Guidance on Max Car Price

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khram
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Re: Guidance on Max Car Price

Post by khram »

It sounds like you're a much bigger spender than me in general. Like I said, I don't get much extra value (if any) from fancier cars. I've driven my dad's $80k car a number of times and don't like it. I also wouldn't want a house that's big enough that I have to pay other people to clean it (or a job that's demanding enough I don't have time to clean my house). But that's a different discussion.

In general, I'm more conservative with my spending and would prefer to have more liquid savings for the uncertainty of the future. I would also prefer not to work into my 60s or even 50s and prioritize early retirement. But if I were making $100m/year (or some obscene amount), I would probably not think twice about dropping $100k or more on a car because at that point it's truly a drop in the ocean (though I'd still want to find a $100k car which I actually like more than my $30k car). At a $200k salary, buying the more expensive car can still set you back, even if you're still fine and max out your retirement accounts and have plenty of after-tax savings.

Also, the Honda Civic/Accord is more like $20-25k as far as I can tell. Maybe there are some add-ons to bring it to $30k.

+1 to VoiceOfReason's post
stoptothink
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Re: Guidance on Max Car Price

Post by stoptothink »

khram wrote: Mon Jun 21, 2021 1:10 pm It sounds like you're a much bigger spender than me in general. Like I said, I don't get much extra value (if any) from fancier cars. I've driven my dad's $80k car a number of times and don't like it. I also wouldn't want a house that's big enough that I have to pay other people to clean it (or a job that's demanding enough I don't have time to clean my house). But that's a different discussion.

In general, I'm more conservative with my spending and would prefer to have more liquid savings for the uncertainty of the future. I would also prefer not to work into my 60s or even 50s and prioritize early retirement. But if I were making $100m/year (or some obscene amount), I would probably not think twice about dropping $100k or more on a car because at that point it's truly a drop in the ocean (though I'd still want to find a $100k car which I actually like more than my $30k car). At a $200k salary, buying the more expensive car can still set you back, even if you're still fine and max out your retirement accounts and have plenty of after-tax savings.

Also, the Honda Civic/Accord is more like $20-25k as far as I can tell. Maybe there are some add-ons to bring it to $30k.

+1 to VoiceOfReason's post
My brother made $250k+ for the past ~15yrs in oil & gas, but now finds himself unemployed (since February 2020) and pretty much broke...but he does have a late-model Porsche Turbo S and AMG E63 wagon sitting in the parking lot of his rented condo. I can't say for sure, but I bet he owes more on them than the entirety of his liquid assets. There are absolutely high earners who are broke due primarily to cars (my brother isn't the only one in my family), but I have a feeling that there aren't many of them on this board.
SQRT
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Re: Guidance on Max Car Price

Post by SQRT »

stoptothink wrote: Mon Jun 21, 2021 1:16 pm There are absolutely high earners who are broke due primarily to cars (my brother isn't the only one in my family), but I have a feeling that there aren't many of them on this board.
Without doubt. Wouldn’t be much fun to ask for advice here if you blew your whole wad on expensive cars. I really like reading these “what should I spend my money on threads”. Give me a good idea how other people think.

Me? I will go to about $150k Canadian. Seldom under $90k. I like performance cars, especially M cars. Pay cash, easily affordable.
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

VoiceOfReason wrote: Mon Jun 21, 2021 12:11 pm
TimeTheMarket wrote: Mon Jun 21, 2021 10:07 am

Jim makes $100k/year and drives a paid for beater.
Bob made $100k/year also but just got a raise to $115k/year. His take home is now $750/month more. He leases a car for $600/month with the other $150/month covering more expensive tires and insurance.

Although Bob is a bit more exposed, since he cannot easily dump his lease, they are both making similar money amounts and investing the same to retirement, but instead of a 15 year old corolla like Jim, Bob is driving a new BMW.
You left out the best part of the story:

"Jim also got a raise to $115k/year. His take home is now $750/month more. Instead of getting a nicer car he decides to invest that $750/month in the stock market for 30 years with an average rate of return of 7%. They both get from point A to point B reliably, the only difference is when they reach retirement in 30 years, Jim has $910,000 more in his brokerage account than Bob."
Well no, that’s not the only difference. Bob got the benefit of driving a BMW over the 30 years. Presumably he valued that above zero, otherwise he would have driven a Honda.

Also, $9k annual difference is an outlier in TCO between a high end luxury car and a mainstream compact. A more reasonable delta is more like $5 or 6k.

Overall I find it strange how Bogleheads care so much about saving every last dollar only to reach retirement and have nothing to spend the pot of money on… If you don’t value the things money can buy, why do you care about saving / investing so much?
VoiceOfReason
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Re: Guidance on Max Car Price

Post by VoiceOfReason »

Tingting1013 wrote: Mon Jun 21, 2021 1:59 pm
Overall I find it strange how Bogleheads care so much about saving every last dollar only to reach retirement and have nothing to spend the pot of money on… If you don’t value the things money can buy, why do you care about saving / investing so much?
You assume $ can only buy things. I would say the majority of people on this site are saving their money for time and freedom not things.
Coachrhino11
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Re: Guidance on Max Car Price

Post by Coachrhino11 »

VoiceOfReason wrote: Mon Jun 21, 2021 2:17 pm
Tingting1013 wrote: Mon Jun 21, 2021 1:59 pm
Overall I find it strange how Bogleheads care so much about saving every last dollar only to reach retirement and have nothing to spend the pot of money on… If you don’t value the things money can buy, why do you care about saving / investing so much?
You assume $ can only buy things. I would say the majority of people on this site are saving their money for time and freedom not things.
This! I was a HUGE car guy and if i could go back and do it again I would have been driving paid off used Honda's, Toyota's like my wife. I have probably had 15-20 new vehicles in the past 7 years and I'm not kidding. What saved me that really no one here is talking about is 90% of the vehicles I bought had excellent resale value. Jeep Wrangler, Toyota Tacoma, etc... . I literally got most of what I paid back at resale on many of the vehicles I bought because I intentionally bought these kinds of vehicles. I stayed far away from BMW, Volkswagen, etc...

Luckily for me, I am married to a super smart and disciplined spouse and she reeled me back in and the people on this forum saved me. A few years ago I took it personal when some gave me constructive criticism but I am beyond grateful today for the members on this forum. I still love vehicles and hope to eventually get another Jeep, Bronco one day. Years down the road when it does not impact others around me.

Goos luck
stoptothink
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Re: Guidance on Max Car Price

Post by stoptothink »

VoiceOfReason wrote: Mon Jun 21, 2021 2:17 pm
Tingting1013 wrote: Mon Jun 21, 2021 1:59 pm
Overall I find it strange how Bogleheads care so much about saving every last dollar only to reach retirement and have nothing to spend the pot of money on… If you don’t value the things money can buy, why do you care about saving / investing so much?
You assume $ can only buy things. I would say the majority of people on this site are saving their money for time and freedom not things.
This, I'm saving not to be the richest in the graveyard. Calling it quits by 50 with no financial worries sounds pretty appealing to me. I bought a "nice" car really early in young adulthood and it did nothing for my QOL, I think freedom from the corporate rat race suits me better. YMMV.
flyingcows
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Re: Guidance on Max Car Price

Post by flyingcows »

Why does everyone on this forum think car enthusiasts spend more money on cars than non car people? In my experience it's always been the opposite situation, all of the car people I know buy used cars that are basically fully depreciated as they are comfortable with the uncertainty of unexpected repairs, meanwhile non-car people are afraid to own anything out of warranty and always pay the lions share of depreciation for their personal piece of mind.
HootingSloth
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Re: Guidance on Max Car Price

Post by HootingSloth »

flyingcows wrote: Mon Jun 21, 2021 4:19 pm Why does everyone on this forum think car enthusiasts spend more money on cars than non car people? In my experience it's always been the opposite situation, all of the car people I know buy used cars that are basically fully depreciated as they are comfortable with the uncertainty of unexpected repairs, meanwhile non-car people are afraid to own anything out of warranty and always pay the lions share of depreciation for their personal piece of mind.
I'm sure you are right, but it seems confusing to me as a non-car person. There are a lot of posts on here asking the "how much car is affordable?" question. If you don't care about cars, why would you ever spend more than $30k? You can get something brand new and very reliable for that amount in all sorts of different sizes/styles, and it seems like that should satisfy all the non-car people. If the "car people" are spending even less, then who is thinking about buying all these expensive cars?
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
stoptothink
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Re: Guidance on Max Car Price

Post by stoptothink »

HootingSloth wrote: Mon Jun 21, 2021 4:38 pm
flyingcows wrote: Mon Jun 21, 2021 4:19 pm Why does everyone on this forum think car enthusiasts spend more money on cars than non car people? In my experience it's always been the opposite situation, all of the car people I know buy used cars that are basically fully depreciated as they are comfortable with the uncertainty of unexpected repairs, meanwhile non-car people are afraid to own anything out of warranty and always pay the lions share of depreciation for their personal piece of mind.
If the "car people" are spending even less, then who is thinking about buying all these expensive cars?
People trying to project an image. I know WAY more about my brother's Porsche Turbo and E63 wagon than he does, but he thinks it impresses people. I randomly walked into him bragging to my 5yr old son that his cars cost more than most people's homes. The only thing his wife knows about them is their stick price and she outwardly refuses to be seen in a non-luxury brand vehicle. This isn't the case for all luxury or sports car drivers, but it is certainly some of them.
Coachrhino11
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Re: Guidance on Max Car Price

Post by Coachrhino11 »

flyingcows wrote: Mon Jun 21, 2021 4:19 pm Why does everyone on this forum think car enthusiasts spend more money on cars than non car people? In my experience it's always been the opposite situation, all of the car people I know buy used cars that are basically fully depreciated as they are comfortable with the uncertainty of unexpected repairs, meanwhile non-car people are afraid to own anything out of warranty and always pay the lions share of depreciation for their personal piece of mind.
I see where you are coming from and understand. But I also see both sides. I don't think you can stereotype "car people" based just on buying new vs. used. I'm definitely a car person more than most if you read my post above about my stupid choices but bought mostly new. Why did i buy mostly new? Honestly, it was super easy. It became a sick habit for me where I would get a thrill about buying something new every 6 months no joke, sometimes sooner. But because I mostly bought high resale vehicles and negotiated hard, I lost way less than most. I think the most of what I lost was time, yes money opportunity cost.

I personally always got better deals on new vehicles than buying gently used. I now paid cash for a 4 year old Honda just out of warranty and got a great deal just before the used market got stupid. I think people who lease pay the lions share of depreciation and then people who buy new BMW, Volkswagen, Mini Cooper's, and other german and even domestic sports cars. I think it's good to know your market you live in. Example, if you live in Texas buying a 4x4 is smart for resale.
bogledogle
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Re: Guidance on Max Car Price

Post by bogledogle »

VoiceOfReason wrote: Mon Jun 21, 2021 12:11 pm
TimeTheMarket wrote: Mon Jun 21, 2021 10:07 am

Jim makes $100k/year and drives a paid for beater.
Bob made $100k/year also but just got a raise to $115k/year. His take home is now $750/month more. He leases a car for $600/month with the other $150/month covering more expensive tires and insurance.

Although Bob is a bit more exposed, since he cannot easily dump his lease, they are both making similar money amounts and investing the same to retirement, but instead of a 15 year old corolla like Jim, Bob is driving a new BMW.
You left out the best part of the story:

"Jim also got a raise to $115k/year. His take home is now $750/month more. Instead of getting a nicer car he decides to invest that $750/month in the stock market for 30 years with an average rate of return of 7%. They both get from point A to point B reliably, the only difference is when they reach retirement in 30 years, Jim has $910,000 more in his brokerage account than Bob."
Jim dies with $910,000 more in his brokerage account ..... while Bob creates jobs and spreads his wealth around while enjoying the fruits of his labors while he is alive ... :sharebeer
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hand
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Re: Guidance on Max Car Price

Post by hand »

flyingcows wrote: Mon Jun 21, 2021 4:19 pm Why does everyone on this forum think car enthusiasts spend more money on cars than non car people? In my experience it's always been the opposite situation, all of the car people I know buy used cars that are basically fully depreciated as they are comfortable with the uncertainty of unexpected repairs, meanwhile non-car people are afraid to own anything out of warranty and always pay the lions share of depreciation for their personal piece of mind.
I suspect there are a lot of people who are closeted "luxury people" who justify their purchases with the more socially acceptable explanation of being "car people."
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firebirdparts
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Re: Guidance on Max Car Price

Post by firebirdparts »

I love cars, so I have rules that apply to myself that only work for me. I take the long term view and my goal is to have depreciation, maintenance, and repairs all fall within 10 cents a mile. This is a low price, FWIW. I can do it, but I never let anybody work on my car. Please grasp here I know nobody wants to hear this nor does anybody agree with it. I understand, truly, I do. But it is a meaningful limit and it is a maximum and I do live by it.

For "normal" people, what you really want is transportation you require (it's okay if you require a new Lexus) at the lowest life cycle cost. However, you don't have a specification for the transportation itself, so ultimately everybody just buys what they want whenever they feel like it. It makes sense to have rules based on the financial consequences of more-or-less impulse purchases. You can look at this based on cash flow or actual expense. The debt service on a car requires cash flow. The depreciation is an actual expense.

So one rule of thumb on debt service is don't have debt consuming more than 25% of your income. Total debt. That's pretty low (for homeowners). Luckily for us, debt is cheap.

So one rule of thumb on depreciating is don't own depreciating assets worth more than 50% of your annual income. That's pretty low.

When you're 18, I admit, people break these rules aggrediously. Your personal capital is all ahead of you in those days. Which brings up the point that clearly, obviously, net worth is not a factor for accumulators. I bought a house when I was 23. It cost infinity % of my net worth. I bought it because I needed a place to live. You need a car even more than that, because you need to get to work. It disturbs me some that people would even consider such a nutty idea. You should have some sort of insanity filter that should kick in here.

The first car I bought was an Oldsmobile Diesel, so consider the source. I was one fancy 18 year old in my late model Toronado Brougham sofa-on-wheels.
A fool and your money are soon partners
VoiceOfReason
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Re: Guidance on Max Car Price

Post by VoiceOfReason »

firebirdparts wrote: Tue Jun 22, 2021 8:44 am I love cars, so I have rules that apply to myself that only work for me. I take the long term view and my goal is to have depreciation, maintenance, and repairs all fall within 10 cents a mile. This is a low price, FWIW. I can do it, but I never let anybody work on my car. Please grasp here I know nobody wants to hear this nor does anybody agree with it. I understand, truly, I do. But it is a meaningful limit and it is a maximum and I do live by it.

Wow! With an average 12k miles a year that is $1,200 a year in depreciation, maintenance and repairs. How do you do that?
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

VoiceOfReason wrote: Tue Jun 22, 2021 9:44 am
firebirdparts wrote: Tue Jun 22, 2021 8:44 am I love cars, so I have rules that apply to myself that only work for me. I take the long term view and my goal is to have depreciation, maintenance, and repairs all fall within 10 cents a mile. This is a low price, FWIW. I can do it, but I never let anybody work on my car. Please grasp here I know nobody wants to hear this nor does anybody agree with it. I understand, truly, I do. But it is a meaningful limit and it is a maximum and I do live by it.

Wow! With an average 12k miles a year that is $1,200 a year in depreciation, maintenance and repairs. How do you do that?
Pretty typical for a Toyota or Honda bought new and kept for 10 years
sk2101
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Re: Guidance on Max Car Price

Post by sk2101 »

tdmp wrote: Sun Jun 20, 2021 8:05 pm I put Comma AI Open Pilot on the Prius Prime (basically I have the non-Tesla version of Autopilot).
That looks really interesting. Whats your take on how it may impact the longevity of the cars steering assist, as I imagine most were not designed to work in that manner?
VoiceOfReason
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Re: Guidance on Max Car Price

Post by VoiceOfReason »

Tingting1013 wrote: Tue Jun 22, 2021 10:09 am
VoiceOfReason wrote: Tue Jun 22, 2021 9:44 am
firebirdparts wrote: Tue Jun 22, 2021 8:44 am I love cars, so I have rules that apply to myself that only work for me. I take the long term view and my goal is to have depreciation, maintenance, and repairs all fall within 10 cents a mile. This is a low price, FWIW. I can do it, but I never let anybody work on my car. Please grasp here I know nobody wants to hear this nor does anybody agree with it. I understand, truly, I do. But it is a meaningful limit and it is a maximum and I do live by it.

Wow! With an average 12k miles a year that is $1,200 a year in depreciation, maintenance and repairs. How do you do that?
Pretty typical for a Toyota or Honda bought new and kept for 10 years
No, I disagree. That is a remarkable price per mile and not commonly achievable.

Depreciation alone would put that close to the $12k mark and you haven't even started adding in a few sets of brakes, tires and all the "little" stuff like batteries, alternators, oil changes, etc...
Coachrhino11
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Re: Guidance on Max Car Price

Post by Coachrhino11 »

Like I said above, if you care a lot about resale value and minimum depreciation you should look at:

1.) Jeep Wrangler...30% depreciation after 5 years
2.) Toyota Tacoma
3.) Toyota Tundra
4.) Toyota 4 runner
5.) Porsche 911

I'm a huge Jeep person so I'm biased but you can google and confirm my findings. THIS is why I always did buy new and it never really hurt me too much. Cars on the other hand depreciate at a far higher rate.
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bligh
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Re: Guidance on Max Car Price

Post by bligh »

bogledogle wrote: Mon Jun 21, 2021 5:47 pm
VoiceOfReason wrote: Mon Jun 21, 2021 12:11 pm
TimeTheMarket wrote: Mon Jun 21, 2021 10:07 am

Jim makes $100k/year and drives a paid for beater.
Bob made $100k/year also but just got a raise to $115k/year. His take home is now $750/month more. He leases a car for $600/month with the other $150/month covering more expensive tires and insurance.

Although Bob is a bit more exposed, since he cannot easily dump his lease, they are both making similar money amounts and investing the same to retirement, but instead of a 15 year old corolla like Jim, Bob is driving a new BMW.
You left out the best part of the story:

"Jim also got a raise to $115k/year. His take home is now $750/month more. Instead of getting a nicer car he decides to invest that $750/month in the stock market for 30 years with an average rate of return of 7%. They both get from point A to point B reliably, the only difference is when they reach retirement in 30 years, Jim has $910,000 more in his brokerage account than Bob."
Jim dies with $910,000 more in his brokerage account ..... while Bob creates jobs and spreads his wealth around while enjoying the fruits of his labors while he is alive ... :sharebeer
Or worse, Jim/Bob dies of a heart attack/cancer/<random act of god> 2 years before he was planning to retire.

I live super frugally myself, but at the same time I feel there is far too much emphasis in the Bogleheads community on saving everything and all the enjoyment for after retirement. There is a real cost to living the best years of your life in a state of constant deprivation, in the hope that someday you will arrive at the promised land, old and frail, ready to finally splurge on yourself.

IMO, after a certain point of financial stability, people should enjoy the fruits of their labor along the way. I am pretty middle of the road on cars, I dont drive luxury brands, nor do I drive 20 year old corollas.. but if cars were my thing, and I could afford to spend on it (to me this means, buying it in cash (or at least being able to.. sometimes the interest rates make it so it makes more sense to finance ... without affecting my other savings goals too much or leaving my emergency fund completely depleted), I would go for it.

To the OP. My personal rule of thumb on max car price was the Livesoft rule of car buying (Do not spend more on cars than your portfolio moves in a single day). This was until the massive 10%+ moves in the market last year. Now I use a more conservative number.. 2% of portfolio, or 3 months gross pay, which ever is greater, provided you plan to keep the car for 10+ years (which I always do). This doesn't mean I will spend that much on my next car, it just means I won't spend MORE than this much on my next car.
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Sandi_k
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Re: Guidance on Max Car Price

Post by Sandi_k »

ilikeshreddingmail wrote: Sun Jun 20, 2021 1:19 am I’m looking to buy a car in the next year or so (I don’t have a car now), and have been considering the Tesla Model Y (~$50k). While I know automobiles are typically poor financial investment choices, I wanted to get a sense of the guiding principles people use to determine the maximum amount they should spend on a car.

I’ve heard things like 1/3 your salary, 2% net worth, and < 41% debt-to-income ratio, etc. What guide do you use to figure out how much you should maximally spend on a car?
Since 1993, my rules have been: payment under $400 per month, a loan term of 4 years or less, at an interest rate of 4% or less.

My income has quintupled since then, but it still feels like a reasonable rule of thumb.
mikejuss
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Re: Guidance on Max Car Price

Post by mikejuss »

On a side note, regarding car insurance: it's my understanding that a common rule of thumb is to buy full coverage only when the total annual cost is less than 10% of the value of your car. So, for example, if full coverage is $2,500 a year, it is not advisable to purchase it unless your car is worth $25,000. If your car is worth, say, $15,000, then you should buy only liability coverage. Do you agree?
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

VoiceOfReason wrote: Tue Jun 22, 2021 10:20 am
Tingting1013 wrote: Tue Jun 22, 2021 10:09 am
VoiceOfReason wrote: Tue Jun 22, 2021 9:44 am
firebirdparts wrote: Tue Jun 22, 2021 8:44 am I love cars, so I have rules that apply to myself that only work for me. I take the long term view and my goal is to have depreciation, maintenance, and repairs all fall within 10 cents a mile. This is a low price, FWIW. I can do it, but I never let anybody work on my car. Please grasp here I know nobody wants to hear this nor does anybody agree with it. I understand, truly, I do. But it is a meaningful limit and it is a maximum and I do live by it.

Wow! With an average 12k miles a year that is $1,200 a year in depreciation, maintenance and repairs. How do you do that?
Pretty typical for a Toyota or Honda bought new and kept for 10 years
No, I disagree. That is a remarkable price per mile and not commonly achievable.

Depreciation alone would put that close to the $12k mark and you haven't even started adding in a few sets of brakes, tires and all the "little" stuff like batteries, alternators, oil changes, etc...
Over 10 years/100k miles:
$10k depreciation
$500 brake job * 3
$250 battery * 3
$600 tire replacement
$1500 Oil changes, other fluids, air filters

Call it $14k total. $1400 per year
SanAntionetta
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Re: Guidance on Max Car Price

Post by SanAntionetta »

Our current cars
(1) 2012 Honda Civic, bought new - $28K? (EX-L) paid off, now 10 years old and going strong. I was the sole earner as my husband was in college and I think the payment was about 5% of gross income.

(2) 2017 Hyundai Santa Fe (bought used in 2018 with 20K miles) - $28K, 4 year loan paid off early. The payment was 2.2% of gross income.

Strategy for the next car is to pay cash most likely. It depends how long the Civic lasts - mostly because I don't want to buy a really nice car with toddlers, as they will simply destroy it. If we can make it until the youngest is 4 (3 more years?) I might splurge on a really nice car.
bgf wrote: Sun Jun 20, 2021 7:38 pm I just traded in my 2012 Camry for a 2021 Lexus ES 300h. Delivery on wednesday. Can't wait! The payment won't affect our savings goal at all, and the depreciation will be just noise in relation to our net worth growth. So I did it.

It's weird though, spending money. I had a visceral reaction to doing it at first, then when it was done I was happy I bought it.

So if you can meet your savings goals and the decrease in value won't materially affect your net worth, then why not?
I fully intend to do this once my kids are hold enough not to ruin it. How old do you think that is? Will my 2012 Civic last that long? :P
Coachrhino11 wrote: Tue Jun 22, 2021 11:23 am Like I said above, if you care a lot about resale value and minimum depreciation you should look at:

1.) Jeep Wrangler...30% depreciation after 5 years
2.) Toyota Tacoma
3.) Toyota Tundra
4.) Toyota 4 runner
5.) Porsche 911

I'm a huge Jeep person so I'm biased but you can google and confirm my findings. THIS is why I always did buy new and it never really hurt me too much. Cars on the other hand depreciate at a far higher rate.
Just don't buy a Jeep Compass. What a POC. Totally turned me off to Jeeps forever.
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

SanAntionetta wrote: Tue Jun 22, 2021 1:09 pm Our current cars
(1) 2012 Honda Civic, bought new - $28K? (EX-L) paid off, now 10 years old and going strong. I was the sole earner as my husband was in college and I think the payment was about 5% of gross income.

(2) 2017 Hyundai Santa Fe (bought used in 2018 with 20K miles) - $28K, 4 year loan paid off early. The payment was 2.2% of gross income.

Strategy for the next car is to pay cash most likely. It depends how long the Civic lasts - mostly because I don't want to buy a really nice car with toddlers, as they will simply destroy it. If we can make it until the youngest is 4 (3 more years?) I might splurge on a really nice car.
bgf wrote: Sun Jun 20, 2021 7:38 pm I just traded in my 2012 Camry for a 2021 Lexus ES 300h. Delivery on wednesday. Can't wait! The payment won't affect our savings goal at all, and the depreciation will be just noise in relation to our net worth growth. So I did it.

It's weird though, spending money. I had a visceral reaction to doing it at first, then when it was done I was happy I bought it.

So if you can meet your savings goals and the decrease in value won't materially affect your net worth, then why not?
I fully intend to do this once my kids are hold enough not to ruin it. How old do you think that is? Will my 2012 Civic last that long? :P
Coachrhino11 wrote: Tue Jun 22, 2021 11:23 am Like I said above, if you care a lot about resale value and minimum depreciation you should look at:

1.) Jeep Wrangler...30% depreciation after 5 years
2.) Toyota Tacoma
3.) Toyota Tundra
4.) Toyota 4 runner
5.) Porsche 911

I'm a huge Jeep person so I'm biased but you can google and confirm my findings. THIS is why I always did buy new and it never really hurt me too much. Cars on the other hand depreciate at a far higher rate.
Just don't buy a Jeep Compass. What a POC. Totally turned me off to Jeeps forever.
Not sure what your kids are doing to the car that is so terrible. I have two toddlers and they sit in car seats so they don’t even touch the seats. Dirty shoes and dropped crumbs are the worst of it and can be cleaned.
khram
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Re: Guidance on Max Car Price

Post by khram »

bligh wrote: Tue Jun 22, 2021 11:55 am Or worse, Jim/Bob dies of a heart attack/cancer/<random act of god> 2 years before he was planning to retire.

I live super frugally myself, but at the same time I feel there is far too much emphasis in the Bogleheads community on saving everything and all the enjoyment for after retirement. There is a real cost to living the best years of your life in a state of constant deprivation, in the hope that someday you will arrive at the promised land, old and frail, ready to finally splurge on yourself.

IMO, after a certain point of financial stability, people should enjoy the fruits of their labor along the way. I am pretty middle of the road on cars, I dont drive luxury brands, nor do I drive 20 year old corollas.. but if cars were my thing, and I could afford to spend on it (to me this means, buying it in cash (or at least being able to.. sometimes the interest rates make it so it makes more sense to finance ... without affecting my other savings goals too much or leaving my emergency fund completely depleted), I would go for it.
Yes, there's a good chance you die before you run out of money. But if the alternative is (with some nonzero probability) just surviving in retirement, or even relying on kids/government programs/starving/whatever, oversaving is far preferable. Even before retirement, if we end up in a crisis situation where your home area is no longer inhabitable (Phoenix/Las Vegas on fire, Miami underwater, etc.), there are going to be a lot of people panicking to move elsewhere (where the prices will skyrocket). Who's going to be better situated to do so? The people with assets, not the ones who overspent on cars or houses for decades. You may call me paranoid, but I don't see long-term preparedness as much different from short-term "have an emergency fund" etc. In any case, you never know what life will throw at you.

As a simple example, and I doubt this happened to many bogleheads, but it was sad to see those lines of cars at food banks last fall where they had no money for food yet were driving $50k cars. And I find when I meet people who try to size me up, instead of asking about my job or how much money I make (not that I'd necessarily answer), they almost always ask me what kind of car I drive. It's just where people are at. I am not sure what level of income people associate with "drives a $30k car."

If you make good income, you can still spend on fun things, and I 100% agree not to deprive yourself, but it's worth saving a lot more than you'll hopefully ever need. And if you do outlive the money, you can donate it to your favorite charity (which could be your kids). I have driven some cars that were probably worth $80k or so that my parents owned and just didn't like them over my $30k car (other than driving the big SUV when I had to go through snow, but I don't live in a snowy climate these days).
$=WxTxI
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Re: Guidance on Max Car Price

Post by $=WxTxI »

khram wrote: Sun Jun 20, 2021 11:26 pm
Tingting1013 wrote: Sun Jun 20, 2021 6:35 pm A $40k car costs about $4k per year. If that makes a “noticeable dent” in your finances then your “comfortable 6 figures” isn’t comfortable enough.

Also those friends of yours who sold their second cars might have gotten more than they paid for them.
???

Are you saying you buy it in cash, then the insurance maintenance etc. costs $4k? I am comfortable pulling $30k out of savings to buy a car if I suddenly need a new one, but would prefer not to pull $40k or $60k. That sets back other savings goals more than I would like. And I have a fear, rational or irrational, of lifestyle creep. There is nothing wrong with spending more than I do on cars if you value it more over hobbies or retiring earlier, etc.

I doubt they got more than they paid for them. This was at the beginning of the pandemic, before car prices skyrocketed.
If spending 40-60k on a car would impact retiring earlier, wouldn't you spending 30k over a serviceable 5-10k car do the same?
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

$=WxTxI wrote: Tue Jun 22, 2021 2:36 pm
khram wrote: Sun Jun 20, 2021 11:26 pm
Tingting1013 wrote: Sun Jun 20, 2021 6:35 pm A $40k car costs about $4k per year. If that makes a “noticeable dent” in your finances then your “comfortable 6 figures” isn’t comfortable enough.

Also those friends of yours who sold their second cars might have gotten more than they paid for them.
???

Are you saying you buy it in cash, then the insurance maintenance etc. costs $4k? I am comfortable pulling $30k out of savings to buy a car if I suddenly need a new one, but would prefer not to pull $40k or $60k. That sets back other savings goals more than I would like. And I have a fear, rational or irrational, of lifestyle creep. There is nothing wrong with spending more than I do on cars if you value it more over hobbies or retiring earlier, etc.

I doubt they got more than they paid for them. This was at the beginning of the pandemic, before car prices skyrocketed.
If spending 40-60k on a car would impact retiring earlier, wouldn't you spending 30k over a serviceable 5-10k car do the same?
Exactly. It’s all a matter of degree. The difference in total cost of ownership between a $60k car, a $30k car, and a $10k car is on the order of $1k-$4k per year. With the $60k car you are paying more for depreciation and for the $10k car you are paying more for maintenance and repairs.

An extra $1k-4K per year is just not moving the needle for retirement, unless you are seriously LeanFIRE.
$=WxTxI
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Re: Guidance on Max Car Price

Post by $=WxTxI »

Tingting1013 wrote: Tue Jun 22, 2021 2:42 pm
$=WxTxI wrote: Tue Jun 22, 2021 2:36 pm
khram wrote: Sun Jun 20, 2021 11:26 pm
Tingting1013 wrote: Sun Jun 20, 2021 6:35 pm A $40k car costs about $4k per year. If that makes a “noticeable dent” in your finances then your “comfortable 6 figures” isn’t comfortable enough.

Also those friends of yours who sold their second cars might have gotten more than they paid for them.
???

Are you saying you buy it in cash, then the insurance maintenance etc. costs $4k? I am comfortable pulling $30k out of savings to buy a car if I suddenly need a new one, but would prefer not to pull $40k or $60k. That sets back other savings goals more than I would like. And I have a fear, rational or irrational, of lifestyle creep. There is nothing wrong with spending more than I do on cars if you value it more over hobbies or retiring earlier, etc.

I doubt they got more than they paid for them. This was at the beginning of the pandemic, before car prices skyrocketed.
If spending 40-60k on a car would impact retiring earlier, wouldn't you spending 30k over a serviceable 5-10k car do the same?
Exactly. It’s all a matter of degree. The difference in total cost of ownership between a $60k car, a $30k car, and a $10k car is on the order of $1k-$4k per year. With the $60k car you are paying more for depreciation and for the $10k car you are paying more for maintenance and repairs.

An extra $1k-4K per year is just not moving the needle for retirement.
I agree.

Khram is correct if he was referring to a large portion of the population. Unfortunately when presented with the choice of 1-4k of total savings per year and a more expensive car. Most people choose the more expensive car which is why we get articles about how people can't afford a 1k emergency, or have almost no retirement savings.
anoop
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Re: Guidance on Max Car Price

Post by anoop »

I take the price of the car and divide by 5. If that number looks "too big", then I can't afford it. That is my very conservative estimate of what it costs to own the car including maintenance, insurance, depreciation, etc. So I know I won't be surprised even if I have an accident and insurance goes up or I hit a pothole and need to replace a bent wheel.

It's hard to use rules of thumb on income with a car because you have to look at the whole picture. A young, single person with no plans to form a family and no other expensive hobbies is in a different place compared to someone that is a single earner in a family of 5 with 3 teenage/college kids and a ton of hobbies.

The last car I bought had a price that was approx 20% of my base pay.
Last edited by anoop on Tue Jun 22, 2021 3:04 pm, edited 2 times in total.
khram
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Re: Guidance on Max Car Price

Post by khram »

$=WxTxI wrote: Tue Jun 22, 2021 2:36 pm
khram wrote: Sun Jun 20, 2021 11:26 pm
Tingting1013 wrote: Sun Jun 20, 2021 6:35 pm A $40k car costs about $4k per year. If that makes a “noticeable dent” in your finances then your “comfortable 6 figures” isn’t comfortable enough.

Also those friends of yours who sold their second cars might have gotten more than they paid for them.
???

Are you saying you buy it in cash, then the insurance maintenance etc. costs $4k? I am comfortable pulling $30k out of savings to buy a car if I suddenly need a new one, but would prefer not to pull $40k or $60k. That sets back other savings goals more than I would like. And I have a fear, rational or irrational, of lifestyle creep. There is nothing wrong with spending more than I do on cars if you value it more over hobbies or retiring earlier, etc.

I doubt they got more than they paid for them. This was at the beginning of the pandemic, before car prices skyrocketed.
If spending 40-60k on a car would impact retiring earlier, wouldn't you spending 30k over a serviceable 5-10k car do the same?
There is some level of degree. Like I said, if I made $100m per year, I wouldn't think twice about dropping $100k on a car (but would still need to find a $100k car I like). It might impact early retirement in the wrong direction if I repeatedly have to skip out on work to get the car serviced. In my opinion, $20-30k is a very reasonable range for a nice car while making low-moderate 6-figures and not having it put too much of a dent in your long-term finances.
khram
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Re: Guidance on Max Car Price

Post by khram »

Tingting1013 wrote: Tue Jun 22, 2021 2:42 pm An extra $1k-4K per year is just not moving the needle for retirement, unless you are seriously LeanFIRE.
Maybe you have a strange idea of lean, but $4k invested at 8% over 30 years is ~$450k, which could represent a decade or even more of expenses for a normalish retirement. Even $180k over 20 years. Then if you say $4k is nothing, there's probably another $4k elsewhere in your budget you also say doesn't move the needle much. It's lifestyle creep, something to be cautious of.
JackoC
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Re: Guidance on Max Car Price

Post by JackoC »

jharkin wrote: Mon Jun 21, 2021 6:04 am
RickBoglehead wrote: Sun Jun 20, 2021 5:58 am The Boglehead guidance on car purchases is some of the worst of any subject matter.

"Never buy a new car"
"Keep a car for 200 years"
And don’t forget “ if you car is more than 3 years old it’s safety features are dated and you will DIE!!!”

….Makes you wonder how any of us survived the 70s and 80s alive. ;)


Honestly I think all the % of salary, etc rules are really most appropriate to non-bogleheads who are living paycheck to paycheck, and for early career professionals that are at the low end of earnings and dealing with lots of education debt.

For the established super savers of the board: does it really matter if the car is 20% or 40% or 50% of salary if you just pay cash? Does it matter how much % of nw it is if you have 7 figures and are so frugal it’s all going to charity when you die anyway?

Bottom line: don’t overthink it. Buy what fits your needs so long as the expense doesn’t cause you to miss some more important finance goal.
Simple rules of thumb, reasonable or not for their intended application, become unreasonable far outside their intended application. As you say, lots of car threads with % of salary: basically irrelevant to retired people, who don't seem to be a small % of this forum. And a % of salary rule that might be reasonable for a 30 something far from savings goal cannot directly be converted into the same % of whatever 'SWR' of assets you believe in. You don't live forever. At an earlier point in life it's not a big distortion to treat a car buying cycle as repeating itself indefinitely, but at a certain age it becomes silly to think of it that way.

At least if people would think a little more carefully what they are assuming about the person in question, because they usually are assuming quite a bit, and state it with their 'rule', the rules would be more useful, and less annoying. :happy

As far as 'I don't *want* to buy a car more than $X' that's a completely different thing. Obviously you don't have to buy anything you don't view as good value for the money per your tastes, compared to other things you could buy. Or compared to the satisfaction of just sitting on, then dying on, a big pile of money.

I was very financially conservative with car buying when younger. I won't detail it but the threshold of net worth I reached before ever buying a new car would sound quite onerous as a 'rule'. But it's not a rule, just what I happened to do. Doing it over I would have spent more sooner, then again I don't have severe regret about it. And it's always partly hindsight. For example the issue of safety features can be turned into a joke in the likely case you never have a serious accident (I've never had one). In case there was a serious accident and a family member's life ended or ruined though, even if it's not provable that vehicle mass or safety features would have prevented it, the mental torture you'll put yourself through will probably be even worse if you were driving a beater, particularly a small beater, than if you'd done everything financially possible to maximize safety.
esqu1re
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Re: Guidance on Max Car Price

Post by esqu1re »

My family income is low 6 figures (combined salary starts with a 2) and I plan on buying a $140k fun car with cash in the next 2-5 years. Net worth of about $1mm, but I also have about $1.4mm in mortgage debt.

That was the most un-boglehead thing I've ever expressed. However, I love cars. I also work a second job (National Guard). I save every paycheck I get from that and earmark it as "fun money," which gets invested in index funds and one particular stock. When that fund reaches $110k or so, I'm pulling the trigger and financing the rest.

The above is probably useless for the OP, but for people who like cars and are in the same boat as me, it might be a useful data point. Currently, I daily drive a Volt that I bought for $22,000 after tax rebates. This data point might be more useful for OP.
theplayer11
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Re: Guidance on Max Car Price

Post by theplayer11 »

Tingting1013 wrote: Mon Jun 21, 2021 1:59 pm
VoiceOfReason wrote: Mon Jun 21, 2021 12:11 pm
TimeTheMarket wrote: Mon Jun 21, 2021 10:07 am

Jim makes $100k/year and drives a paid for beater.
Bob made $100k/year also but just got a raise to $115k/year. His take home is now $750/month more. He leases a car for $600/month with the other $150/month covering more expensive tires and insurance.

Although Bob is a bit more exposed, since he cannot easily dump his lease, they are both making similar money amounts and investing the same to retirement, but instead of a 15 year old corolla like Jim, Bob is driving a new BMW.
You left out the best part of the story:

"Jim also got a raise to $115k/year. His take home is now $750/month more. Instead of getting a nicer car he decides to invest that $750/month in the stock market for 30 years with an average rate of return of 7%. They both get from point A to point B reliably, the only difference is when they reach retirement in 30 years, Jim has $910,000 more in his brokerage account than Bob."
Well no, that’s not the only difference. Bob got the benefit of driving a BMW over the 30 years. Presumably he valued that above zero, otherwise he would have driven a Honda.

Also, $9k annual difference is an outlier in TCO between a high end luxury car and a mainstream compact. A more reasonable delta is more like $5 or 6k.

Overall I find it strange how Bogleheads care so much about saving every last dollar only to reach retirement and have nothing to spend the pot of money on… If you don’t value the things money can buy, why do you care about saving / investing so much?
+1.. I don't get it either. Why would I settle on a $25k(for example) vehicle when say a $33K vehicle would add much more enjoyment to my life. Does the average bogglehead just not car about driving at all? My above example would be a Honda CRV opposed to a Mazda turbo CX-5. But most will die with more money they retired with and their kids will be driving the better car. Just doesn't make sense to me. Same with traveling.
Jags4186
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Re: Guidance on Max Car Price

Post by Jags4186 »

I think at the end of the day you just need to make a budget and decide how you want to allocate your funds.

If you spend 20% of your income on taxes, target a 20% savings rate, and spend 20% on housing, that leaves you 40% of your money to live on. If you can meet all your other obligations plus a fancy pants car with that 40%, go for the fancy pants card.

Of course, if you have $200k in Tesla gains, you have my permission to spend $50k on a Tesla regardless of your income. :D
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

khram wrote: Tue Jun 22, 2021 2:59 pm
$=WxTxI wrote: Tue Jun 22, 2021 2:36 pm
khram wrote: Sun Jun 20, 2021 11:26 pm
Tingting1013 wrote: Sun Jun 20, 2021 6:35 pm A $40k car costs about $4k per year. If that makes a “noticeable dent” in your finances then your “comfortable 6 figures” isn’t comfortable enough.

Also those friends of yours who sold their second cars might have gotten more than they paid for them.
???

Are you saying you buy it in cash, then the insurance maintenance etc. costs $4k? I am comfortable pulling $30k out of savings to buy a car if I suddenly need a new one, but would prefer not to pull $40k or $60k. That sets back other savings goals more than I would like. And I have a fear, rational or irrational, of lifestyle creep. There is nothing wrong with spending more than I do on cars if you value it more over hobbies or retiring earlier, etc.

I doubt they got more than they paid for them. This was at the beginning of the pandemic, before car prices skyrocketed.
If spending 40-60k on a car would impact retiring earlier, wouldn't you spending 30k over a serviceable 5-10k car do the same?
There is some level of degree. Like I said, if I made $100m per year, I wouldn't think twice about dropping $100k on a car (but would still need to find a $100k car I like). It might impact early retirement in the wrong direction if I repeatedly have to skip out on work to get the car serviced. In my opinion, $20-30k is a very reasonable range for a nice car while making low-moderate 6-figures and not having it put too much of a dent in your long-term finances.
If you are not already making big money it can be hard to visualize what it’s like.

So let me give you a data point. My HHI is $850k. I pay $300k in income taxes, I spend $200k, and I save $350k.

A $100k car costs $10k per year in depreciation and maintenance/repairs.

Would saving $340k instead of $350k per year make any difference to my retirement trajectory?

Now let’s scale down to a family making $300k. They pay $100k in taxes, spend $100k, and save $100k They are considering a $60k car that costs $6k per year in d/m/r. They are being berated by Bogleheads telling them to buy a Camry that costs $2k per year instead. Would saving $104k instead of $100k make any difference to their retirement trajectory?
khram
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Re: Guidance on Max Car Price

Post by khram »

No one is berating anyone. It's fairly obvious you've come into contact with a fair amount of lifestyle creep. And that's okay, you make a lot of money. In fact, I specifically said
7-figures, or even high 6-figures, you can go higher
in my first post, and it caused a fair amount of drama (or at least argument).

Imagine your situation, but you're closer to college than retirement (i.e., starting accumulating), you make somewhere between $150-250k (good money, but still need to budget), and you never know for sure if you'll have the high pay as long as you want, or if you'll age out or have medical problems or face some type of collapse situation. Unless you get a lot of value out of a car, it's just very short-term thinking, and somewhat risky.

But even at your income, yes, you could probably shave 3 years of working by saving $10k/year. Maybe you don't want to retire (as) early, or maybe you get value out of having a more expensive car. Like I said, I don't even like the more expensive cars I've driven, so why would I bother getting one? And I would bet if there is $10k/year to save in your car budget, there's probably more fat to trim elsewhere if you cared to.

In the $300k example, there is still a lot of opportunity cost there. Tying up $60k in something that's not liquid (and that depreciates) is not insignificant, especially if you're younger.

Of course, both extremes are bad. One being saving everything, never even going out to eat. The other being spending everything and working until you die. It's up to everyone to choose their appetite for risk. I would choose not to go above $30k or so for a, say, $150-300k salary.
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

khram wrote: Tue Jun 22, 2021 5:08 pm No one is berating anyone.
Really? How about this thread which is literally happening in real time:

viewtopic.php?f=2&t=351927&newpost=6080780
But even at your income, yes, you could probably shave 3 years of working by saving $10k/year.
Would love to see this math.
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firebirdparts
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Re: Guidance on Max Car Price

Post by firebirdparts »

VoiceOfReason wrote: Tue Jun 22, 2021 9:44 am
firebirdparts wrote: Tue Jun 22, 2021 8:44 am I love cars, so I have rules that apply to myself that only work for me. I take the long term view and my goal is to have depreciation, maintenance, and repairs all fall within 10 cents a mile. This is a low price, FWIW. I can do it, but I never let anybody work on my car. Please grasp here I know nobody wants to hear this nor does anybody agree with it. I understand, truly, I do. But it is a meaningful limit and it is a maximum and I do live by it.

Wow! With an average 12k miles a year that is $1,200 a year in depreciation, maintenance and repairs. How do you do that?
I am very very good at troubleshooting, and of course I live in the slower part of depreciation. Or negative depreciation, even. I do not fix wrecks, generally speaking, but I would consider a vehicle that has some confusing problem. Especially electrical problems. If you can figure out what the problem actually is, you can fix it for 10 cents. My wife wanted a Lexus LS460, and that's a stretch. I paid $14,000 for it. If she's willing to drive it 100,000 miles and it never breaks, I might have a shot. My wife doesn't really have to live by my rules, obviously.
A fool and your money are soon partners
khram
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Re: Guidance on Max Car Price

Post by khram »

You spend $200k/year you said. Invest $10k/year for 30 years at 8%: 10k*(1 + 1.08 + 1.08^2 + ... + 1.08^29) = 10*(1 - 1.08^30)/(1 - 1.08) = $1.132m. 20 years, you get $457k. You have to discount that for taxes and inflation, and the exact numbers would be different due to variance in returns each year, and the geometric mean may not be 8% either. If you're only working for 10 years before calling it quits, you'll shave some time off, but not 3 full years. Also depends if the extra $10k was realistic at the beginning of your career. But you can plug in your own numbers for different scenarios. Then you don't need to withdraw it all at once, so some of it continues to earn while spending the first year etc. (of course there can be market downturns as well while in your spending phase). A small amount saved per year can lead to a surprisingly high future value. The power of compound interest (perhaps growth is a better word than interest) is probably the biggest lesson to take away from this entire community.

I am not in that thread, nor have I read it. No one that I'm aware of is being berated in this thread. I'm not going to read all the posts there, but from the OP making $250k and "thinking of buying a $55k car," I would hesitate too, at least until knowing what "thinking about buying" means. I "thought about" buying basketball tickets a few weeks ago, but it turned out the game 7 didn't happen, and I didn't care enough to go to the game 5 that did happen.

But I know everyone here loves to argue about almost anything. So if I have to amend my statement: no one is berating anyone in this thread (though I probably skipped a few posts).
APX32
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Re: Guidance on Max Car Price

Post by APX32 »

bligh wrote: Tue Jun 22, 2021 11:55 am
bogledogle wrote: Mon Jun 21, 2021 5:47 pm
VoiceOfReason wrote: Mon Jun 21, 2021 12:11 pm
TimeTheMarket wrote: Mon Jun 21, 2021 10:07 am

Jim makes $100k/year and drives a paid for beater.
Bob made $100k/year also but just got a raise to $115k/year. His take home is now $750/month more. He leases a car for $600/month with the other $150/month covering more expensive tires and insurance.

Although Bob is a bit more exposed, since he cannot easily dump his lease, they are both making similar money amounts and investing the same to retirement, but instead of a 15 year old corolla like Jim, Bob is driving a new BMW.
You left out the best part of the story:

"Jim also got a raise to $115k/year. His take home is now $750/month more. Instead of getting a nicer car he decides to invest that $750/month in the stock market for 30 years with an average rate of return of 7%. They both get from point A to point B reliably, the only difference is when they reach retirement in 30 years, Jim has $910,000 more in his brokerage account than Bob."
Jim dies with $910,000 more in his brokerage account ..... while Bob creates jobs and spreads his wealth around while enjoying the fruits of his labors while he is alive ... :sharebeer
Or worse, Jim/Bob dies of a heart attack/cancer/<random act of god> 2 years before he was planning to retire.

I live super frugally myself, but at the same time I feel there is far too much emphasis in the Bogleheads community on saving everything and all the enjoyment for after retirement. There is a real cost to living the best years of your life in a state of constant deprivation, in the hope that someday you will arrive at the promised land, old and frail, ready to finally splurge on yourself.

IMO, after a certain point of financial stability, people should enjoy the fruits of their labor along the way. I am pretty middle of the road on cars, I dont drive luxury brands, nor do I drive 20 year old corollas.. but if cars were my thing, and I could afford to spend on it (to me this means, buying it in cash (or at least being able to.. sometimes the interest rates make it so it makes more sense to finance ... without affecting my other savings goals too much or leaving my emergency fund completely depleted), I would go for it.

To the OP. My personal rule of thumb on max car price was the Livesoft rule of car buying (Do not spend more on cars than your portfolio moves in a single day). This was until the massive 10%+ moves in the market last year. Now I use a more conservative number.. 2% of portfolio, or 3 months gross pay, which ever is greater, provided you plan to keep the car for 10+ years (which I always do). This doesn't mean I will spend that much on my next car, it just means I won't spend MORE than this much on my next car.
Some great points here, I logged in just so I can comment that I completely agree with your assessment when it comes to achieving that balance. Yes, we want to save some for tomorrow and not end up destitute in old age, but you also have to live a little. I’m 44 now, (thankfully) in good health and these are the best years of my life. I’d like to keep that going for another 20-25 years before I eventually slow down. That means driving high performance German cars (yes, car guy here since I was a child) among other things to enjoy life now instead of ending up with $3 million in investments and dropping dead at age 65 or 70 having lived a life full of driving crap cars, wearing thrift store clothes and eating cheap dinners.

Or maybe end up with some debilitating health condition which prevents me from doing all the things I put off in my 20s through 50s in the hopes that I would fulfill them all in retirement. Another thing is, people’s interests and goals change over time. That cruise in Antarctica or that 6 week European vacation may no longer appeal to you at age 65. This pandemic also taught me a number of lessons not to take anything for granted.

I understand not everyone is a car guy and would not in any way advocate people should buy something fancy by taking out one of those 84 month loans. But if your financial house is in good order and you have good stable job, then it’s perfectly reasonable to buy a $50k+ luxury car and enjoy driving it, and not worry about nonsense like “if I buy a $20k used car instead and invest the difference in VTI, I can have an extra $300k in retirement”.

:sharebeer
45% SPY | 10% GLD | 5% BTC/ETH | 40% Cash/Bonds
Tingting1013
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Re: Guidance on Max Car Price

Post by Tingting1013 »

khram wrote: Tue Jun 22, 2021 5:40 pm You spend $200k/year you said. Invest $10k/year for 30 years at 8%: 10k*(1 + 1.08 + 1.08^2 + ... + 1.08^29) = 10*(1 - 1.08^30)/(1 - 1.08) = $1.132m. 20 years, you get $457k. You have to discount that for taxes and inflation, and the exact numbers would be different due to variance in returns each year, and the geometric mean may not be 8% either. If you're only working for 10 years before calling it quits, you'll shave some time off, but not 3 full years. Also depends if the extra $10k was realistic at the beginning of your career. But you can plug in your own numbers for different scenarios. Then you don't need to withdraw it all at once, so some of it continues to earn while spending the first year etc. (of course there can be market downturns as well while in your spending phase).
I have $2M net worth right now. If I contribute $30k per month to savings and the whole nest egg grows at 8% per year, in 10 years I reach $9.96M

If I buy the $100k car and I can only contribute $29k per month, in 10 years I reach $9.78M

So that’s a difference of $180k, less than one year of expenses, especially when taking into account taxes and inflation. It’s probably only 6 months of expenses.

So should I retire 6 months early or buy the new Model X?
A small amount saved per year can lead to a surprisingly high future value. The power of compound interest (perhaps growth is a better word than interest) is probably the biggest lesson to take away from this entire community.
The biggest takeaway for me from Bogleheads is just how little any of this matters at the end of the day for upper middle class folk, which is the majority of us here.
khram
Posts: 220
Joined: Sat Dec 16, 2017 1:36 am

Re: Guidance on Max Car Price

Post by khram »

I didn't say you couldn't retire in 10 years. I said you could shave a few years off by saving more aggressively (maybe closer to 1 year if you only have a 10-year career). I already said both extremes (extreme frugality vs. paycheck-to-paycheck) are bad, and everyone needs to find their own risk tolerance. In my first post in this thread, I very clearly said it's fine to spend more for someone at 7-figures or high 6-figures. I stand by my claim that if you're low-moderate 6-figures, you should only spend a lot on a car if it's particularly meaningful to you. Even I've increased my spending. My previous car was under $20k.
So should I retire 6 months early or buy the new Model X?
I'm not telling you what to do. Your financial situation does not fit the bucket I was describing in my first post.
Coachrhino11
Posts: 226
Joined: Mon Aug 28, 2017 12:02 pm

Re: Guidance on Max Car Price

Post by Coachrhino11 »

Tingting1013 wrote: Tue Jun 22, 2021 5:58 pm
khram wrote: Tue Jun 22, 2021 5:40 pm You spend $200k/year you said. Invest $10k/year for 30 years at 8%: 10k*(1 + 1.08 + 1.08^2 + ... + 1.08^29) = 10*(1 - 1.08^30)/(1 - 1.08) = $1.132m. 20 years, you get $457k. You have to discount that for taxes and inflation, and the exact numbers would be different due to variance in returns each year, and the geometric mean may not be 8% either. If you're only working for 10 years before calling it quits, you'll shave some time off, but not 3 full years. Also depends if the extra $10k was realistic at the beginning of your career. But you can plug in your own numbers for different scenarios. Then you don't need to withdraw it all at once, so some of it continues to earn while spending the first year etc. (of course there can be market downturns as well while in your spending phase).
I have $2M net worth right now. If I contribute $30k per month to savings and the whole nest egg grows at 8% per year, in 10 years I reach $9.96M

If I buy the $100k car and I can only contribute $29k per month, in 10 years I reach $9.78M

So that’s a difference of $180k, less than one year of expenses, especially when taking into account taxes and inflation. It’s probably only 6 months of expenses.

So should I retire 6 months early or buy the new Model X?
A small amount saved per year can lead to a surprisingly high future value. The power of compound interest (perhaps growth is a better word than interest) is probably the biggest lesson to take away from this entire community.
The biggest takeaway for me from Bogleheads is just how little any of this matters at the end of the day for upper middle class folk, which is the majority of us here.
Right on! I thought we were doing very well financially until I started reading this forum a few years ago. :oops: I grew up poor, so we are doing very well compared to my childhood but compared to so many here we are POOR! But everything you said above makes 100% sense. What exactly is the point of investing everything and living crusty beneath means for years and years to possibly let your children be trust fund punks? We have enough of those. If one is meeting financial goals and they enjoy cars, what's the problem?

Also, it does seem it's never good enough. Me for example: Roth's, 403b, pension, paying down mortgage. WAIT!!! You need 529, HSA, ALL retirement accounts maxed! But after all that, I have nothing to live life today. Balance.
Lee_WSP
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Location: Arizona

Re: Guidance on Max Car Price

Post by Lee_WSP »

Where does the 1/3 of salary car rule come from? Is it strictly a BH only idea?

I thought I remember it from Dave Ramsey's musings, but on his current website, he has it updated to a 50% rule for all cars in the family.
As a general rule of thumb, the total value of your vehicles (anything with a motor in it) should never be more than half of your annual household income
https://www.ramseysolutions.com/insuran ... s-used-car

So, if even Dave Ramsey says 50% is okay, well, I can't argue for anything stricter with a straight face.
khram
Posts: 220
Joined: Sat Dec 16, 2017 1:36 am

Re: Guidance on Max Car Price

Post by khram »

Lee_WSP wrote: Tue Jun 22, 2021 6:35 pm So, if even Dave Ramsey says 50% is okay, well, I can't argue for anything stricter with a straight face.
Except his advice is usually for low-income (or at least low-savings) people struggling with debt. If you're making $40k household, maybe two $10k cars is the right way. Cheap enough not to be too much of a burden (maybe), expensive enough not to constantly be breaking down (I hope).

If your next goal is to crawl out of debt, vs. buying a nice house or retiring early or something like that, the "right" percentage will be different.
Lee_WSP
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Location: Arizona

Re: Guidance on Max Car Price

Post by Lee_WSP »

khram wrote: Tue Jun 22, 2021 6:40 pm
Lee_WSP wrote: Tue Jun 22, 2021 6:35 pm So, if even Dave Ramsey says 50% is okay, well, I can't argue for anything stricter with a straight face.
Except his advice is usually for low-income (or at least low-savings) people struggling with debt. If you're making $40k household, maybe two $10k cars is the right way. Cheap enough not to be too much of a burden (maybe), expensive enough not to constantly be breaking down (I hope).

If your next goal is to crawl out of debt, vs. buying a nice house or retiring early or something like that, the "right" percentage will be different.
I don't quite understand what you're saying. If your income is 200k, you shouldn't buy a 100k car? If that is what you're saying, why not? It's not going to impede anything other than extreme FIRE saving, which comes with a different ruleset.
Coachrhino11
Posts: 226
Joined: Mon Aug 28, 2017 12:02 pm

Re: Guidance on Max Car Price

Post by Coachrhino11 »

Lee_WSP wrote: Tue Jun 22, 2021 6:49 pm
khram wrote: Tue Jun 22, 2021 6:40 pm
Lee_WSP wrote: Tue Jun 22, 2021 6:35 pm So, if even Dave Ramsey says 50% is okay, well, I can't argue for anything stricter with a straight face.
Except his advice is usually for low-income (or at least low-savings) people struggling with debt. If you're making $40k household, maybe two $10k cars is the right way. Cheap enough not to be too much of a burden (maybe), expensive enough not to constantly be breaking down (I hope).

If your next goal is to crawl out of debt, vs. buying a nice house or retiring early or something like that, the "right" percentage will be different.
I don't quite understand what you're saying. If your income is 200k, you shouldn't buy a 100k car? If that is what you're saying, why not? It's not going to impede anything other than extreme FIRE saving, which comes with a different ruleset.
Yeah, I remember Bogleheads at one time was about being frugal yes, index funds, etc... . But it does seem it's become more about FIRE now when you read the threads. Everything is met with, well that could mean the difference of retiring 3 years sooner.
Ron Ronnerson
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Location: Bay Area

Re: Guidance on Max Car Price

Post by Ron Ronnerson »

I don’t think some arbitrary benchmark should be the basis of a decision on how much to spend on a car. Instead, I think we need to understand that money is limited and we must make choices based on our priorities. Personally, an expensive car is not a priority to me. I feel like I am deriving something like 95% of a Tesla’s value from my Toyota Corolla. I have air conditioning, seat belts, air bags, cruise control, power everything (windows, mirrors, doors, AND steering), and it will get me to where I am going just about every time, which is where I derive most of the value from a car. I can even listen to music and make phone calls from my vehicle while zooming at 70 mph on the highway as my GPS charts a course. I mean we’re talking futuristic, mad-science stuff here.

To someone else, every feature I listed above may do nothing more than induce yawns. Perhaps they’re willing to pay more (maybe even far more) for the latest features. That’s fine but they’ll have to make tradeoffs for it. It could require postponing their retirement date or giving up other things in order to afford it. We all do this with all our purchases. Every dollar spent on x becomes unavailable for y and z.

So spend what you want on whatever you want but do so responsibly and with eyes open (meaning you are considering the tradeoffs).
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