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  #1  
Old 01-20-2013, 10:54 PM
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How much car can I afford?

The general rule of thumb is that payments for all cars must be less than 20% of your post-tax monthly income. (I assume this is for those taking a loan.)
http://www.bankrate.com/finance/mone...ou-afford.aspx

I wish they were more specific though...what length of loan, should maintenance costs and insurance be included in that, etc.

One way to compute this for cash buyers would be to figure out the total cost of ownership for 5 years or 7 years (using calculators for insurance and maintenance costs) and then do (purchase price + maintenance and insurance) / 5 or 7 as the case may be.

Another viewpoint:
Buy a car whose cost is no more than 50% of your annual income.
http://www.foxbusiness.com/personal-...29/car-afford/

Again, I wish it were clearer about where this is post tax or pre-tax annual income.

If we use the second one, and assume it is post-tax, then one would need to make close to 200K to afford a new F30.

Anyone else have any thoughts on this?
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  #2  
Old 01-20-2013, 11:36 PM
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It varies from people to people really.

Some people like to spend more on cars, some people not so much.

It's up to your own to decide how much to spend on your car.

*Also General rule of thumb is don't look at how much you can afford a month. But look at the final cost. Say the new M5. Sure a lot of people can afford $1500 a month lease payment. But at the end of month 36, you are down $54000 dollars. Plus another $20000 in gas,insurance,etc. All add up to a big number.
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  #3  
Old 01-22-2013, 02:02 AM
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Those rules of thumb are meaningless without knowing how much debt, expenses and savings you have.

I like to think of cars as if I were going to walk in and pay cash for it. If I start itching for a new car, and thinking about writing a $50,000 check for one, I lose interest quickly.
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  #4  
Old 01-22-2013, 07:44 AM
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Quote:
Originally Posted by Chris90 View Post
Those rules of thumb are meaningless without knowing how much debt, expenses and savings you have.

I like to think of cars as if I were going to walk in and pay cash for it. If I start itching for a new car, and thinking about writing a $50,000 check for one, I lose interest quickly.
I think they are still useful guides to make sure one is not overreaching. Sometimes one can have a lot of savings because of past earnings and then one can jump into a car that ends up unexpectedly being a money hog.

For a base F30 (37K MSRP), Edmunds estimates it will cost 50K+ over 5 years, driving 15000 mi/yr to own the car (including insurance, maintenance, etc.).
http://www.edmunds.com/bmw/3-series/...tyle=101386360
They assume leasing, but even without that it is $50K+.

So even if one were paying cash for it, it makes sense to think what percentage of after tax income is being spent on the car.
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Last edited by mr_clueless; 01-22-2013 at 07:45 AM.
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  #5  
Old 01-22-2013, 08:03 AM
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I have a K.I.S.S car buying rule that has served me very well over the past 30 years: "If I can't afford buying it with cash, I can't afford it".
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  #6  
Old 01-22-2013, 10:09 AM
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Originally Posted by finnbmw View Post
I have a K.I.S.S car buying rule that has served me very well over the past 30 years: "If I can't afford buying it with cash, I can't afford it".
My point is: Just having cash in the bank to buy a certain car may not be enough. One has to have the find of cash flow to sustain that type of lifestyle, or it will be a drain on one's savings.
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  #7  
Old 01-22-2013, 04:17 PM
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I don't quite follow your reasoning about cash flows and life styles. If you are taking a loan to fund your lifestyle without savings in the bank, you are living dangerously close to a financial ruin. What would happen if you or somebody in your family fell sick, or got laid off? You'd still had to pay the lender, if not they would repo your car/boat etc and you'd loose all your equity.

I always buy rather than lease as I put so many miles, so my rule only apply to purchases. My point is that if you always buy your cars with cash, it does the following things:
- Forces you to save for your next purchase
- Rather than paying interest to the bank, you get to keep the interest
- Makes you a more cost conscious buyer, i.e. you can't just stroll into a dealership, fall in love with a car and next thing you're already signing papers if you don't have accumulated the funds. In effect forces you to delay the gratification of buying a new vehicle

Everybody looks at their finances differently, this is what has worked very very well for me. No reason it would not work for others.
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  #8  
Old 01-22-2013, 04:29 PM
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Again, what I was saying is that just because one can buy a car for cash does not mean one can afford it. (I agree with you 100% that if you can't pay cash, then you can't afford it. If you can pay cash but choose not to for other reasons, that is OK.)

For instance, if I make $60K a year but I have been frugal the last 20 and lucky with investments and now have $100K in the bank, can I really afford a $50K car? My analysis based on the links above would say "no". If I did buy one, in a few years it would become a huge drain on finances (aside from depreciation).
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  #9  
Old 01-22-2013, 04:43 PM
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OK, now I got it. Yes, choosing to take a loan rather than depleting your cash reserves can be a smart move as you always need to have your emergency fund.

And yes, after accumulating $100k after 20 years of saving, does NOT mean you can afford a $50k car. You're absolutely right about that.
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  #10  
Old 01-22-2013, 05:41 PM
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Quote:
Originally Posted by mr_clueless View Post
For instance, if I make $60K a year but I have been frugal the last 20 and lucky with investments and now have $100K in the bank, can I really afford a $50K car? My analysis based on the links above would say "no". If I did buy one, in a few years it would become a huge drain on finances (aside from depreciation).
Actually, you can afford a $50k car if you've got $100k in the bank, and don't plan on buying another comparable car in the next ten or more years. Considering that you've been able to save $5k a year, while still purchasing and maintaining other cars, maintaining a $50k shouldn't tax you fiscally. This is all based on the assumption that the $100k isn't your retirement money.

Of course, this is based on having no kids, because if you've been working for more than 20 years, you're probably looking at the cost of college right now and won't be able to get a new car for another 10+ years.
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  #11  
Old 01-22-2013, 09:56 PM
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Quote:
Originally Posted by mr_clueless View Post
I think they are still useful guides to make sure one is not overreaching. Sometimes one can have a lot of savings because of past earnings and then one can jump into a car that ends up unexpectedly being a money hog.

For a base F30 (37K MSRP), Edmunds estimates it will cost 50K+ over 5 years, driving 15000 mi/yr to own the car (including insurance, maintenance, etc.).
http://www.edmunds.com/bmw/3-series/...tyle=101386360
They assume leasing, but even without that it is $50K+.

So even if one were paying cash for it, it makes sense to think what percentage of after tax income is being spent on the car.
Actually according to Edmunds,
The new 328i going to cost you $37000 over 5 years WITHOUT considering car price or depreciation.
So you are really looking at $75k maybe $80k to own a 328i over 5 years time.
At the end of the day, a car is a huge expense. If you want something nice, you got to sacrifice on other things in life.
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Last edited by smashhell; 01-22-2013 at 09:58 PM.
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  #12  
Old 01-22-2013, 10:05 PM
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Originally Posted by smashhell View Post
Actually according to Edmunds,
The new 328i going to cost you $37000 over 5 years WITHOUT considering car price or depreciation.
So you are really looking at $75k maybe $80k to own a 328i over 5 years time.
At the end of the day, a car is a huge expense. If you want something nice, you got to sacrifice on other things in life.
I think 75K to 80K would be pushing it. The rough estimate for depreciation over those 5 years is about 50%. So if one were to buy a 50K version, that would put the total cost of ownership at around 60K over 5 years.

(The link I provided shows a 17K depreciation for a car with TMV of 35K, but that's for 2012 and in 2013, they are already 2K more.)
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1998 Civic EX / Vogue Silver / Gray / 4 DR / 5 MT / 122K+ Miles / Bought 12-30-1997 / Totaled 08-2002
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  #13  
Old 01-23-2013, 01:31 AM
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Originally Posted by mr_clueless View Post
I think 75K to 80K would be pushing it. The rough estimate for depreciation over those 5 years is about 50%. So if one were to buy a 50K version, that would put the total cost of ownership at around 60K over 5 years.

(The link I provided shows a 17K depreciation for a car with TMV of 35K, but that's for 2012 and in 2013, they are already 2K more.)
Yeah the price I listed was not counting deprecation or car value.
If you sell the car in 5 years, than the total money out of your pocket will be around $60k.
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  #14  
Old 01-23-2013, 02:31 AM
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Quote:
Originally Posted by mr_clueless View Post
Again, what I was saying is that just because one can buy a car for cash does not mean one can afford it. (I agree with you 100% that if you can't pay cash, then you can't afford it. If you can pay cash but choose not to for other reasons, that is OK.)

For instance, if I make $60K a year but I have been frugal the last 20 and lucky with investments and now have $100K in the bank, can I really afford a $50K car? My analysis based on the links above would say "no". If I did buy one, in a few years it would become a huge drain on finances (aside from depreciation).
I doubt most people with $100k in savings would be willing to take half of their life savings to buy a car.

That's what we mean about paying cash, it makes it bleedingly obvious if you can afford it.
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Old 01-23-2013, 02:33 AM
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Originally Posted by smashhell View Post
Actually according to Edmunds,
The new 328i going to cost you $37000 over 5 years WITHOUT considering car price or depreciation.
So you are really looking at $75k maybe $80k to own a 328i over 5 years time.
At the end of the day, a car is a huge expense. If you want something nice, you got to sacrifice on other things in life.
Your math is wrong there somewhere. Leasing a 328i for 5 years should be in the ballpark of $33k, while purchasing it a little less.
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Old 01-23-2013, 10:15 PM
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Quote:
Originally Posted by finnbmw View Post
I don't quite follow your reasoning about cash flows and life styles. If you are taking a loan to fund your lifestyle without savings in the bank, you are living dangerously close to a financial ruin. What would happen if you or somebody in your family fell sick, or got laid off? You'd still had to pay the lender, if not they would repo your car/boat etc and you'd loose all your equity.

I always buy rather than lease as I put so many miles, so my rule only apply to purchases. My point is that if you always buy your cars with cash, it does the following things:
- Forces you to save for your next purchase
- Rather than paying interest to the bank, you get to keep the interest
- Makes you a more cost conscious buyer, i.e. you can't just stroll into a dealership, fall in love with a car and next thing you're already signing papers if you don't have accumulated the funds. In effect forces you to delay the gratification of buying a new vehicle

Everybody looks at their finances differently, this is what has worked very very well for me. No reason it would not work for others.
Im with ya there (almost) Dave Ramsey..... Isnt the recommendation is to buy a CPO or newer used car? If you want to debate the point, can anyone afford the 50% hit on a 50k car in 3 years? Let someone else take the hit.

Most people here on the 'Fest know that a car is an emotional decision and a lot of the logic is thrown out the window...
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Old 01-24-2013, 11:44 AM
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Originally Posted by Frank Rizzo View Post
Most people here on the 'Fest know that a car is an emotional decision and a lot of the logic is thrown out the window...
This. I'm a car guy. I'm willing to spend a lot more than someone who sees an automobile as a rolling appliance. I have had car payments since I started working and will until I retire. I've bought a couple of big ticket cars cash, leased a couple, but mostly do a 60 month finance with nothing down, then trade at 2-3 years.
Smart? Maybe not to number crunchers, but my housing costs are low, my retirement plan looks good, and I live within my means.
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Old 01-24-2013, 11:52 AM
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Originally Posted by mtbscott View Post
This. I'm a car guy. I'm willing to spend a lot more than someone who sees an automobile as a rolling appliance. I have had car payments since I started working and will until I retire. I've bought a couple of big ticket cars cash, leased a couple, but mostly do a 60 month finance with nothing down, then trade at 2-3 years.
Smart? Maybe not to number crunchers, but my housing costs are low, my retirement plan looks good, and I live within my means.
There definitely a difference in what people can afford if they're willing to treat the car as a hobby, but it's always good to be able to calculate ahead of time what that cost will be.
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Old 01-25-2013, 10:33 AM
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if you have to ask...
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Old 01-25-2013, 10:57 AM
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if you have to ask...
If you don't ask because you think you know what it costs, but really don't...
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Old 01-25-2013, 09:07 PM
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Your math is wrong there somewhere. Leasing a 328i for 5 years should be in the ballpark of $33k, while purchasing it a little less.
It's correct.
Cost of owning a 328i over 5 years according to Edmunds.com:
Car cost $40k (with basic options)
Fuel $12.5k
Insurance $10.5k
Maintenance $4.5k
Tax $4k
Finance $3.5k
Repair $3k
= $78k total

If you sell the car, you can get $15k back at best. So total cost would be around $63k.
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Old 01-25-2013, 09:40 PM
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It's correct.
Cost of owning a 328i over 5 years according to Edmunds.com:
Car cost $40k (with basic options)
Fuel $12.5k
Insurance $10.5k
Maintenance $4.5k
Tax $4k
Finance $3.5k
Repair $3k
= $78k total

If you sell the car, you can get $15k back at best. So total cost would be around $63k.
Jeez, $7.5k on maintenance for the 1 year the car will not have free maintenance? Those numbers are total crap. My insurance would be like half that too. \

Anyway, didn't realize anyone was talking about total cost of ownership.
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Old 01-26-2013, 12:20 AM
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Quote:
Originally Posted by smashhell View Post
It's correct.
Cost of owning a 328i over 5 years according to Edmunds.com:
Car cost $40k (with basic options)
Fuel $12.5k
Insurance $10.5k
Maintenance $4.5k
Tax $4k
Finance $3.5k
Repair $3k
= $78k total

If you sell the car, you can get $15k back at best. So total cost would be around $63k.
No, there's something wildly off. Edmunds TCO is laughably awful for things like insurance. My 2013 328i runs me $600 a year for full coverage in San Diego through Wawanesa. Over 5 years that's about 3k.

And this car will cost 7k for 1 year out of warranty? Geez! I've had 4 BMWs and while they're poorly made, they're not Audi-bad!
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Old 01-29-2013, 05:54 AM
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Affordability needs to be addressed on a case-by-case basis. There are a ton of different factors. Here are just some:
  • How much do you make?
  • How stable is your employment?
  • How much do you have saved?
  • Are you single or married?
  • Do you have kids?
  • Do you have kids with special needs?
  • What about college for your kids?
  • How much is your rent or mortgage payment?
  • Is your house paid for?
  • How much credit card debt do you have?
  • Do you like to go on expensive vacations?


But generally speaking, I always follow the 10% rule. Monthly payment should be < 10% of your monthly take home pay.

If you have $100k in the bank, and you plan on spending half that ($50k) on a car, then that doesn't sound like a good idea at all to me. You really should be looking at a cheaper car, and you should finance some of it. For example, target a $35k car, pay $20k in cash and finance $15k. It's always good to have money in the bank; even if you have a stable job and guranteed income.

Paying cash for a car is nice, but we're talking about a depreciating asset. So even though finance charges add to the cost, cash is still king, and having money in the bank is even better...That's why when paying cash, it isn't really a bad idea to finance about 35% to 40% of it...You just never know when you'll have to tap into your bank account. Now if you have millions and millions, that's totally different, and then paying cash makes sense.
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Last edited by krash; 01-29-2013 at 06:00 AM.
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Old 01-29-2013, 07:02 AM
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brkf brkf is offline
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krash - yeah with some places (Pentagon Federal) offering 1.49% for 60 months it definitely makes sense to keep the cash somewhere liquid. I say if he's got 50k he's itching to drop, buy the car on credit and then drop that 50k into a mix of roths, money market, stocks, property.

Locally, 50k on a 240k house in San Diego would mean...1200 payment, rent for 1600. That's 19k in, 14.4k in payments, 7500 in depreciation, 6k in interest, 2500 in property tax, 600 insurance. Can't get a 5-6% ROI much more easily. Rentals not for all people. So in that case, market, etc.

Last edited by brkf; 01-29-2013 at 07:04 AM.
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