When did you decide you can afford a luxury SUV/Car?

For me.. I realized... you only live once

I got my X5 when I could pay cash for it.
Chuck

bump for more replies I'm enjoying this thread

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When I was bored with Japanese cars.

I didn't pay full cash like others but i was able to pay 50% of them.

I've had an extra summer fun car ever since I graduated college, but I've always bought used and domestic to justify the added expenses of owning 2 cars.

When we were able to pay off our car loans within 12 months I finally justified the purchase of a new car and since I wanted a diesel SAV/SUV my choices were limited to german marques.

So I guess my guiding priciple is - if you can pay for a luxury item within 12 months, without sacrificing anything else, then you can afford it. That means savings must remain healthy and 401k/HSA/FRA/etc must be maxed out.

Jay

Originally Posted by Smj14420

Hi guys, new to the board...

So, I am tossing around the idea of buying an X5 but haven't talked myself into it yet. Just curious what helped others bite the bullet. Couple questions for you.

1.At what point in life did you make the determination that you can afford an upscale vehicle?

2.How much monthly discretionary income would be advisable prior to taking on a BMW?

3.Also, how do most people go into the deal on a 40-70k purchase? Minimum down/high payment, Max down/small payment on a purchase to be held 5-7yrs.

My situation is this:
31yrs old, married, no kids. 1 child planed 2 yrs out. New house within 5 yrs
150k household income
8500 take home
No current car payment/debt
1yr reserve in the bank
401k maxed at match
5500 discretionary/savings at the end of the month
Current car: 350z which is not childseat friendly, but will keep as I enjoy driving it.

Personally this would suggest room for somewhere between a 500-1500 car payment/insurance, which would allow for a variety of nice vehicles new or used, but I'm having a tough time justifying the additional expense vs something more economical. I am drawn to the x5 as a driving enthusiast and I think I would enjoy the performance/utility tradeoff.

I'm currently eying the x5d used for ~40k or new for ~65k.

This might be unconventional laying it all out there, but I'm curious how current owners came around to the idea of owning a luxury vehicle.

Thoughts?

You seem to be doing fine financially. With 1 year of reserve in the bank you have enough buffer to give yourself time for finding work should you or your wife lose your job. Also, your next major expenses (child or home) are 2 to 5 years out. As for myself, I first purchased a home, then had my son before putting money into an X5. I still had 2 years worth of cash reserves AFTER paying cash for my X5. Buying an X5 is not financially wise. I purchased it because I like to drive and enjoyed the driving experience the X5 offered for an SUV. I have never regretted purchasing the X5!

Get a house and have your children first.

Chuck

Originally Posted by ChuckGr

Get a house and have your children first.

Chuck

Can't agree with this more. Cars are a terrible way to spend money, although sometimes fun at a cost. I purchased a now 40 year old sports car for fun before having kids. That is my fun car when I have time. I already had a house and was saving as much as possible with 401ks and Roths to the annual IRS limit not the 3-5% company offerings. Whatever was left we also invested and lived on the minimum and now we are comfortable with no worries.

I moved to an X5 3 years ago as I needed size, safety, utility and a FUN DRIVE with my now 8 and 5 year old kids. We had cheap/used domestic cars/SUVs during our intense saving period. We attained some goals and the "ability to afford" an X5 felt comfortable. Everyone's timing and comfort level is different which makes this thread an interesting read of views. We worked on investing a lot young while spending frugally, something about compound inflation sounded good in high school and stuck with me. So far it's worked and takes the pressures off which makes the X5 MORE enjoyable.

I paid cash for my first new BMW just out of grad school when I sold my Boston condo for twice what I had paid. Since then I've always paid cash for cars. Cars are noise in my budget. I keep them until they hit "three strikes" (unscheduled repairs post-warranty).

I have never understood the notion of paying cash for a BMW.

So you live frugally until you have a bunch of cash and dump it into a heavily depreciating asset, even though you can get close to free money out of BMWFS?

Doesn't make much financial sense to me? I can put my money into multiple other options that will generate more than the couple percent finance charges versus getting zero out of the $70Kish up front cash spend.

I'm genuinely curious as to a rationalization as to how this makes any financial sense?

For me it was when our little VW Rabbit was small enough to fit my family and since safety of my family is top priority we got our X5. Plus, yep, we live once and I want to enjoy stuff while I want rather when I can pay for it with cash (well, based on old rule "car price = 3 montly salary" we can aford it anyway).

I also never pay cash for cars but rather have little APR for loan. For my car I have 1.49% so I will not pay it off quickly and rather use money for something else.

Old rules should not apply in 2013...
Just saying...

Originally Posted by Cdnrockies

I have never understood the notion of paying cash for a BMW.

So you live frugally until you have a bunch of cash and dump it into a heavily depreciating asset, even though you can get close to free money out of BMWFS?

Doesn't make much financial sense to me? I can put my money into multiple other options that will generate more than the couple percent finance charges versus getting zero out of the $70Kish up front cash spend.

I'm genuinely curious as to a rationalization as to how this makes any financial sense?

You have to look at it in terms of your total financial picture. Maybe you have 400k tied up in equity in your house. You have another 300k in a mixture of stocks and bonds. Then 400k in a 401(k) or IRA. Then 50k in actual cash.

So now 70k represents a small percentage of your total net worth, which is pretty diversified. You could maybe earn a higher return leaving it in stocks over the course of the 4-6 years you'll keep your car. Or you take the money out of your HELOC, which is deductible. Or a couple of your stocks have shot up and you need to reduce that portion of your portfolio anyway. Or you just decide a few percent on 70k isn't worth the hassle of having to write yet another monthly check.

Either way, cash or financing, hopefully there's no frugal living involved. But when people who can afford to pay cash for a BMW say, "I paid cash", the picture is usually more complicated than somebody withdrawing 70k from their savings account and living off Ramen.

Originally Posted by chiefneil

You have to look at it in terms of your total financial picture. Maybe you have 400k tied up in equity in your house. You have another 300k in a mixture of stocks and bonds. Then 400k in a 401(k) or IRA. Then 50k in actual cash.

So now 70k represents a small percentage of your total net worth, which is pretty diversified. You could maybe earn a higher return leaving it in stocks over the course of the 4-6 years you'll keep your car. Or you take the money out of your HELOC, which is deductible. Or a couple of your stocks have shot up and you need to reduce that portion of your portfolio anyway. Or you just decide a few percent on 70k isn't worth the hassle of having to write yet another monthly check.

Either way, cash or financing, hopefully there's no frugal living involved. But when people who can afford to pay cash for a BMW say, "I paid cash", the picture is usually more complicated than somebody withdrawing 70k from their savings account and living off Ramen.

I understand different ways of making it happen but it still isn't an effective use of dollars.

Like most of the other posts stating "paid cash", yours comes off as condescending and bragging, especially the "worth the hassle" comment...lol. The capability to pay cash was not my question and is irrelevant. None of your suggestions will be financially more prudent than taking a low interest loan and making your cash earn you significantly more elsewhere.

Spend your money however you want, it is your money after all, but please provide an explanation that shows how cash makes more money than financing at sub-2%?

Originally Posted by Cdnrockies

I understand different ways of making it happen but it still isn't an effective use of dollars.

Like most of the other posts stating "paid cash", yours comes off as condescending and bragging, especially the "worth the hassle" comment...lol. The capability to pay cash was not my question and is irrelevant. None of your suggestions will be financially more prudent than taking a low interest loan and making your cash earn you significantly more elsewhere.

Spend your money however you want, it is your money after all, but please provide an explanation that shows how cash makes more money than financing at sub-2%?

I'm not sure why think my post is condescending or bragging when I said nothing about my personal financial position. Those numbers were simply used as an example. The average income of a BMW buyer ranges from 140k (3 series) to 260k (7 series), so I think my example is reasonable.

There are a lot of ways to look at the situation. If somebody had sold 70k work of stock in 2006, they would have avoided a huge loss on it. If somebody was going to shift 70k worth of stock to T-bills, the T-bills could be paying less than 2%. Maybe you had some capital losses and that makes it a good time to offset it with some capital gains. If you're heavily weighted on stocks and need rebalance, you're going to sell some anyway and maybe bonds aren't attractive. Maybe you think the market is high right now and want to sell some stock off, but dollar-cost-average yourself back in over time with the cash you'd otherwise use for the car payment.

At the end of the day, an 8% return on stocks isn't guaranteed, nor is a 15% capital gains tax. If there were a sure-fire way to always make 8% on 70k then you would be absolutely right.

Originally Posted by Cdnrockies

None of your suggestions will be financially more prudent than taking a low interest loan and making your cash earn you significantly more elsewhere.

Your assumption that one can earn significantly more elsewhere is only true if you ignore risk. It is quite possible that the money one takes and invests elsewhere could have a negative return for a period of years. This has happened in the past and will likely happen again in the future.

Some people simply prefer lower risk than others, and do not wish to use debt to finance investments.

To each their own, as people have different priorities, and these priorities often change as one ages and their financial position changes, e.g., many people, upon getting to $3-4 million in net worth, put more emphasis on capital preservation and less on growth. Others may continue to emphasize growth. Neither is inherently right or wrong, as they simply have differing objectives.

I have had "luxury" SUVs for around 10 years since I was 40. 2x RR, 2x RRS and now the X5.

I never pay cash for a car as I can tax deduct payments and expenses here for my work, but that's only because of my employment situation.

We own our house outright as we cannot tax deduct mortgage payments on the family home. We also have a rental property which the rent less interest and expenses is tax deductable. Opposite to the USA. We are about to buy another rental.

Houses and cars and cost of living is much more here than in the US but I think that salaries are higher.

Originally Posted by Penguin

Some people simply prefer lower risk than others, and do not wish to use debt to finance investments.

This +100

Financing a car means you will HAVE to pay interest, any other investment you choose will have the risk of loss (some more then others). If BMWFS is lower then risk free rate then yes it seems like an unwise financial decision to pay cash for your car.

I prefer to keep my investments segregated from my fun money, and to keep my debt as small as possible, you never know when you'll be pinched and the quicker you can cut off monthly payments the better.

Jay

I am not even going to read all of the posts... a car is an emotional purchase. Don't try to justify it. Buy a car because you want it, not because it makes sense.

If there was a formula, we'd all be driving the Toyota Prius.

Go for it.

- Mike

Originally Posted by Emission

I am not even going to read all of the posts... a car is an emotional purchase. Don't try to justify it. Buy a car because you want it, not because it makes sense.

If there was a formula, we'd all be driving the Toyota Prius.

Go for it.

- Mike

i agree

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Well said Emission. Couldn't agree more.

bumping this for more replies this was a very insightful thread

Originally Posted by Emission

If there was a formula, we'd all be driving the Toyota Prius.
- Mike

Agree with everything else you said, except for Toyota Prius being good financial decision.
Take Prius ($28K) vs Corolla ($15K). Similarly sized vehicles.
It will take a good dozen years to make up the difference in price with fuel savings. By that time, the battery on Prius goes bad (those last 5-7 years).

Basically, Prius is an emotional decision... to save polar bears or whatever the trend is these days.

Originally Posted by serge1

Basically, Prius is an emotional decision... to save polar bears or whatever the trend is these days.

Until the polar bear starts swimming in the battery acid laced waters and burns away...

Originally Posted by serge1

Agree with everything else you said, except for Toyota Prius being good financial decision.
Take Prius ($28K) vs Corolla ($15K). Similarly sized vehicles.
It will take a good dozen years to make up the difference in price with fuel savings. By that time, the battery on Prius goes bad (those last 5-7 years).

Basically, Prius is an emotional decision... to save polar bears or whatever the trend is these days.

wow 28k ewww