SNL clip a few days ago - applies to this thread.

Nevermind -- link worked finally. very good!!!

[Mr. ///M3 RD]

Originally Posted by Skiptomylou37

Thanks for the advice. I used to sell BMWs so I know exactly what you mean. I got the dealership to drop the price of my Evo 2k by simply just waiting around on the phone over a few days (bought the car from Florida) and not acting like I really wanted the car. It's way more fun to be on the buyers' side of things

Exactly also a good idea to get to know the Manager then deal with him (as you know the Salesman has to clear it all with the Manager and all the Salesman has on his mind is his commission the Manager has to think about his inventory).

[MisterEm]

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.

Bingo. I discounted the magnitude of this advantage in a stable market up until the last few years.

OP, I was in your shoes albeit 5/6 years ago. I got a major promotion, achieved tenure/permanency, and was hell-bent on buying the new M3. I was single, ZERO debt, great pickup truck (DD) and fishing boat, maxed out 401K, in my late 20's and still had money to burn. My work paid for my living quarters and I was content!

The new E90M Sedan was calling my name and in my smitten eyes I could afford it. A college roommate (now a CPA) turned my logic UPSIDE-DOWN during a beer visit. He did the math on what I was LOSING opportunity-wise and dollar-wise by purchasing this $60k car instead of something more sensible that would satisfy 85% of my desires.

Long story short - I opted to buy a recent lease turn E46M ($20,000 out the door) over the new S65 powered M3 in 2008 on a 0.9% loan and $7500 down from the local Credit Union. I had planned on putting $35-40k down on the new M3 at the time....

The additional $40k that was burning a hole in my pocket went towards a turd of a 3 br/2 bath "starter home." It was an OK home, nothing near a "dream home" to raise my kids in. A year after buying, with a little TLC, some drywall repair, new flooring and some sweat equity in the yard "WE" (my soon to be wife and I) managed to build an additional $85,000 in equity out of the house a year later, in the middle of the housing crisis (2008). Wahoo!

That equity became and has paved the way to comfortable life for my family and I. Much more so than a 50-60% paid off and glorious M3.

Why?

Another agency called and was offering an even better package - 50% gain in salary, no-more supervision (aka - Babysitting adults), and 3% down for a new home. We weren't prepared at all but it was a No brainer on paper!

The kicker was we had to move to the new city in Nevada in 6 weeks (ugh!). This was early 2009 so we opted to keep the "starter home" as rental homes were a valuable commodity in this market. The house commanded a rent was close to $500/mo greater than the mortgage and insurance premiums.

Since I didn't buy the brand new M3 and bought the old one (insurance and registration was triple that of the 46M), I was able to invest the additional income in my Etrade account (mainly Tech stocks, and REITs at the time) through that year.

This extra income that would have been spent on buying/insuring/maintaining the new M3 blossomed into a handy little nest egg when the new company came calling..... and we were ready to take on another opportunity that would benefit all of our family.

-Liquid cash - CHECK!
-Equity > 20% LTV - CHECK!
-Credit - CHECK!
-Previous homebuying experience - CHECK!
-M3 - CHECK (albeit a bit older)

The same scenario happened last summer in 2012 when a program within my agency head-hunted me from Nevada to our Denver office. We were prepared this time and jumped on it!

Now our family (wife +1 kid) is happily planted in Denver, in a beautiful home I would never have believed we could reside in. The equity in my first turd home started the "snowball effect" that has paved the way to a healthy and happy future for us. We are well on the way to mortgage-free by 40 on two homes.

It is hard to fathom today just how many work/life/family opportunities we would have missed out on if I would have purchased that new M3 when I originally could.

A brand new M3 can be a career and life limiting purchase - much more so than a responsible home purchase.

Pulling $50k out of your M3 in 2016 will be a lot tougher than your home. You could make $50k on a home purchase by then if you purchase wisely.... even the baddest most sought after M3 will not make you $50k....ever.

[davesaddiction]

Originally Posted by MisterEm

OP, I was in your shoes albeit 5/6 years ago.

It is hard to fathom today just how many work/life/family opportunities we would have missed out on if I would have purchased that new M3 when I originally could.

A brand new M3 can be a career and life limiting purchase

Thank goodness for good, intelligent friends who call potential stupid decisions as they see them.

[roastbeef]

MisterEm, great story, thanks for sharing.

[nmehta211]

Buy what you feel comfortable with. I make a decent income, yet still felt I wanted the 30K savings on a CPO car, especially when it lives in NYC garage and faces the craters outside of it!
I sleep much more soundly at night knowing my depreciating asset isn't also getting wrecked along the way.

[MisterEm]

Originally Posted by davesaddiction

Thank goodness for good, intelligent friends who call potential stupid decisions as they see them.

My wife and son thank him as well.

Originally Posted by roastbeef

MisterEm, great story, thanks for sharing.

Life happens when we're making other plans that is for sure. Took me to about age 30 to accept that. If you have no debt and considerable equity, you can be flexible and comfortable in moving for your career. That may (or may not be) beneficial in your field or this fun economy...

Originally Posted by nmehta211

Buy what you feel comfortable with. I
I sleep much more soundly at night knowing my depreciating asset isn't also getting wrecked along the way.

As everyone should, and nice color choice on your beast by the way. On another side note, the wife's Audi A4 is approaching 150k but we are both hoping it craps out soon. Why? To buy another depreciating German asset of-course! Maybe a discounted E90M?

We still love our cars.

[fuzzybam]

I always find these threads fascinating.

The threads make me think I can't afford this car or that I can't afford any car above 15k. Although they do make me wonder how many of you people took out 30 year mortgages instead of 10 or 15...

[SMGCFP]

As a financial advisor, I'd suggest laying out all your financial goals, and matching your savings/investing behavior to achieve those goals. Things like cars, houses, boats, and the like are "use assets" and are discretionary purchases used to facilitate lifestyle.

Once your savings and investing behavior is projected with some reasonable assumptions to meet your long term financial security goals, use your excess cash flow however you choose.

I hope this sounds reasonable as when I consult with clients, I am careful not to judge the things they spend money on, assuming they are saving/investing enough of their income for their stated long term financial security goals.

[dcho]

do what i did. i had a 135i and a 1 bedroom apartment. i then traded it in, moved to a small studio (my gf will be helping me with rent over the summer) and got a new c63. i now turn off the AC during the day and my dog seems to be cool with it (ha ha pun inten..d) yolo, right?

[Nordstat]

Originally Posted by dcho

do what i did. i had a 135i and a 1 bedroom apartment. i then traded it in, moved to a small studio (my gf will be helping me with rent over the summer) and got a new c63. i now turn off the AC during the day and my dog seems to be cool with it (ha ha pun inten..d) yolo, right?

No disrespect, but DON'T do this!

[Skiptomylou37]

Originally Posted by dcho

do what i did. i had a 135i and a 1 bedroom apartment. i then traded it in, moved to a small studio (my gf will be helping me with rent over the summer) and got a new c63. i now turn off the AC during the day and my dog seems to be cool with it (ha ha pun inten..d) yolo, right?

Not a bad move. I'm not doing the live with the gf thing cause women are crazy and I figure whenever I get married, that will be more than enough time to live with one. Going to sell the Evo X here soon and start car shopping once more! P.S. I think I have a problem. If I sell the Evo X and get an M3, it will be my fourth car in three years!

[dcho]

Originally Posted by Skiptomylou37

Not a bad move. I'm not doing the live with the gf thing cause women are crazy and I figure whenever I get married, that will be more than enough time to live with one. Going to sell the Evo X here soon and start car shopping once more! P.S. I think I have a problem. If I sell the Evo X and get an M3, it will be my fourth car in three years!

good luck man, i left out some parts to the story like working overseas and doing ED to get the discount but i actually really wanted the evo X (my gawd it rides on rails!!!!) but my friend talked me out of it. i still have a soft spot for one.

[RudyP]

Originally Posted by MisterEm

Bingo. I discounted the magnitude of this advantage in a stable market up until the last few years.

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.