Author Topic: Can I afford a new car? Does it make sense?  (Read 1083 times)

yuppiemustache

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Can I afford a new car? Does it make sense?
« on: May 30, 2019, 12:09:55 PM »
Hi fellow Mustachians,

- Given my financial situation (briefly highlighted below), can I afford a new car? Would it significantly hinder my goal of FIRE given my current rate of saving? If I can afford to buy new, should I seek to pay for it with 100% cash? Or should I seek to finance some or all of it to preserve some liquidity?

Lately I've been eyeing the 2019 Honda Civic Si to be used as my only car/daily driver, but wonder if spending ~$23-24k on a new/lightly used car and driving it for an intended minimum of 10 years (or until the wheels fall off) is prudent vs. buying, say, a relatively higher mileage (between 60 - 100k 2015 or older car) - for $10-15k and also driving that thing into the ground.  :confused

Some background on me: Have always been blessed to drive parents vehicles growing up without ever having to purchase my own and currently drive my dad's car which he said he's thinking about needing back within the next 4 to 6 months)

About me:
- Single
- 25 years old
- Currently paying for my auto insurance through my dad (car's are in his name and I'm covered under his policy; I reimburse him every month for my share)
- Make ~$73k gross salary/yr. with expected year-end bonus of ~$10k gross.
- Currently pay ~$400/mo. for rent/utilities (living situation subject to change within the next year; i.e. moving to a shared or my own apartment)
- Budgeted and on track to max out my 401k & HSA this year (Front loaded my Roth at the beginning of this year)

Assets:
-Cash: ~21k (6k of which I currently have allocated as "Emergency funds" but I don't see a high likelihood of it being needed given I don't have much in the way of expenses and am able to move back in with parents for free if need be)

-401k:$53.6k

- Roth IRA: $24.6k

- HSA: $5.6k

- Brokerage Account: $18.0k

Liabilities

- None

Let me know if I left anything out that can help you guys give better feedback/guidance.

Thanks,

YM
« Last Edit: May 30, 2019, 12:19:59 PM by yuppiemustache »

Stimpy

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Re: Can I afford a new car? Does it make sense?
« Reply #1 on: May 30, 2019, 12:41:50 PM »
Can you?  From what I can see yes.   Should you is another matter...   Though from the looks of it, you'd need some debt or a little more time to save the cash.  Debt would be no more then a couple of grand, easily paid off. Not a huge impact, but I am pretty sure that the debt still qualifies as face punch worthy at this point in your savings life.   

Personally I would look at the used car.   Pay cash, and drive it to the ground.   I'd guess a 2018/2017/2016 Honda Civic Si would still have much of it warranty intact and be at least 5k cheaper if not more.  That would satisfy your new car craving, and be cheaper to boot.

yuppiemustache

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Re: Can I afford a new car? Does it make sense?
« Reply #2 on: May 30, 2019, 12:48:16 PM »
Surprisingly, used 2017/2018s in my area with anywhere between 10-30k miles are still relatively close to new car price (~21-23k) ... not sure if that's due to Hondas/Toyotas holding their values well.

And yes, I would either have to save a bit more cash over the next 4-6 months or I could also sell some of my ETFs in the brokerage account.
« Last Edit: May 30, 2019, 12:50:00 PM by yuppiemustache »

Home Stretch

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Re: Can I afford a new car? Does it make sense?
« Reply #3 on: May 30, 2019, 01:21:18 PM »
Just my 2c here - if you're going to buy new, you're probably going to spend more than $23-$24k. Civic Si Coupes are more like $25k MSRP and then you add on taxes, title fees, dealer doc fees (which I've seen as high as $700), and you're now suddenly wondering why you just put $5k down on a $25k Civic but you still owe $25k on the loan.

Just my experience after buying a few too many cars ;)

yuppiemustache

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Re: Can I afford a new car? Does it make sense?
« Reply #4 on: May 30, 2019, 01:30:34 PM »
Hoping that, if I do go down that route, I can negotiate down to ~$25k or better (if possible) out the door (inclusive of taxes, title, license)😅
« Last Edit: May 31, 2019, 11:44:15 AM by yuppiemustache »

Cromacster

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Re: Can I afford a new car? Does it make sense?
« Reply #5 on: May 30, 2019, 01:32:50 PM »
You are at one of the most important and impactful times on your FIRE journey.  You are young and you have time.  The magic of compounding is surely wonderful if you take advantage of it.

My advice (Note that this was me 7 years ago), spend as little as you can on a car.  7-10k can get you a wonderful car.  Invest the rest and live like a boss knowing your money is working for you.

neo von retorch

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Re: Can I afford a new car? Does it make sense?
« Reply #6 on: May 30, 2019, 02:01:27 PM »
So far you gave us The Facts, what You Want, and one False Dichotomy ;)

I'm not clear from your post a few more facts:
  • Total Net Income
  • Total Expenses (assuming new living situation)
  • Current Goal for FIRE (i.e. timeline)
So I cannot calculate how much a $25k car plus insurance premiums will affect your timeline/goal. But there's very little reason this first car cannot be a $10k (or less) car with lower insurance (you can probably self-insure and skip collision entirely; not possible if you owe the bank for a car loan.)

That and say a 15 year timeline, a price difference of $15k and say $1200/year in increased insurance, returning 7% if invested means this car alone will cost you an extra $73,651. But it gets worse... you get soooo used to have a brand new car that in 3-5 years, you get another one. And you keep repeating this mistake. How about you start with the $10k (or less) car and at least give it a good 3-5 year try, and if you find it really is suffering, then go for a newer car?

red_pill

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Re: Can I afford a new car? Does it make sense?
« Reply #7 on: May 30, 2019, 02:26:27 PM »
So you are willing to buy a new car and drive it for at least ten years or “until the wheels fall off”.  So what you are saying is in 7 years you will be perfectly happy driving a 7 year old car.  Then why wouldn’t you be perfectly happy driving a 7 year old vehicle today?   

You say you want a Honda, presumably because of their reliability, but don’t want to buy a used Honda because of a perceived lack of reliability?

See the cognitive traps you are falling into here?

I get the allure of a new car (my last car is a lease... don’t ask). So a civic would be a good choice if you’re buying new. But is the Si a base model?  Why upgrades will you fall for?  Are you asking for financial advice when you aren’t making a decision based on financial priorities ?   
« Last Edit: May 30, 2019, 02:32:55 PM by red_pill »

Jon Bon

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Re: Can I afford a new car? Does it make sense?
« Reply #8 on: May 30, 2019, 03:46:50 PM »
yuppie,

What is your current ride?

Let me give you a bit of a warning.  You are right at the age (IME) that cars start becoming appliances. Like sure dropping 25k on a cool car sounds awesome and fun. However, you and your peer group are going to start being way more into other things. That be houses, kids, vacations, houses, caring for parents, updating said houses, oh and the houses the list goes on.

The civic SI 100% used to be the car I dreamed of. but Now I could buy a few of them and realize it would not do much for my happiness.

I think you can afford the car, but my guess is 2 years in there are going to be other things you wish you could have afforded instead.

YMMV

clarkfan1979

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Re: Can I afford a new car? Does it make sense?
« Reply #9 on: June 04, 2019, 05:05:36 AM »
If you plan on working until you are 65, buy a new car. That is the norm.

If you want a different life, buy a used car (5K to 10K).

Rich people buy assets. Poor people buy liabilities.

Think about it and decide which group you would like to belong.

I got my first job out of grad school in 2011 at age 31 in Fort Myers, FL. In 2011, I was driving a 2000 Hyundai Accent with 150K miles. Just before the move from Colorado to Florida, the air conditioning went out. Could I have purchased a new car? Sure. Did I deserve it? Hell, Yes! Did I actually buy a new car? Hell, No!

Instead, of purchasing a new car, I purchased a primary home for 95K and put 16K of work into it. In 2013, my car died and I biked to work for 6 months. I finished making repairs to the house and then saved $2500 for another used car in 2014.

The mortgage, taxes and insurance on that house is $615/month. If I was to rent that house in 2011, it would have cost me $1250/month. That is an extra $635/month toward housing (not including repairs) and another $400/month in extra car expenses. At that point, I would be forced to rent for the next 5 years minimum.

I'm not against renting. Some people rent by choice. However, some people are forced to rent. I am against being forced to rent. If I bought a new car, I would have been forced to rent and it would have put me and my family on a completely different path.

Now, only 8 years later in 2019, I have 2 rental properties with about 300K of equity and $1500/month of rental income above the mortgage and repairs. I have a primary home with another 300K of equity. If I purchased a new 25K car in 2011 and was forced to rent, our net worth today would be around 100K, which is very normal for a married couple at 39 and 35 with one kid.

Instead, our current net worth is around 650K, which puts us in the 93rd percentile for our age group. All of this, and I got my first legitimate job at age 31.




Laura33

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Re: Can I afford a new car? Does it make sense?
« Reply #10 on: June 04, 2019, 01:10:26 PM »
You are at the beginning of a long journey, and the approach you take now and expectations you set will determine the arc of your path.  You are young, you are earning money, you are doing a good job saving -- probably better than your friends, right? -- and you have disposable income and start to think, well, I've been working really hard, and I'm making good choices, and I can afford it, so why shouldn't I have some of the bright shiny toys like my friends have? 

Do not go down this path.  Why?  Three reasons, in order from least to most important.

1.  Compounding.  $10K that you keep invested instead of spending today is worth $80K when you're 65.  The money you invest now has far more impact on your future 'stache than any other money you manage to save later.

2.  Hedonic adaptation.  This is the first big purchase you are making, and it will set the floor for future decisions.  Buy a $25K new car now?  I guarantee the next one is going to be brand-new and (at least) $30K.  Because now that base model is, well, base, and there is some other new thing you want in the next car.  And anything like less will feel like settling and be disappointing.  You always want to start at the lowest baseline that meets your needs -- and then stay there as long as you can.

3.  Using a "thing" as a reward.  As others have pointed out, there is no fundamental difference between the new car you want and an older model in good repair; these are standard, relatively generic vehicles that don't go for the bling but last a long time.  So why do you want a new one so much?  Answer:  because it's new, it's shiny, it's pretty.  And as I said above, you're working, earning money, making good choices -- so you "deserve" a treat, a splurge, right?  And that, right there, is the problem.  Yes, you are working hard, earning money, making good choices -- so why is the "reward" for that good behavior blowing unnecessary money on a shiny consumer product that is fundamentally no different than the cheaper used option? 

The best thing you can do for yourself at your age is to disconnect the mental link that says "reward"/"treat" = "buy a new consumer good" or "spend money I don't have to."  Yes, you are making good decisions, and you DO deserve a reward.  But why does that reward have to be a "thing"?  Come up with something you'd like to do, that you'd enjoy, that would feel like a reward, that doesn't involve dropping money on stuff.  And don't just make that a one-time thing -- work those sorts of things into your life on a continuing basis.  You deserve to feel good about what you are doing and deserve to live a life that brings you pleasure and joy on a regular basis.  And you don't have to spend a lot of extra money to do so -- in fact, training yourself that "happiness" = "stuff" is the best way to delay finding out what really does make you happy.

Now, I could be completely off-base in all of this.  And in the grand scheme of things, a new Honda that you drive for a decade is not exactly a horrible thing to splurge on; many people have done much stupider things.  And if you have a specific reason for wanting that particular car that an older version doesn't have, that's fine (I myself have bought a newer-than-intended car because it had active crash avoidance, which was a priority because we have a new driver using it).  But you didn't mention anything like that.  So before you decide, just put some real thought into why it is you want a "new" car specifically. 

meandmyfamily

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Re: Can I afford a new car? Does it make sense?
« Reply #11 on: June 04, 2019, 01:22:24 PM »
I wish I had had all this advice at your age!  Buy one in the $7,000 to $10,000 range!  Trust me your 40 year old self will be so glad that you did.

JLee

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Re: Can I afford a new car? Does it make sense?
« Reply #12 on: June 04, 2019, 01:26:40 PM »
yuppie,

What is your current ride?

Let me give you a bit of a warning. You are right at the age (IME) that cars start becoming appliances. Like sure dropping 25k on a cool car sounds awesome and fun. However, you and your peer group are going to start being way more into other things. That be houses, kids, vacations, houses, caring for parents, updating said houses, oh and the houses the list goes on.

The civic SI 100% used to be the car I dreamed of. but Now I could buy a few of them and realize it would not do much for my happiness.

I think you can afford the car, but my guess is 2 years in there are going to be other things you wish you could have afforded instead.

YMMV

I think that depends on the person.

...said the 35yo with an MR2 and Corvette >.>

That said, I paid less for my (used) Corvette than the OP is speculating on a Civic.   If I had a $25k car budget, I'd be more likely to buy two $8k cars and pocket $9k (or..one $8k car and pocket $17k) than I would blow it all on one $25k car that will be worth $10k in 5 years. At a certain point, depreciation is nearly flat.

If I were the OP (who does not seem to have nearly the car disease that I unfortunately have), I would go look for something like this: https://www.cargurus.com/Cars/inventorylisting/viewDetailsFilterViewInventoryListing.action?sourceContext=carGurusHomePageModel&newSearchFromOverviewPage=true&inventorySearchWidgetType=AUTO&entitySelectingHelper.selectedEntity=d744&entitySelectingHelper.selectedEntity2=&zip=85042&distance=50000&searchChanged=true&transmission=M&trimNames=Sport&modelChanged=false&filtersModified=true#listing=241871816

Get a reliable / entertaining car for $4k cash and drop $20k+ in the stock market.  That $20k will be worth a hell of a lot more in a decade.
« Last Edit: June 04, 2019, 01:29:43 PM by JLee »

Home Stretch

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Re: Can I afford a new car? Does it make sense?
« Reply #13 on: June 04, 2019, 01:33:09 PM »
Get a reliable / entertaining car for $4k cash and drop $20k+ in the stock market.  That $20k will be worth a hell of a lot more in a decade.

Haha, in my experience it's "get an entertaining car for $4k cash (it won't be reliable because the really entertaining ones never are), then drop $20k in maintenance in the next 3 years".

JLee

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Re: Can I afford a new car? Does it make sense?
« Reply #14 on: June 04, 2019, 03:15:13 PM »
Get a reliable / entertaining car for $4k cash and drop $20k+ in the stock market.  That $20k will be worth a hell of a lot more in a decade.

Haha, in my experience it's "get an entertaining car for $4k cash (it won't be reliable because the really entertaining ones never are), then drop $20k in maintenance in the next 3 years".

Honda Fits are supposed to be reasonably entertaining to drive, though.

Ordinarily, yeah...

FireHiker

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Re: Can I afford a new car? Does it make sense?
« Reply #15 on: June 04, 2019, 05:11:01 PM »
Yes, you can afford it, but it wouldn't be the most optimized frugal decision. That would be buying something a few years old in the 10k range, maybe 15k if you really want a Honda. I bought my oldest a 2 year old Nissan Sentra via Hertz a few years ago just before he turned 16. It was 11k with tax/license. The only reason he got something so nice is that a set of grandparents kicked in 5k, his dad and step-mom kicked in 2k, and we paid the other 4k. It's been very reliable. We are generally "Honda people" but Hertz didn't have any Hondas so we went with Nissan instead.

That said, my husband and I bought a new CRV last year, so I understand the appeal of "buy new and drive forever". BUT, we earn a combined 300k/yr. We max out everything we can pre-tax (401k's, HSA, flex-spending account for childcare). We are already lean-FI, if we were to relocate and reduce our future travel plans. Our peers are buying Teslas and giant SUVs. Sure, we COULD "afford" to do the same, but the new CRV (2nd level up from the base model) was plenty indulgent enough. Our other car is a 2008 Honda Civic with 55k miles. The CRV was a downsize from the pre-MMM spendypants days when we had a 2009 Honda Pilot, which we bought brand new, with cash. We will keep it at least 10 years, likely more. The Civic needs to have its AC serviced, but otherwise runs perfectly 11 years in, so I see no need to replace it anytime soon.

If you can find a used Civic in good shape, that would be a much more optimal solution at this point in your life!

aetheldrea

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Re: Can I afford a new car? Does it make sense?
« Reply #16 on: June 04, 2019, 08:56:51 PM »
Hi, welcome to the forum. You should really be riding a bike :-)

Not joking :-)

aetheldrea

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Re: Can I afford a new car? Does it make sense?
« Reply #17 on: June 04, 2019, 09:03:58 PM »
You are at the beginning of a long journey, and the approach you take now and expectations you set will determine the arc of your path.  You are young, you are earning money, you are doing a good job saving -- probably better than your friends, right? -- and you have disposable income and start to think, well, I've been working really hard, and I'm making good choices, and I can afford it, so why shouldn't I have some of the bright shiny toys like my friends have? 

Do not go down this path.  Why?  Three reasons, in order from least to most important.

1.  Compounding.  $10K that you keep invested instead of spending today is worth $80K when you're 65.  The money you invest now has far more impact on your future 'stache than any other money you manage to save later.

2.  Hedonic adaptation.  This is the first big purchase you are making, and it will set the floor for future decisions.  Buy a $25K new car now?  I guarantee the next one is going to be brand-new and (at least) $30K.  Because now that base model is, well, base, and there is some other new thing you want in the next car.  And anything like less will feel like settling and be disappointing.  You always want to start at the lowest baseline that meets your needs -- and then stay there as long as you can.

3.  Using a "thing" as a reward.  As others have pointed out, there is no fundamental difference between the new car you want and an older model in good repair; these are standard, relatively generic vehicles that don't go for the bling but last a long time.  So why do you want a new one so much?  Answer:  because it's new, it's shiny, it's pretty.  And as I said above, you're working, earning money, making good choices -- so you "deserve" a treat, a splurge, right?  And that, right there, is the problem.  Yes, you are working hard, earning money, making good choices -- so why is the "reward" for that good behavior blowing unnecessary money on a shiny consumer product that is fundamentally no different than the cheaper used option? 

The best thing you can do for yourself at your age is to disconnect the mental link that says "reward"/"treat" = "buy a new consumer good" or "spend money I don't have to."  Yes, you are making good decisions, and you DO deserve a reward.  But why does that reward have to be a "thing"?  Come up with something you'd like to do, that you'd enjoy, that would feel like a reward, that doesn't involve dropping money on stuff.  And don't just make that a one-time thing -- work those sorts of things into your life on a continuing basis.  You deserve to feel good about what you are doing and deserve to live a life that brings you pleasure and joy on a regular basis.  And you don't have to spend a lot of extra money to do so -- in fact, training yourself that "happiness" = "stuff" is the best way to delay finding out what really does make you happy.

Now, I could be completely off-base in all of this.  And in the grand scheme of things, a new Honda that you drive for a decade is not exactly a horrible thing to splurge on; many people have done much stupider things.  And if you have a specific reason for wanting that particular car that an older version doesn't have, that's fine (I myself have bought a newer-than-intended car because it had active crash avoidance, which was a priority because we have a new driver using it).  But you didn't mention anything like that.  So before you decide, just put some real thought into why it is you want a "new" car specifically.
Damn Laura, every time I read one of your wise posts I swear I want to marry you*


*Even though we are both married to other people right now and you look a little bit like John Lithgow from Buckaroo Bonzai


Laura33

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Re: Can I afford a new car? Does it make sense?
« Reply #18 on: June 05, 2019, 08:36:36 AM »
*Even though we are both married to other people right now and you look a little bit like John Lithgow from Buckaroo Bonzai

Aww, thanks.  Makes my day when someone actually recognizes the .gif!

Syonyk

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Re: Can I afford a new car? Does it make sense?
« Reply #19 on: June 05, 2019, 10:05:16 AM »
Sure, you can afford a new car.  Just about anyone with a pulse and the ability to sign paperwork can "afford" some sort of new car.

Is it wise?  No.  If you had a net worth of a million or so, bringing in deep into 6 figures, ok, a $30k new car isn't that big a deal.

But at your stage of life, get a used one and save the money.

If you have a place you can charge overnight, I'll make my standard recommendation: Buy a used Gen 1 Chevy Volt (2013 or later), and enjoy the fuel savings on electric when you can.  It's far cheaper to run than a gas car, and can still drive across the country on our current gasoline infrastructure.

2.  Hedonic adaptation.  This is the first big purchase you are making, and it will set the floor for future decisions.  Buy a $25K new car now?  I guarantee the next one is going to be brand-new and (at least) $30K.  Because now that base model is, well, base, and there is some other new thing you want in the next car.  And anything like less will feel like settling and be disappointing.  You always want to start at the lowest baseline that meets your needs -- and then stay there as long as you can.

This is so, so true - and I've watched people (in my opinion) cripple themselves for life on this front, financially.

It is insanely hard to "go back" in terms of cars (or just about anything else).  I drove some true rolling wrecks in college, and didn't buy a "nice" car (decade-old Subaru) until I was convinced I could actually afford it.  You don't miss what you don't know.

Said friend upgraded from a perfectly good Leaf and Outback to about $200k of luxury EVs in his driveway.  He's not going to be able to easily go back to something less expensive - and his cars cost more than my house.  He "had the money," but it's going to impact his spending from here on out.

Buy a used Volt instead, and save your pennies.  You're well on track - don't screw it up with consumer sukka purchases!

Buffalo Chip

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Re: Can I afford a new car? Does it make sense?
« Reply #20 on: June 05, 2019, 08:56:19 PM »
Sure you can afford it.  Just ask any car dealer. But while you’re asking, you might take a look around and see how big their “house” is compared to your house. They didn’t get that big house by selling people the most economical and practical vehicles available.

In the end, it all boils down to what you value. Is that car worth $195,000 to you? Because that’s what $24,000 compounded at 7% will be in 30 years.