Author Topic: Can I afford it?  (Read 8526 times)

cbr shadow

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Can I afford it?
« on: March 01, 2015, 07:00:48 PM »
Most of us have heard the Suze Orman segment called "Can I afford it?" where someone wants to buy a big item and lays out their financial situation for Suze to say whether she thinks they can afford the purchase or not.

My situation below is real, but I'm not actually GOING to buy the car.  This was a fun conversation between my wife and I about whether we could "afford" to purchase the car or not, what the word "afford" really means, and what the MMM community would say about it.

The item I want to purchase: 2014 Lexus IS350 F-sport. = $41,000 USD

Our situation:
Ages: Both 31
Location: Chicago suburb
Her Salary: $125k last year, $140k this year (Sales position, Base = $90k, Commission varies)
My Salary: $55k

Debt:
Mortgage:  Owe $185k, 3.5% on 15-yr mortgage, 13 yrs left
No car loans, student loans or CC debt

Assets:
Home Value: $220k
Cars: None yet - need to buy (2) cars!
401k's combined: $110k
Roth IRA's combined: $45k
Cash: $150k

We spent 2 years overseas (Melbourne) for my wife's job where I worked remotely.  I realize our cash is high, but that's because we were limited on what we could invest while in Australia, plus a few big bonus checks came to us near the end.


So, knowing the above, can we afford the car?

Bracken_Joy

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Re: Can I afford it?
« Reply #1 on: March 01, 2015, 07:04:57 PM »
I like this game =P I was curious, so I looked up the definition of "afford". The first definition is literally "have enough money to pay for." Under that definition, absolutely. You have $150k on hand. Car is "only" 1/3 of that. Easy peasy.

We need a mustachian definition for "afford" I think.

thedayisbrave

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Re: Can I afford it?
« Reply #2 on: March 01, 2015, 07:07:11 PM »
Sure, you can "afford" it.  But I don't think many Mustachians will condone that sort of spendypants behavior. 

nanu

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Re: Can I afford it?
« Reply #3 on: March 01, 2015, 07:35:37 PM »
I think the mustachian definition should be something along the lines - "I can afford something if when I post about it on MMM forums I don't get face punched by 50% or more of those who respond"

Retired To Win

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Re: Can I afford it?
« Reply #4 on: March 01, 2015, 07:35:57 PM »
I'm still trying to understand why anyone would even want that car...

More seriously, let's take a look at the car's $41,000 price tag.  Invested, those funds would produce around $2000 a year indefinitely in passive income for you.  Doesn't that sound more appealing?  Or at least a smarter use of the money?

Bracken_Joy

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Re: Can I afford it?
« Reply #5 on: March 01, 2015, 07:41:39 PM »
I think the mustachian definition should be something along the lines - "I can afford something if when I post about it on MMM forums I don't get face punched by 50% or more of those who respond"

I have a new plan. Anytime I might buy anything, I'll post an explanation then have a poll- "Face punches? Yes or no"

alsoknownasDean

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Re: Can I afford it?
« Reply #6 on: March 01, 2015, 09:04:03 PM »
As far as having the money, yes you can afford to buy it.

Is it a wise decision to buy a rapidly depreciating asset, and sacrifice $40,000 + the ongoing opportunity cost of that $40K?

Let's assume you have the choice of this or a $10k car, with all else being equal, and keep both for ten years. Not only is the $30k gone, but so is $1200+ a year of forgone investment income (assuming 4% SWR). Over the course of a decade that'll be more than $12000 extra lost ($1200 * 10 + compounding).
« Last Edit: March 01, 2015, 09:09:41 PM by alsoknownasDean »

The Beacon

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Re: Can I afford it?
« Reply #7 on: March 01, 2015, 09:15:00 PM »

The item I want to purchase: 2014 Lexus IS350 F-sport. = $41,000 USD

So, knowing the above, can we afford the car?

No if I were you.  If it is 20% of your annual gross income, then you are a financially responsible person.  If it is 10%, you are a mustachein in the making. I have a low mileage 2005 Honda(30k miles) i bought on Craigslist, not as badass as some other folks here. But it is a decent car that is  safe, reliable, and inexpensive.
« Last Edit: March 01, 2015, 09:18:40 PM by Sharpy »

stlbrah

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Re: Can I afford it?
« Reply #8 on: March 01, 2015, 09:16:32 PM »
I would look for something presentable in the 20-25k range. Depending on what kind of sales she is in, she probably doesn't want to be caught dead in something rinky dinky like a prius or anything that non-mustachians look down upon.

I am guessing the is350 fsport is used at that price. She could probably get an is250 with similar mileage for under 30k. Also plenty of other respectable options, like a 2012+ nissan altima, toyota camry, etc.

CanuckExpat

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Re: Can I afford it?
« Reply #9 on: March 01, 2015, 09:30:14 PM »
We need a mustachian definition for "afford" I think.
Not really a definition, but there was this re-framing of the question: Is it Convenient? Would I Enjoy it? Wrong Question
I also really like Brave New Life's framing of the question in terms of the Great law of the Iroquois: “Do what you believe will benefit your children seven generations down the road.”

I like the thinking of the latter in terms as a way of evaluating the impact of a purchase I am considering:  Am I ready to take responsibility from end to end for the resources that I am about to consume and have extracted from the earth to make this purchase, and is there a better way of achieving the same functional task that would be better for all involved?

cbr shadow

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Re: Can I afford it?
« Reply #10 on: March 01, 2015, 10:33:02 PM »
Interesting responses!  I like your explanations for what "afford" really means.  Considering how quickly a new car like that would depreciate I'm sure we wont be getting one.  If we were financially independent and also had the cash to purchase one I might consider it then.. more likely a used one.


I'm a red panda

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Re: Can I afford it?
« Reply #11 on: March 02, 2015, 08:10:18 AM »
Yes, you can afford it.

But there is no reason to ever own a car that expensive.
(And unlike other mustachians, I buy my cars new.  For under $20k.)

Ricky

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Re: Can I afford it?
« Reply #12 on: March 02, 2015, 08:30:11 AM »
I've never understood that segment on her show, it's all highly subjective. I define "can I afford it" as a mix between what is financially right for me (outsider finance expert looking in) and what my own goals are (inside approach). It's difficult to pinpoint.

Maybe you can afford the car itself, but maybe you future self says you can't afford the mindset the car brings with it. Fancy car says I should be shopping at fancy stores and eating at fancy restaurants. An overpriced car is nothing more to me than trying to show off and fit in with what society says we should do. It would satisfy our secret desires to be a leader and looked up to at some small insignificant level. Ah, the power of FOMO and the Mammoth in our minds.

Retire-Canada

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Re: Can I afford it?
« Reply #13 on: March 02, 2015, 09:21:39 AM »

My situation below is real, but I'm not actually GOING to buy the car.  This was a fun conversation between my wife and I about whether we could "afford" to purchase the car or not, what the word "afford" really means, and what the MMM community would say about it.

You can afford it - "if" you really want it.

-- Vik

RexualChocolate

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Re: Can I afford it?
« Reply #14 on: March 02, 2015, 09:48:18 AM »
No comment on the should you buy it, only completely off topic.

Its a performance car with 4 doors. Always blows my mind those exist- you have 2 superfluous doors. Get a 2 door, youll have a ton more room for the same size.

Same with a performance car thats a convertible. You added 300lbs to make the wind drag worse when its sunny?

I get the point of 4 doors and convertibles, just not in cars that have their speed emphasized.

Additionally, why so much cash on hand? Get those guys to work for you.

RelaxedGal

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Re: Can I afford it?
« Reply #15 on: March 02, 2015, 10:44:25 AM »
This was a fun conversation between my wife and I about whether we could "afford" to purchase the car or not, what the word "afford" really means, and what the MMM community would say about it.

I had a similar conversation with my husband over the past year while I was car shopping.  Interesting to explore "afford" vs want vs. need and how we each approach money. 

Last weekend I bought a certified pre-owned 2012 Nissan Leaf.  We can afford a new one, but I couldn't stomach the depreciation.  It is a much fancier car than I'm used to - I'm replacing a 2005 scion xA - so we'll have to see how much lifestyle creep buying a fancy car engenders.

Exflyboy

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Re: Can I afford it?
« Reply #16 on: March 02, 2015, 11:41:13 AM »
OK I am going to be the dissenting voice here..

NO.. You can't afford it!... Why? well if you both lost your jobs (or even if just your spouse lost job) you'd be wishing you'd never seen that stupid car (Ok I know your not going to actually buy it)

To me if you going to make a "stupid purchase" (stupid = large cost, rapid depreciation, will probably buy another one in 3 to 5 years), then you need to be financially independant.. no debt of course and pay cash.

I have my first stupid purchase (I don't include the airplane because I sold it for what it cost me.. roughly $90k).. hopefully coming up in the next few years. It is a V8 Dodge Charger.. But I plan to buy it when my NW (not including the paid off house) reaches $2M.. Way more than I will ever need as our monthly spending is expected to be $35k with ACA healthcare.


James

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Re: Can I afford it?
« Reply #17 on: March 02, 2015, 12:00:43 PM »
No if I were you.  If it is 20% of your annual gross income, then you are a financially responsible person.  If it is 10%, you are a mustachein in the making. I have a low mileage 2005 Honda(30k miles) i bought on Craigslist, not as badass as some other folks here. But it is a decent car that is  safe, reliable, and inexpensive.

No, mustachian isn't based on income, giving percentages isn't the way to figure out your budget. In that logic I could upgrade out two nice vehicles worth a combined $13k for two new ones worth a combined $40 and be mustachian? I don't think so... :)

Regarding the question, yes you can afford it, but you should be purchasing mustachian vehicles, which can be had well under $10k.

GetItRight

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Re: Can I afford it?
« Reply #18 on: March 02, 2015, 06:08:10 PM »
Technically you can afford it, but I doubt it aligns with your goals given you're on a frugality and early retirement forum. If I were in your shoes I'd give us each $10k cash to buy whatever we each wanted. You can buy a damn nice crazy luxurious car for $10k. With a $10k purchase price you're looking at about 200,000 miles at 20 MPG before you've spent $41k and 30 MPG pushes that out to 287,000 miles, and that's at gas prices about a dollar higher than they are these days. In no universe I can fathom does a $41k vehicle make sense for someone at least for someone that has debt and is not FI. Maybe for someone whose hobby, passion, and free time burner is working on cars, driving, and car shows or racing, but any such person would build what they want for under half the price and get many times more enjoyment out of it over many more years than I'd wager your average $41k Mercedes buyer owns the vehicle.

Blindsquirrel

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Re: Can I afford it?
« Reply #19 on: March 02, 2015, 07:24:30 PM »
 You can afford it, it would be foolish to do so. If you want freedom in the future, spending 41K on a vehicle that will end up in the scrap yard is not the way to do it IMO. Drive a POS Toyota or Honda until you are independently wealthy.  Not to be a jerk but if you read Millionaire Next Door, that falls under the heading of all hat, no cattle. For comparison sake, a Toyota Corolla, Honda Fit or Civic for 10K is a darn nice ride. I have a problem with sinking large amounts of equity (Your little green employees!) into a depreciating asset.  Do some math on investing the difference between 41K and 10K for the next 40 years. 

MrMoogle

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Re: Can I afford it?
« Reply #20 on: March 02, 2015, 08:16:13 PM »
It costs 1 year of your life...  No, you can't afford to spend an additional year of working just for a car unless it literally defines you.

The Beacon

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Re: Can I afford it?
« Reply #21 on: March 02, 2015, 08:32:15 PM »
No if I were you.  If it is 20% of your annual gross income, then you are a financially responsible person.  If it is 10%, you are a mustachein in the making. I have a low mileage 2005 Honda(30k miles) i bought on Craigslist, not as badass as some other folks here. But it is a decent car that is  safe, reliable, and inexpensive.

No, mustachian isn't based on income, giving percentages isn't the way to figure out your budget. In that logic I could upgrade out two nice vehicles worth a combined $13k for two new ones worth a combined $40 and be mustachian? I don't think so... :)


Bad logic there. Being mustachian means "live below your means".  In this case, 10% is totally below one's means.  Being mustachian  is not a competition about who is the baddest ass in terms of saving. There is a line. 

Everyone wants nice things. 99% of us would pick a Bimmer over a Honda any day if they were free.  The difference between a mustachian  and a non mustachian  is that the mustachian  has much stronger self control over his wants.


« Last Edit: March 02, 2015, 08:34:39 PM by Sharpy »

stlbrah

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Re: Can I afford it?
« Reply #22 on: March 04, 2015, 01:39:45 PM »
No if I were you.  If it is 20% of your annual gross income, then you are a financially responsible person.  If it is 10%, you are a mustachein in the making. I have a low mileage 2005 Honda(30k miles) i bought on Craigslist, not as badass as some other folks here. But it is a decent car that is  safe, reliable, and inexpensive.

No, mustachian isn't based on income, giving percentages isn't the way to figure out your budget. In that logic I could upgrade out two nice vehicles worth a combined $13k for two new ones worth a combined $40 and be mustachian? I don't think so... :)


Bad logic there. Being mustachian means "live below your means".  In this case, 10% is totally below one's means.  Being mustachian  is not a competition about who is the baddest ass in terms of saving. There is a line. 

Everyone wants nice things. 99% of us would pick a Bimmer over a Honda any day if they were free.  The difference between a mustachian  and a non mustachian  is that the mustachian  has much stronger self control over his wants.

I would agree. But I am single and like to live an exciting life, so im probably around 25% mustachian. I am on the forums because they do make me more frugal, but it wouldn't make sense to compare myself to say: a 39 year old rural house wife's spending habits because we are in totally different situations lol

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Re: Can I afford it?
« Reply #23 on: March 04, 2015, 01:46:29 PM »
Ask yourself if you can really afford to over pay?

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Re: Can I afford it?
« Reply #24 on: March 04, 2015, 06:19:31 PM »
It costs 1 year of your life...  No, you can't afford to spend an additional year of working just for a car unless it literally defines you.

I think that is a perfect way to put it.  Is that $41,000 car worth having to stay at your job an extra year?  Because that's the reality of it.  And... once that car starts feeling old to you (in 5 years?), you'll find yourself "rinsing and repeating" -- and adding yet another year to your time on the job.  Where and when does that stop?