Considering a car as a want and not a need.

[strider]

money.msn.com/saving-money/50-30-20-budget.aspx

Hey everybody, I was wondering what everyone's opinion is on this. I currently need transportation but I WANT something better than a beater that I've been driving the past 6 years in high school, college, and now my current job.

I know some of you will say to buy cars with cash and I do agree to a point. However with student loans I figure I can only do so much on that. I can put about $3000 in another beater or I can put $3000 on a sensible $12-15k car.'

I try not to keep up with the Joneses but it is definitely getting harder to see myself driving the crappiest car in any venue I go to. I'm cool with a vehicle 5 years old and low miles though. Used Honda Civic possibly?

Anyways, I'll probably break a YM sin and go with a payment on a car but I figure if I buy used, can get rid of it if I have to, and drive it sensibly for a long time it'll work itsself out.

I figure I can comfortably spend about $250/month and put about $150 in insurance (gotta love being male under 25).

That's $400 a month out of 2600. Doesn't break my bank but it doesn't follow the 50/30/20 plan. Thoughts?

[strider]

Quick Budget:

2600 Net after all taxes, deductions for healthcare, life insurance, and gym membership

Rent: 290
Insurance: 60
Food: 160
Entertainment: 150
Gas: 100
Student Loans: 150
Netflix/Hulu/Dataplan phone: 80
Internet: 40

Total: 1030

Some of my wants come and go but I consistently save over $1000 out of 1570 a month. I have no other debt besides student loans.

I figure I can work with it.

[Sum Dum Gai]

Depending on income and other savings I don't think financing a vehicle is a financial deal breaker, within reason of course. Don't go buying a 50k SUV just because the payment is low and you're sick of your beater. A low interest loan (0% if you can get it) on a basic new car (read entry level here or pretty close to it) is probably not a big deal.

Depending on how close you are you might want to keep the beater until your insurance rates drop though. Insuring a new car is a lot more expensive than an old POS.

The trick is to drive the thing until it's an old beater though. Most people get in trouble from trading in cars way too frequently, not necessarily whether they purchased them new or used to begin with.

[BeenThere...DoneThat...]

...not enough data to know... my vote is to buy the best car you can for $3K and your beater as a trade in... or keep adding to the $3K for when the beater really dies...

[steph08]

Can you afford it? Sure, but what I would do is start pretending like you have bought a new(er) car but haven't yet. Start putting that $250 + $150 into a savings account (I like ING) and make sure it works in your budget.

I always said I would buy a new car when I graduated from college. Well, I graduated. That was 4 years ago and I am still driving the same 15 year old car. And I am glad because not being saddled with a car payment has been nice. Now that my husband is unemployed and back in college, I haven't had to worry about spending a couple hundred on a car payment every month. I didn't think that would be the case when I graduated but things change!

[stats45]

We just purchased a 2006 Civic to replace my partner's SUV that got about 12-14mpg. We paid around $12k and financed it at near nothing. We invested money from the trade-in instead of putting it toward the purchase price. We've decided to keep our total transportation costs below 10% of net income, because that is what transportation (read: nicer cars) mean to us. We're at about 5% now, but setting these limits makes sense for our retirement, investment, and savings goals along with our other expenses (like travel!).

One thing that sticks out to me is your rent. Do you think your rent is going to be that low for a while? That is 'roommate' low, and if you are planning to have different living arrangements within the period of your car loan, you may want to think about how that might put some strain on your savings goals.

[robbase]

everything has a cost benefit to it, just realize if you buy a better car it will cost you down the line something else (less retirement savings, some other goal missed, etc.).... don't be complaining later about something you can't do because you did this (you can't have everything)

why not suck it up and buy a $3K beater and bank what your payment would have been had you purchased a $12-15 K car for 3 years or so and than re-assess the situation?

[muttleynfelix]

I'm cool with a vehicle 5 years old and low miles though. Used Honda Civic possibly?

Ok that isn't a sin. That is a very boring practical car. My opinion as a YM sinner is that most of us have areas where we break the rules. As long as you don't break a whole bunch of rules, then you are usually fine. I screwed up and financed a $25k truck out of college. I didn't have set retirement contributions and didn't do automatic savings, but I had pleanty of money to my bills. I married my DH and together we had pleanty of money to pay our bills. Then we moved into our house and realized oops we don't have as much money to pay our bills as we thought.

Decide what your priorities are and work towards them. Also be aware about how much things change over the length of the loan. I got married, built a house, and changed jobs. Having that car payment really held us back.

[phil5185]

I know some of you will say to buy cars with cash and I do agree to a point. However with student loans I figure I can only do so much on that. I can put about $3000 in another beater or I can put $3000 on a sensible $12-15k car.'

I'm 72 and I almost never pay cash for a car (one time in 1985 we paid cash for a new 1986 Van when loan rates were at about 14%). IMO, I can put my own cash to better use.

The 'don't' with cars is the excesses - the 8MP $65k Hummers for street use, the $65k performance cars that need $1000/month tuning, etc. But a $15k used japanese car, >25MPG, 200,000 miles of useful life - you can't get much more cost efficient than that (no matter what 'beater' you get).

You can probably finance $15k at a credit union at 5%, ie about $275/m for 60m.

[dancinmama]

When we were at your stage in life, our rule was always to get the most reliable car possible for the least amount of money. We have always paid cash for our cars.

Depending on how much trade in you'll get for your current car, I would consider just driving it until it dies and save more while you're waiting for that; but that's just me.

[activeonlooker]

My vote is for a reasonable used vehicle while you have time to look and research. Nothing worse than when the beater dies and you are stuck making what may be a rash decision due to the immediate need for transportation, if that is the case. Still, breaking down always stinks, and at the worst time and place possible.

[Deleted]

I say
a) Drive your current car to the ground
b) Keep saving money
c) Keep your credit score in good standing
d) Use b and c to get a car when you need it : one for the down payment and the other to get the best available rates.

[strider]

Wow, wasn't expecting that many responses so quickly.

A few notes: I do expect my rent to go up because I plan on moving. I'd expect rent and utilities to go up another $400.

That leaves 1170.

Anyways, I don't plan on buying an expensive car at all. I have been driving my 1994 grand prix since 2005. Then, it was 11 years old. So I'm ok with 5 years old at this point.

I do plan on holding the car for a long time. I won't be upside down on it at least and it'll be paid off for awhile. Having a car that has good electrical and decent brakes would be nice though.

[Deleted]

I really liked Dark's post until I reached your post #14. There's such a thing as being stupid cheap (don't worry we've all been there).

I think your plan is good. Do double check against new car prices too. I'll confess that DH and I do buy new (and pay cash but keep cars for a long time). I'm haven't been in the market for a long time but I have heard of some highly rated used cars selling within 10-12% of a new car price during this recession. If that's the case and you can keep the car 3 years longer it might make sense to go new.

[luckyme]

{ I'm haven't been in the market for a long time but I have heard of some highly rated used cars selling within 10-12% of a new car price during this recession. If that's the case and you can keep the car 3 years longer it might make sense to go new. }

I second this. I was recently talking to some friends, one owns a used car dealership. He has been doing well, but mentioned to our friend that the new cars were going at some really great deals. She ended up going with a brand new Subaru and got a really great price. More than used, yes, but it's brand new, and she should have it far longer than a used one; she wasn't looking at beaters.
Maybe it's different where you live, but worth looking into.

[muttleynfelix]

"I'm haven't been in the market for a long time but I have heard of some highly rated used cars selling within 10-12% of a new car price during this recession. If that's the case and you can keep the car 3 years longer it might make sense to go new. "

We spent 6 months shopping for our new SUV and looked at a whole bunch of SUVs and did a ton of research. Then my commuter car was totalled 3 weeks after we bought our SUV. We got a steal on the SUV; it was a 2007 and priced $6k below blue book (and then we got more than blue book on my pick up). Commuter car shopping stinks. This was in December and gas prices hadn't gone up yet, but gas sipping cars don't go down in price a whole lot when they are a couple years old. Particularly Hondas. We ended up fixing my commuter car because in 5 days of searching every place on the internet up to 500 miles away, there wasn't a single vehicle that fit our requirements (and based on consumer reports there should have been). There are deals out there, but you have to be patient and constantly looking. Since you have a '94, I would start shopping and see what is out there. My commuter car is a '98 with 170k miles on it and DH was about to fix it for 1/3 of the totalled amount. We put the 2/3 in savings and said in 2 years we plan on replacing it.

[qofcc]

I know some of you will say to buy cars with cash and I do agree to a point. However with student loans I figure I can only do so much on that. I can put about $3000 in another beater or I can put $3000 on a sensible $12-15k car.'

I would go somewhere in the middle. Put $3k down on a $5-10k vehicle and take whatever cash you can get for your beater and put it in the next car or car repair fund. You should be able to find a vehicle <5 years old and <50k miles for under $10k

[DVM gone riding]

if you are putting a 1000/mos in savings why can you only afford 3k?? I would wait one year and then buy the 10-14k vehicle for cash!

[strider]

May 4, 2011 9:42:59 GMT -5 DVM gone riding said:

if you are putting a 1000/mos in savings why can you only afford 3k?? I would wait one year and then buy the 10-14k vehicle for cash!

Excellent question and I was anticipating it.

1. I have a vacation coming up to Las Vegas that's next week. I have about $3000 saved for that. It's my first real vacation ever. I never went to Spring Break or Vegas just after I turned 21 so this is my first opportunity to really have fun.

2. I was only getting the $1000 savings as of March. My rent was alot more and I wasn't willing to pay it so I moved into a slightly crappier apartment with a roommate. It has seemed to work out.

3. I'm paying off student loans faster than the minimums

4. I'm saving money to put into an IRA.


All of those combined are the reasons why. If I was saving $1000 a month for the past year I could definitely buy a car cash.

[tskeeter]

Strider, not a car comment, but student loans. If your student loan interest rates are less than about 5% - 6%, I wouldn't be paying them off early. You will get a much better return on your money by investing it for the long term. All projections are that we are entering a period of significant inflation. This will drive up returns on investments (I remember 17% - 20% returns on money market accounts during the mid to late 70's). Why tie up more of your money than necessary to pay off what could be a 4% student loan and pass up investment returns that could be 10% - 15% a year in the not too distant future?

Another thought. The single biggest thing a person can do to accumulate financial resources is to start saving and investing early. Investing over long periods of time allows time and the power of compounded returns to grow your investments. In my mind, time is more important than selecting great investments, maximizing returns, having the best investment adviser, or any other factor that can affect your accumulation of financial resources.

[strider]

Only reason I'm thinking of student loans is that I can actually pay them off in full very very soon. Sure money could be put elsewhere but being debt free before buying a car/house is a liberating feeling.

I only have 6000 left to pay off thankfully. I know kids with alot more.

[haapai]

It's not clear whether the $150 a month figure that you mentioned includes collision or not. There are places in this country where a male under the age of 25 would be paying a whole lot more than that.

Have you actually priced full coverage? I sure didn't when I replaced my HS/college vehicle which had been minimally insured for several years. I would have played my cards slightly differently if I had grocked that financing a vehicle meant buying comprehensive and collision insurance and tripling my premium.

[strider]

To be fair no I haven't gotten a full quote on insurance. I did plug in some numbers in a few websites and that was the bare minimums for coverage for my state. I have no collisions, speeding, or anything else on my record.

I have a college degree and I have good credit (which I heard were good factors but I'm not 100% on that).

It's just pure 100% discrimination is what it is. It's a racket.

I did shift back my birthdate to be over 25 just to see what happened and it went down over half.

Such bullshit.

[phil5185]

Sure money could be put elsewhere but being debt free before buying a car/house is a liberating feeling.

But is the goal to feel "free & liberated" or is to to build future wealth ?
At your age, that $6000 @ 11%/yr would be $285,000 at age 60. If, instead, you spend your youth prepaying small loans and then start at age 33, a $6000 investment will be $100,400.
The point is - if you have access to cheap capital (<5%) retain the use and put the money to work elsewhere. I don't mean that you you spend less or have less fun - I mean that you should direct your income to where it will do the most good.

[strider]

I'd say it's a little of both.

Part of it is how I was raised by my parents as well. My brother had spinal meningitis when he was born and he almost died. The bills racked up were about 1.2 million in 1989. No insurance is that good. Anyways they went bankrupt and they instilled in me a sense that to be out of debt is freedom and to always try to be like that. They never thought they'd be rich but they want to be free.

On the other hand I do understand the power of compounding interest. For me it's a cultural thing to be close to debt free as possible however I do understand the need to feed money into my own retirement.

I'm learning this stuff at 23 though. That's good at least.

[stats45]

It is important to think about risk, and debt is risk, but I like to think about opportunity cost instead. The risk of not using low interest debt to build wealth is the opportunity cost that Phil described, a huge difference in lifetime wealth.

It is more likely, for example, that you would have a health problem later in life when larger wealth would benefit you. It all depends on what risks you tend to focus on. Looking for the best long-term return is nearly always the best way to reduce risk.

[phil5185]

It's just pure 100% discrimination is what it is. It's a racket.

A racket? Remember, it doesn't matter to the insurance companies. If society prefers to socialize the premiums across the full driving population so that we all pay equal premiums, they simply calculate the total cost of all claims in a year, add their OH & Payroll, add a ~10% profit, and charge the identical premiums to everyone.

Or - they can go thru the claims statistics, categorize the claims costs by groups, and charge premiums accordingly to arrive at that same revenue (a revenue neutral calculation).

We, the customers, control that by asking for legislation. Personally, I like it the way it is.

[CarolinaKat]

May 5, 2011 15:07:34 GMT -5 strider said:

To be fair no I haven't gotten a full quote on insurance. I did plug in some numbers in a few websites and that was the bare minimums for coverage for my state. I have no collisions, speeding, or anything else on my record.

I have a college degree and I have good credit (which I heard were good factors but I'm not 100% on that).

It's just pure 100% discrimination is what it is. It's a racket.

I did shift back my birthdate to be over 25 just to see what happened and it went down over half.

Such bullshit.

Doesn't that suck? They also charge extra for rental cars

[patchwork150]

by google... I live 24.4 miles from work, 33.5 miles from college, and college to work is 53 miles. All in the boonies.

Car= neccesity of life

[strider]

Phil, I do agree with you on doing it to the riskiest drivers. I just know that I see alot of old farts with midlife crises driving 500 horsepower sports cars and they'll still tack on more money to a Japanese, hippy-dippy, 'socialist's', 95 horsepower rice burner just because I'm 23.

You'd think the guy that can do 0-60 in 4 seconds would pay a little more than the guy that can do 0-60 in 40 seconds.