how much car can we afford?

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Grt2bOutdoors
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Re: how much car can we afford?

Post by Grt2bOutdoors » Sun Aug 12, 2018 5:09 pm

You’re kidding, right?
What kind of car are you looking at? I’d say a 40-45k car at most.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Location: New York

Re: how much car can we afford?

Post by Grt2bOutdoors » Sun Aug 12, 2018 5:11 pm

johussman wrote:
Sun Aug 12, 2018 10:32 am
livesoft wrote:
Sun Aug 12, 2018 10:23 am
johussman wrote:
Sun Aug 12, 2018 10:13 am
PFInterest wrote:
Sun Aug 12, 2018 10:12 am
really, you dont even say what you are looking at?
why is this a serious question?

you can afford a used Civic.
I'm looking at a BMW 3 series certified pre owned about 40k with 8k miles on it
Buying that car means that you will not be able to afford other things that you might want.
sounds like you do not think i can afford this.
You can buy something’s you want, but you can not buy everything. That is what is meant by being able to afford other things.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

KlangFool
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Re: how much car can we afford?

Post by KlangFool » Sun Aug 12, 2018 5:33 pm

smitcat wrote:
Sun Aug 12, 2018 4:56 pm
KlangFool wrote:
Sun Aug 12, 2018 4:41 pm
smitcat wrote:
Sun Aug 12, 2018 4:38 pm
KlangFool wrote:
Sun Aug 12, 2018 1:12 pm
johussman wrote:
Sun Aug 12, 2018 12:39 pm


What point are you trying to make here?
johussman,

Most of your net worth is tied to the house. The house value is 1 million. Your net worth excluding the house is 800K. If the house's value drops to 500K, you are worth only 700K. If the house value goes up to 1.5 million, you are worth 1.7 million. Most of your money is tied up with the house. It could be a good thing or a bad thing.

If you take away the house, you are not doing as well as you think.

KlangFool
He is mid 30's - he is doing great.
smitcat,

Almost everyone in the 30s believes that they would be fully-employed all the way until retirement age. And, they will not be affected by the economic crisis, recession, change in the industry and so on. That was my belief too.

KlangFool
I do not see how your thoughts are relevant…
- The OP saved over $300K for the home purchase
- OP has $650K saved in taxable
- Current income of $300K
In their mid 30's they are likely doing better that most folks on this board. They are young and flexible and in demand and they will be best served to have more of an offensive outlook on life.
smitcat,

How much is their annual expense? How long can they last if they are unemployed?

KlangFool

johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: how much car can we afford?

Post by johussman » Sun Aug 12, 2018 5:48 pm

KlangFool wrote:
Sun Aug 12, 2018 5:33 pm
smitcat wrote:
Sun Aug 12, 2018 4:56 pm
KlangFool wrote:
Sun Aug 12, 2018 4:41 pm
smitcat wrote:
Sun Aug 12, 2018 4:38 pm
KlangFool wrote:
Sun Aug 12, 2018 1:12 pm


johussman,

Most of your net worth is tied to the house. The house value is 1 million. Your net worth excluding the house is 800K. If the house's value drops to 500K, you are worth only 700K. If the house value goes up to 1.5 million, you are worth 1.7 million. Most of your money is tied up with the house. It could be a good thing or a bad thing.

If you take away the house, you are not doing as well as you think.

KlangFool
He is mid 30's - he is doing great.
smitcat,

Almost everyone in the 30s believes that they would be fully-employed all the way until retirement age. And, they will not be affected by the economic crisis, recession, change in the industry and so on. That was my belief too.

KlangFool
I do not see how your thoughts are relevant…
- The OP saved over $300K for the home purchase
- OP has $650K saved in taxable
- Current income of $300K
In their mid 30's they are likely doing better that most folks on this board. They are young and flexible and in demand and they will be best served to have more of an offensive outlook on life.
smitcat,

How much is their annual expense? How long can they last if they are unemployed?

KlangFool
If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
Last edited by johussman on Sun Aug 12, 2018 6:00 pm, edited 1 time in total.

thangngo
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Re: how much car can we afford?

Post by thangngo » Sun Aug 12, 2018 5:54 pm

OP,

If you're mindful with other purchases (traveling, education, discretionary expenses) and still keep up with your saving rate to achieve your goals, you can certainly get that BMW. Note that you should account for increase in insurance cost, repair & maintenance cost, etc. But as long as you achieve your saving rate, you'll be fine.

I might suggest 33% tax, 33% save, and spend the rest.

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wander
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Re: how much car can we afford?

Post by wander » Sun Aug 12, 2018 6:14 pm

I think the Op can afford the Bimmer as the cost is within reasonable range. Buy it and enjoy it.

KlangFool
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Re: how much car can we afford?

Post by KlangFool » Sun Aug 12, 2018 6:18 pm

johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool

denovo
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Re: how much car can we afford?

Post by denovo » Sun Aug 12, 2018 6:25 pm

100k car. 500 HP or Bust.
"Don't trust everything you read on the Internet"- Abraham Lincoln

T4REngineer
Posts: 45
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Re: how much car can we afford?

Post by T4REngineer » Sun Aug 12, 2018 6:29 pm

KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool
Let it go

T4REngineer
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Re: how much car can we afford?

Post by T4REngineer » Sun Aug 12, 2018 6:30 pm

denovo wrote:
Sun Aug 12, 2018 6:25 pm
100k car. 500 HP or Bust.
I'll add AWD to the list - launch control and you have your own roller coaster :D (keep it under the speed limit)

denovo
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Re: how much car can we afford?

Post by denovo » Sun Aug 12, 2018 6:32 pm

T4REngineer wrote:
Sun Aug 12, 2018 6:30 pm
denovo wrote:
Sun Aug 12, 2018 6:25 pm
100k car. 500 HP or Bust.
I'll add AWD to the list - launch control and you have your own roller coaster :D (keep it under the speed limit)
RWD unless you live in some place that snows. Plus, that's what race tracks are for.
"Don't trust everything you read on the Internet"- Abraham Lincoln

livesoft
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Re: how much car can we afford?

Post by livesoft » Sun Aug 12, 2018 6:35 pm

T4REngineer wrote:
Sun Aug 12, 2018 6:29 pm
Let it go
Yes, the OP could sell the expensive car at any time.
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johussman
Posts: 29
Joined: Sun Jul 29, 2018 4:18 pm

Re: how much car can we afford?

Post by johussman » Sun Aug 12, 2018 6:36 pm

KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool
If the house goes down by 50% from 1M -> 500k then we would be -100k under water on mortgage.
if investments go down by 50% from 800k->400k then total net worth would be 300k.

taxable account would be worth 325k which would give us nearly 4 years of spending at 7k a month.

How long is this recession supposed to last? Most don't last 4 years... In every recession except perhaps the great depression we'd be roaring back within the 4 years and would come out just fine.

Even in the height of the great depression the unemployment rate was only 25%. That's only a 6.25% chance that both income earners lose their job. This is highly unlikely, and as i said above, even if one of us maintained a relatively low paying job that would double or triple our cash buffer window. Also the odds of remaining unemployed for 3-4 years despite looking for work is very low, even in the great depression. If I couldn't get a high paying job like i have now i'd take a lower paying job to extend the cash buffer. Even at 25% unemployment it would be exceedingly rare to stay unemployed for 4 full years despite looking for work (any work)

thangngo
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Re: how much car can we afford?

Post by thangngo » Sun Aug 12, 2018 6:51 pm

forgot to ask: is your spouse on board with this? Is it for you or for your spouse or both? I think even if you can afford the BMW, you'll have to get your spouse on board with it. Us strangers don't really have a say.

cuihang
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Re: how much car can we afford?

Post by cuihang » Sun Aug 12, 2018 6:53 pm

livesoft wrote:
Sun Aug 12, 2018 6:35 pm
T4REngineer wrote:
Sun Aug 12, 2018 6:29 pm
Let it go
Yes, the OP could sell the expensive car at any time.
If and only if there is no accident to the car. :-) otherwise, the car's value would be much worse and you can't count on cars as a value holder.

I don't quite understand why it's such a hot topic regarding how much I can afford a car. My feeling is that as long as you calculate the owning cost of the car and fit it in your financial picture, you don't need to ask around. OP is doing great financially and I don't see there is much risk to get a 40k car. When you look back after several years, $40k may not be a big number as it seems today. :-)

livesoft
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Re: how much car can we afford?

Post by livesoft » Sun Aug 12, 2018 6:55 pm

cuihang wrote:
Sun Aug 12, 2018 6:53 pm
I don't quite understand why it's such a hot topic regarding how much I can afford a car.
One can bathe in the attention before buying the car and later when driving the car. And believe me, I know what bathing in attention is all about.
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AlphaLess
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Re: how much car can we afford?

Post by AlphaLess » Sun Aug 12, 2018 7:16 pm

PFInterest wrote:
Sun Aug 12, 2018 10:12 am
really, you dont even say what you are looking at?
why is this a serious question?

you can afford a used Civic.
Too expensive, IMO.

Need a cheaper car.

AlphaLess
Posts: 346
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Re: how much car can we afford?

Post by AlphaLess » Sun Aug 12, 2018 7:19 pm

Other considerations matter as well.

For example, if you sleep under a bridge, and you keep your clothes at the corporate closet, and use the gym as your only source of shower, perhaps you can afford a lot of car.

But if you own a $2M house with a $16K a month total housing expense, you probably can't afford a car.

randomguy
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Joined: Wed Sep 17, 2014 9:00 am

Re: how much car can we afford?

Post by randomguy » Sun Aug 12, 2018 7:31 pm

HomerJ wrote:
Sun Aug 12, 2018 5:07 pm
randomguy wrote:
Sun Aug 12, 2018 3:56 pm
Bah it is easy to blow through 50 billion or so. Between buying the yankees, giants
Ugh... why would one spend money on NY teams??

Oh wait, I get it. Buy them, then disband them! Brilliant!
Your right I should have bought the dallas cowboys and LA lakers to get more diversified portfolio. And we shouldn't miss out on the importance of international diversification so buying manchester united is probably a most have.

Realistically the people with billion dollar wealth tend to be subject to nondiversified risk. Eike Batista is a prime example of a guy that went from like 20 billion to broke and in jail in about 5 years.

T4REngineer
Posts: 45
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Re: how much car can we afford?

Post by T4REngineer » Sun Aug 12, 2018 7:48 pm

denovo wrote:
Sun Aug 12, 2018 6:32 pm
T4REngineer wrote:
Sun Aug 12, 2018 6:30 pm
denovo wrote:
Sun Aug 12, 2018 6:25 pm
100k car. 500 HP or Bust.
I'll add AWD to the list - launch control and you have your own roller coaster :D (keep it under the speed limit)
RWD unless you live in some place that snows. Plus, that's what race tracks are for.
We can agree to disagree :) - although I hear the newer high end sport sedans can be both - win win!

And I do live where is snows so AWD it was :sharebeer

pascal
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Re: how much car can we afford?

Post by pascal » Sun Aug 12, 2018 9:45 pm

OP - you should post here asking if you can even afford groceries. (Why did you have to purchase that house) /s
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

Rifampin
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Re: how much car can we afford?

Post by Rifampin » Sun Aug 12, 2018 10:14 pm

Go for the M2.

emoore
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Re: how much car can we afford?

Post by emoore » Sun Aug 12, 2018 10:54 pm

AlphaLess wrote:
Sun Aug 12, 2018 7:16 pm
PFInterest wrote:
Sun Aug 12, 2018 10:12 am
really, you dont even say what you are looking at?
why is this a serious question?

you can afford a used Civic.
Too expensive, IMO.

Need a cheaper car.
Ha! yeah right.

I really like this site but buying cars is where this site fails.

thangngo
Posts: 1138
Joined: Sun Feb 26, 2017 2:08 pm

Re: how much car can we afford?

Post by thangngo » Sun Aug 12, 2018 11:10 pm

emoore wrote:
Sun Aug 12, 2018 10:54 pm
AlphaLess wrote:
Sun Aug 12, 2018 7:16 pm
PFInterest wrote:
Sun Aug 12, 2018 10:12 am
really, you dont even say what you are looking at?
why is this a serious question?

you can afford a used Civic.
Too expensive, IMO.

Need a cheaper car.
Ha! yeah right.

I really like this site but buying cars is where this site fails.
It's a matter of opinion. How many consensus opinion have you gotten on this site?

Here's my opinion: I don't like Camry, Civic, Accord, or any crossover and I will not pay my money for those cars. It's a matter of opinion. :sharebeer

KyleAAA
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Re: how much car can we afford?

Post by KyleAAA » Sun Aug 12, 2018 11:33 pm

A $40k car seems reasonable at your income. Wife and I make a lot more and spent about that on both cars combined. YMMV.

randomguy
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Joined: Wed Sep 17, 2014 9:00 am

Re: how much car can we afford?

Post by randomguy » Sun Aug 12, 2018 11:47 pm

emoore wrote:
Sun Aug 12, 2018 10:54 pm
AlphaLess wrote:
Sun Aug 12, 2018 7:16 pm
PFInterest wrote:
Sun Aug 12, 2018 10:12 am
really, you dont even say what you are looking at?
why is this a serious question?

you can afford a used Civic.
Too expensive, IMO.

Need a cheaper car.
Ha! yeah right.

I really like this site but buying cars is where this site fails.
Buying anything is where this site fails. Financially buying just about anything makes no sense. About the one wasteful thing people are ok here spending money on is vacations (i.e. compare spending 5k/year on a vacations versus spending and extra 30k on a car. Both are luxury purchases). You just have to decide which spending makes you happy. The race to the bottom on spending is endless. A couple weeks back I saw a netflix special about a guy that doesn't buy overpriced grocery store meat. He gets all of his from roadkill. I am willing to pay 100x+ more for the convience of getting my food from a store:)

onourway
Posts: 1120
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Re: how much car can we afford?

Post by onourway » Mon Aug 13, 2018 5:54 am

IMO advice gets skewed when a poster has much of their wealth concentrated in taxable accounts rather than tax-advantaged. Do you have nothing in 401k's or IRA's @johussman?

What happens when you re-frame your situation as having say $600k as retirement funds? (which would be a pretty good position for someone of your age/income/expenses but not amazing.) We are in a similar overall position but our net worth is almost entirely in tax advantaged funds rather than taxable and home equity. I would never consider my tax-advantaged funds as anything but 3rd or 4th tier emergency funds - they are not to be touched other than in a major life disaster when every other option has been exhausted.

If you ignore the home equity which is locked up until you decide to move to another cheaper location and consider most of your taxable as retirement funds, then look at your monthly spend. After you pay all your expenses and fill all your savings goals, how much extra are you putting away every month? (again, if you are primarily saving for retirement in taxable ignore that as money available now.) How much free cash do you have to spend now while also keeping your normal emergency reserves intact? That plus the amount you are actually saving every month helps dictate how much car you can afford. Income or overall net worth doesn't come into it much for me. And I think that's pretty much the same place that most people here who give really conservative car buying advice are coming from as well.

I would try re-framing the picture something like this:

- $600k retirement funds
- $50k emergency funds
- $7k minimum monthly spend
- should be saving at least $84k annually for retirement (~1x annual expense)

From there you can determine how much of your remaining take home income you want to spend on a vehicle. What we think doesn't matter.

basspond
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Joined: Wed Nov 27, 2013 4:01 am

Re: how much car can we afford?

Post by basspond » Mon Aug 13, 2018 7:22 am

Whatever you can pay with cash.

edge
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Location: Great Falls VA

Re: how much car can we afford?

Post by edge » Mon Aug 13, 2018 7:44 am

This was an 'which' question, not a 'yes or no' question.
thangngo wrote:
Sun Aug 12, 2018 3:00 pm
edge wrote:
Sun Aug 12, 2018 1:23 pm
What does net mean here? Let's say he pays 100k in taxes so his net is 200k. He can only afford a 20k car? Or are you saying he can afford 20k in lease or car payments per year?
thangngo wrote:
Sun Aug 12, 2018 10:13 am
how much car do you need? maybe 15-22k for a reliable and reasonable vehicle.

how much car can you afford? maybe 10% of your annual net pay?

how much car do you want? that's the question for you.
That's exactly what net means. If he spends more than 10% net pay, then he'll have to dial back savings, mortgage, traveling, education, charitable givings, food & dining, etc. Something gotta gives. Don't let it be your saving rate though.
Last edited by edge on Mon Aug 13, 2018 7:58 am, edited 1 time in total.

smitcat
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Re: how much car can we afford?

Post by smitcat » Mon Aug 13, 2018 7:50 am

KlangFool wrote:
Sun Aug 12, 2018 5:33 pm
smitcat wrote:
Sun Aug 12, 2018 4:56 pm
KlangFool wrote:
Sun Aug 12, 2018 4:41 pm
smitcat wrote:
Sun Aug 12, 2018 4:38 pm
KlangFool wrote:
Sun Aug 12, 2018 1:12 pm


johussman,

Most of your net worth is tied to the house. The house value is 1 million. Your net worth excluding the house is 800K. If the house's value drops to 500K, you are worth only 700K. If the house value goes up to 1.5 million, you are worth 1.7 million. Most of your money is tied up with the house. It could be a good thing or a bad thing.

If you take away the house, you are not doing as well as you think.

KlangFool
He is mid 30's - he is doing great.
smitcat,

Almost everyone in the 30s believes that they would be fully-employed all the way until retirement age. And, they will not be affected by the economic crisis, recession, change in the industry and so on. That was my belief too.

KlangFool
I do not see how your thoughts are relevant…
- The OP saved over $300K for the home purchase
- OP has $650K saved in taxable
- Current income of $300K
In their mid 30's they are likely doing better that most folks on this board. They are young and flexible and in demand and they will be best served to have more of an offensive outlook on life.
smitcat,

How much is their annual expense? How long can they last if they are unemployed?

KlangFool
Living in fear when you are doing well is not a good practice or any way to live. We do not know what most of theire details are but I believe you are way to quick to say that they cannot afford a car that is insignificant in the overall picture.
FWIW - a CPO BMW 3 series will likley cost them the same as someone buying a new Honda or Toyato over the next 4-5 years. Plus they can sell it if they choose to rather easily.
Again - a young couple both with flexibility, a proven ability to save well, a bouth home with plenty down and in coreasing paychecks CAN live a bit now as well as save for later on - great balance in life.
Many , many folks have gone through harder times with market declines , loss of jobs , housing declines but most all of the ones that I know have come through them with little or no problems - and they had less or a start than these folks.
Our entire industries faltered more than once and there is always a way to get back on track for those that can adapt, plan, move and change - so most everyone that has skills and flexibility.
Projecting that a couple will lose their jobs, wipe out the market gains, lose real estate value and have no sustiained recovery would have me saving food and ammo not investing.
My observation is they are better off than most here at that age likely including you and us and they are very much on track with this very small car issue being an insigificant item not worthy of even 1% orf their attention for more than a day.

smitcat
Posts: 1611
Joined: Mon Nov 07, 2016 10:51 am

Re: how much car can we afford?

Post by smitcat » Mon Aug 13, 2018 7:59 am

johussman wrote:
Sun Aug 12, 2018 6:36 pm
KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool
If the house goes down by 50% from 1M -> 500k then we would be -100k under water on mortgage.
if investments go down by 50% from 800k->400k then total net worth would be 300k.

taxable account would be worth 325k which would give us nearly 4 years of spending at 7k a month.

How long is this recession supposed to last? Most don't last 4 years... In every recession except perhaps the great depression we'd be roaring back within the 4 years and would come out just fine.

Even in the height of the great depression the unemployment rate was only 25%. That's only a 6.25% chance that both income earners lose their job. This is highly unlikely, and as i said above, even if one of us maintained a relatively low paying job that would double or triple our cash buffer window. Also the odds of remaining unemployed for 3-4 years despite looking for work is very low, even in the great depression. If I couldn't get a high paying job like i have now i'd take a lower paying job to extend the cash buffer. Even at 25% unemployment it would be exceedingly rare to stay unemployed for 4 full years despite looking for work (any work)
Johussman - We are not sure how you got to that point you are now but you guys are doing great. We do not know much about your situation but you are only asking about a simple car question now.
Based upon a CPO 3 series with 8,000 miles your total cost of ownership for the next 4-5 years will be hardly any different compared with a new Honda or Toyota.
There are so many much larger decisions for you guys to make that will make a difference and that is where your efforts and time will pay benefits.
How you invest, where you invest, taking advantage of company plans, taking other jobs, perhaps even moving in the future all hold much larger impacts for you.
Good luck with whatever you do.

smitcat
Posts: 1611
Joined: Mon Nov 07, 2016 10:51 am

Re: how much car can we afford?

Post by smitcat » Mon Aug 13, 2018 8:07 am

KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool


KlangFool - You must know a bunch more than us about these folks please see below to fill us in...

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.
Please tell us what they are invested in that you think their total investments will drop by more than 50%?
Please identify how so many folks went without employment for years and what that persistent unemployment rate was for those years?

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.
Please identify which state they live in?

3) That stuff happened as recent as 2008/2009.
Please identify what your total portfolio dropped in 2008 and 2009 and how that affected you in the long run?

4) Under those conditions, how long can you survive?
If all of those situations you described were to actually happen then most everyone woudl be in trouble and those like 'us' who are closer to retirement would be in much bigger trouble than those at mid 30's still with a buffer.

ResearchMed
Posts: 6859
Joined: Fri Dec 26, 2008 11:25 pm

Re: how much car can we afford?

Post by ResearchMed » Mon Aug 13, 2018 8:20 am

onourway wrote:
Mon Aug 13, 2018 5:54 am
IMO advice gets skewed when a poster has much of their wealth concentrated in taxable accounts rather than tax-advantaged. Do you have nothing in 401k's or IRA's @johussman?

What happens when you re-frame your situation as having say $600k as retirement funds? (which would be a pretty good position for someone of your age/income/expenses but not amazing.) We are in a similar overall position but our net worth is almost entirely in tax advantaged funds rather than taxable and home equity. I would never consider my tax-advantaged funds as anything but 3rd or 4th tier emergency funds - they are not to be touched other than in a major life disaster when every other option has been exhausted.

If you ignore the home equity which is locked up until you decide to move to another cheaper location and consider most of your taxable as retirement funds, then look at your monthly spend. After you pay all your expenses and fill all your savings goals, how much extra are you putting away every month? (again, if you are primarily saving for retirement in taxable ignore that as money available now.) How much free cash do you have to spend now while also keeping your normal emergency reserves intact? That plus the amount you are actually saving every month helps dictate how much car you can afford. Income or overall net worth doesn't come into it much for me. And I think that's pretty much the same place that most people here who give really conservative car buying advice are coming from as well.

I would try re-framing the picture something like this:

- $600k retirement funds
- $50k emergency funds
- $7k minimum monthly spend
- should be saving at least $84k annually for retirement (~1x annual expense)

From there you can determine how much of your remaining take home income you want to spend on a vehicle. What we think doesn't matter.
Regarding your start above: "IMO advice gets skewed when a poster has much of their wealth concentrated in taxable accounts rather than tax-advantaged..."

Why is advice "skewed" (and "skewed how") when wealth is concentrated in taxable vs. non-taxable - or even vice versa?

The difference is mostly a matter of needing take into account reduction due to taxes, and also accessibility prior to either a certain age (e.g., penalties) or employment status (e.g., possibly not accessible at all).

But having wealth concentrated in taxable avoids the accessibility problem, and doesn't cause other seriou "problems", especially if there is some attention paid to tax efficiency.

RM
This signature is a placebo. You are in the control group.

KlangFool
Posts: 9488
Joined: Sat Oct 11, 2008 12:35 pm

Re: how much car can we afford?

Post by KlangFool » Mon Aug 13, 2018 8:27 am

smitcat wrote:
Mon Aug 13, 2018 8:07 am
KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool


KlangFool - You must know a bunch more than us about these folks please see below to fill us in...

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.
Please tell us what they are invested in that you think their total investments will drop by more than 50%?
Please identify how so many folks went without employment for years and what that persistent unemployment rate was for those years?

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.
Please identify which state they live in?

3) That stuff happened as recent as 2008/2009.
Please identify what your total portfolio dropped in 2008 and 2009 and how that affected you in the long run?

4) Under those conditions, how long can you survive?
If all of those situations you described were to actually happen then most everyone woudl be in trouble and those like 'us' who are closer to retirement would be in much bigger trouble than those at mid 30's still with a buffer.
smitcat,

1) Telecom bust/ Telecom industry. What happened to those folks that used to work in this industry? Is it possible not all of them could be employed elsewhere? Or, they are permanently under-employed.

2) Houston Oil Bust / Oil Industry.

My forecast is for the next two industry/bubble to burst.

3) College tuition bubble -> Bust / Higher education industry

4) Medical bubble -> Bust / Medical industry

KlangFool

MathIsMyWayr
Posts: 117
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: how much car can we afford?

Post by MathIsMyWayr » Mon Aug 13, 2018 8:38 am

T4REngineer wrote:
Sun Aug 12, 2018 6:29 pm
KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool
Let it go
OP is mulling over and we are arguing over spending $40k on a vehicle. Realistically speaking, it is not $40K, but more likely somewhere between $5k and $15k since a fairly decent basic car goes for around $25k-$35k these days. OP is earning a good income. He has also accumulated a sizable net worth for his age. Obviously, he is in a possession of financial discipline.

Unrealistic optimism is dangerous, but excessive pessimism is also unproductive. If one is obsessed with the worst case scenario all the time, it is paralyzing and may have a negative impact on life. One should ask not "Do I have enough for the worst case?", but "Do I have the ability to adapt and get over?" When I was around the OP's age, my income was much lower and did not have much financially. I bought a new car which cost a little over 20% of my yearly salary. My family had a good time with it. When I look back, it was one of our best spending.

If all ducks are in a row, go for it. We live only once and we cannot get youth back. Life is about doing what we want.

smitcat
Posts: 1611
Joined: Mon Nov 07, 2016 10:51 am

Re: how much car can we afford?

Post by smitcat » Mon Aug 13, 2018 8:46 am

KlangFool wrote:
Mon Aug 13, 2018 8:27 am
smitcat wrote:
Mon Aug 13, 2018 8:07 am
KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool


KlangFool - You must know a bunch more than us about these folks please see below to fill us in...

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.
Please tell us what they are invested in that you think their total investments will drop by more than 50%?
Please identify how so many folks went without employment for years and what that persistent unemployment rate was for those years?

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.
Please identify which state they live in?

3) That stuff happened as recent as 2008/2009.
Please identify what your total portfolio dropped in 2008 and 2009 and how that affected you in the long run?

4) Under those conditions, how long can you survive?
If all of those situations you described were to actually happen then most everyone woudl be in trouble and those like 'us' who are closer to retirement would be in much bigger trouble than those at mid 30's still with a buffer.
smitcat,

1) Telecom bust/ Telecom industry. What happened to those folks that used to work in this industry? Is it possible not all of them could be employed elsewhere? Or, they are permanently under-employed.

2) Houston Oil Bust / Oil Industry.

My forecast is for the next two industry/bubble to burst.

3) College tuition bubble -> Bust / Higher education industry

4) Medical bubble -> Bust / Medical industry

KlangFool

Those are not answers to all questions nor towards a general population - they are answers that apply to a specific industry in the past and assuming that small subset stayed within the industry and/or they could never find work again.
I would venture to say that if you know there will be a bubble/bust in higher education and the medical industry that you have already invested specifically to benefit from those future occurrences.
FWIW - I have no thoughts (zero) of leveraging my investments based upon a bust in Oil or the medical industry.

KlangFool
Posts: 9488
Joined: Sat Oct 11, 2008 12:35 pm

Re: how much car can we afford?

Post by KlangFool » Mon Aug 13, 2018 8:47 am

smitcat wrote:
Mon Aug 13, 2018 7:50 am
KlangFool wrote:
Sun Aug 12, 2018 5:33 pm
smitcat wrote:
Sun Aug 12, 2018 4:56 pm
KlangFool wrote:
Sun Aug 12, 2018 4:41 pm
smitcat wrote:
Sun Aug 12, 2018 4:38 pm


He is mid 30's - he is doing great.
smitcat,

Almost everyone in the 30s believes that they would be fully-employed all the way until retirement age. And, they will not be affected by the economic crisis, recession, change in the industry and so on. That was my belief too.

KlangFool
I do not see how your thoughts are relevant…
- The OP saved over $300K for the home purchase
- OP has $650K saved in taxable
- Current income of $300K
In their mid 30's they are likely doing better that most folks on this board. They are young and flexible and in demand and they will be best served to have more of an offensive outlook on life.
smitcat,

How much is their annual expense? How long can they last if they are unemployed?

KlangFool
Living in fear when you are doing well is not a good practice or any way to live. We do not know what most of theire details are but I believe you are way to quick to say that they cannot afford a car that is insignificant in the overall picture.
smitcat,

1) I did not say that OP cannot afford the car.

<<Living in fear when you are doing well >>

2) I had survived the followings while many that do not prepare for bad times while they are doing well did not.

Houston Oil Bust (80s), Texas Saving & Loan Crisis(80s and 90s), Asian Currency Crisis(96/97), Telecom Bust (2001), 2008/2009 Recession.

No, I am not living in fear. I have a realistic view that good time may not last forever. There will be a recession in the future. I may be affected. I prepared for it to make sure that my family could survive.

KlangFool

User avatar
jharkin
Posts: 1688
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: how much car can we afford?

Post by jharkin » Mon Aug 13, 2018 8:49 am

HEDGEFUNDIE wrote:
Sun Aug 12, 2018 10:52 am
Honestly BH should just ban these types of threads. It’s pretty much just trolling.

“I have $XM in net worth, can I afford [insert moderately priced item they can obviously afford].”

LadyGeek what do ya say?
+1 Thank you. They do get tiring for those of us with modest means... and probably downright depressing for people actually making the median income....

smitcat
Posts: 1611
Joined: Mon Nov 07, 2016 10:51 am

Re: how much car can we afford?

Post by smitcat » Mon Aug 13, 2018 8:52 am

KlangFool wrote:
Mon Aug 13, 2018 8:47 am
smitcat wrote:
Mon Aug 13, 2018 7:50 am
KlangFool wrote:
Sun Aug 12, 2018 5:33 pm
smitcat wrote:
Sun Aug 12, 2018 4:56 pm
KlangFool wrote:
Sun Aug 12, 2018 4:41 pm


smitcat,

Almost everyone in the 30s believes that they would be fully-employed all the way until retirement age. And, they will not be affected by the economic crisis, recession, change in the industry and so on. That was my belief too.

KlangFool
I do not see how your thoughts are relevant…
- The OP saved over $300K for the home purchase
- OP has $650K saved in taxable
- Current income of $300K
In their mid 30's they are likely doing better that most folks on this board. They are young and flexible and in demand and they will be best served to have more of an offensive outlook on life.
smitcat,

How much is their annual expense? How long can they last if they are unemployed?

KlangFool
Living in fear when you are doing well is not a good practice or any way to live. We do not know what most of theire details are but I believe you are way to quick to say that they cannot afford a car that is insignificant in the overall picture.
smitcat,

1) I did not say that OP cannot afford the car.

<<Living in fear when you are doing well >>

2) I had survived the followings while many that do not prepare for bad times while they are doing well did not.

Houston Oil Bust (80s), Texas Saving & Loan Crisis(80s and 90s), Asian Currency Crisis(96/97), Telecom Bust (2001), 2008/2009 Recession.

No, I am not living in fear. I have a realistic view that good time may not last forever. There will be a recession in the future. I may be affected. I prepared for it to make sure that my family could survive.

KlangFool
"1) I did not say that OP cannot afford the car."

Agreed - we can agree then that he can afford the car which was his only question on the post.

KlangFool
Posts: 9488
Joined: Sat Oct 11, 2008 12:35 pm

Re: how much car can we afford?

Post by KlangFool » Mon Aug 13, 2018 8:55 am

smitcat wrote:
Mon Aug 13, 2018 8:46 am
KlangFool wrote:
Mon Aug 13, 2018 8:27 am
smitcat wrote:
Mon Aug 13, 2018 8:07 am
KlangFool wrote:
Sun Aug 12, 2018 6:18 pm
johussman wrote:
Sun Aug 12, 2018 5:48 pm

If we both became totally unemployed, i think we could cut expenses down to 7k/month while continuing to pay on the mortgage. That's probably an over estimate but i'll go with that number.

Right now our taxable account is 650k with about 50k worth of gains on it. So 600k can be taken tax free. If we liquidated the whole thing, put it in fixed rate, we'd be able to last about 7 years with no jobs and continuing to pay on our mortgage.

If we sold the house we'd be able to last much much longer.

If only one of us lost our jobs we'd also be able to last much much longer or even indefinitely depending on the job and income. Right now I am the high earner but if i lost my job permanently, my wife would only need to get a job providing us with 3k net a month to drop our monthly burn to 4k which means we'd have 12.5 years of buffer in the 600k. Heck, if that happened we'd keep most of that 600k invested and just withdraw from it yearly. Might get lucky and stretch that 12.5 years to 20+ years. Heck if things are that bad, we'd sell the house, go buy a nice house for 300-400k cash in a LCOL area and be done with it.
johussman,

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.

3) That stuff happened as recent as 2008/2009.

4) Under those conditions, how long can you survive?

KlangFool


KlangFool - You must know a bunch more than us about these folks please see below to fill us in...

1) In a recession, people lose their jobs and the stock market drops 50% or more. So, you would not have 650K to spend. You have to calculate assuming that stock drops 50% and check the remaining amount.
Please tell us what they are invested in that you think their total investments will drop by more than 50%?
Please identify how so many folks went without employment for years and what that persistent unemployment rate was for those years?

2) And, the house price could drop 50% at the same time too. Then, the house is underwater. You have to pay the bank in order to sell the house. You cannot afford to sell the house.
Please identify which state they live in?

3) That stuff happened as recent as 2008/2009.
Please identify what your total portfolio dropped in 2008 and 2009 and how that affected you in the long run?

4) Under those conditions, how long can you survive?
If all of those situations you described were to actually happen then most everyone woudl be in trouble and those like 'us' who are closer to retirement would be in much bigger trouble than those at mid 30's still with a buffer.
smitcat,

1) Telecom bust/ Telecom industry. What happened to those folks that used to work in this industry? Is it possible not all of them could be employed elsewhere? Or, they are permanently under-employed.

2) Houston Oil Bust / Oil Industry.

My forecast is for the next two industry/bubble to burst.

3) College tuition bubble -> Bust / Higher education industry

4) Medical bubble -> Bust / Medical industry

KlangFool

Those are not answers to all questions nor towards a general population - they are answers that apply to a specific industry in the past and assuming that small subset stayed within the industry and/or they could never find work again.
I would venture to say that if you know there will be a bubble/bust in higher education and the medical industry that you have already invested specifically to benefit from those future occurrences.
FWIW - I have no thoughts (zero) of leveraging my investments based upon a bust in Oil or the medical industry.
smitcat,

<<Those are not answers to all questions nor towards a general population - they are answers that apply to a specific industry in the past and assuming that small subset stayed within the industry and/or they could never find work again.>>

We are in a personal finance forum. Whatever happened to the general public does not matter. We, as an individual, need to evaluate our own individual circumstances.

And, folks that are doing very well now tend to be in an industry in a bubble.

<<they are answers that apply to a specific industry in the past and assuming that small subset stayed within the industry and/or they could never find work again.>>

1) I do not assume. Those are my own first-hand observations.

2) Those that do not learn from the past are forced to repeat the mistake.

<<I would venture to say that if you know there will be a bubble/bust in higher education and the medical industry that you have already invested specifically to benefit from those future occurrences.
FWIW - I have no thoughts (zero) of leveraging my investments based upon a bust in Oil or the medical industry.>>

I do not do market-timing.

KlangFool

smitcat
Posts: 1611
Joined: Mon Nov 07, 2016 10:51 am

Re: how much car can we afford?

Post by smitcat » Mon Aug 13, 2018 8:56 am

jharkin wrote:
Mon Aug 13, 2018 8:49 am
HEDGEFUNDIE wrote:
Sun Aug 12, 2018 10:52 am
Honestly BH should just ban these types of threads. It’s pretty much just trolling.

“I have $XM in net worth, can I afford [insert moderately priced item they can obviously afford].”

LadyGeek what do ya say?
+1 Thank you. They do get tiring for those of us with modest means... and probably downright depressing for people actually making the median income....
I agree - but I believe that almost all of the posts that begin with "can I afford XXX..." quickly become subject to personal experiences . opinions and not having the entire picture. So its a puzzle of sorts on how we all try and best help when we lack a lot of data and have personal bias.
I definitely hear your point and do agree.

onourway
Posts: 1120
Joined: Thu Dec 08, 2016 3:39 pm

Re: how much car can we afford?

Post by onourway » Mon Aug 13, 2018 9:06 am

ResearchMed wrote:
Mon Aug 13, 2018 8:20 am

Regarding your start above: "IMO advice gets skewed when a poster has much of their wealth concentrated in taxable accounts rather than tax-advantaged..."

Why is advice "skewed" (and "skewed how") when wealth is concentrated in taxable vs. non-taxable - or even vice versa?

The difference is mostly a matter of needing take into account reduction due to taxes, and also accessibility prior to either a certain age (e.g., penalties) or employment status (e.g., possibly not accessible at all).

But having wealth concentrated in taxable avoids the accessibility problem, and doesn't cause other seriou "problems", especially if there is some attention paid to tax efficiency.

RM
Skewed because both the owner of the accounts and the advice that they receive tends to assume that money in taxable accounts is entirely available for withdrawal today should one wish. $650k in cash and zero designated for retirement paints a different picture of what one may reasonably wish to spend on a large purchase than $600k in retirement and a $50k emergency fund.

My advice is to merely help the poster here consider how that difference may affect their own perceptions.

magicrat
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Re: how much car can we afford?

Post by magicrat » Mon Aug 13, 2018 9:25 am

Of course you can afford a $40k car. Whether you should buy a $40k car is a different question.

randomguy
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Re: how much car can we afford?

Post by randomguy » Mon Aug 13, 2018 9:34 am

smitcat wrote:
Mon Aug 13, 2018 7:59 am


Johussman - We are not sure how you got to that point you are now but you guys are doing great. We do not know much about your situation but you are only asking about a simple car question now.
Based upon a CPO 3 series with 8,000 miles your total cost of ownership for the next 4-5 years will be hardly any different compared with a new Honda or Toyota.
There are so many much larger decisions for you guys to make that will make a difference and that is where your efforts and time will pay benefits.
How you invest, where you invest, taking advantage of company plans, taking other jobs, perhaps even moving in the future all hold much larger impacts for you.
Good luck with whatever you do.
I agree they can afford the car. But it is going to cost a more than buying a Honda. A loaded Civic (i.e. the same sized car a 3 series. Not the much larger accord) is 27k full loaded (i.e. with options like LED headlights, adaptive cruise control, blind spot monitoring that your 2-3 year old BMW is unlikely to have.) MSRP. 25.5k out the door is what my local dealer offers. That is basically the same price as a 3 year old CPOed BMW for a car that will last at least 2-3 years longer, runs on regular gas, has cheaper tires, and isn't know to be expensive out of warranty (i.e. 4-5 years on a 3 year old car is past the end of the CPO in most cases which ends at 6 years). Again I am not saying don't buy the BMW. But you should expect to pay on the order 2k/year more for it. I will let you decide if that is hardly different or not.

FWIW I bought the entry Lux car in my early 30s after driving a econobox for the firt 10 or so years of my professional career. Never regretted it or had any other crazy hedonistic purschases that other people seem to worry about. It delayed my retirement about as long as my trip to italy did.

ResearchMed
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Re: how much car can we afford?

Post by ResearchMed » Mon Aug 13, 2018 9:35 am

onourway wrote:
Mon Aug 13, 2018 9:06 am
ResearchMed wrote:
Mon Aug 13, 2018 8:20 am

Regarding your start above: "IMO advice gets skewed when a poster has much of their wealth concentrated in taxable accounts rather than tax-advantaged..."

Why is advice "skewed" (and "skewed how") when wealth is concentrated in taxable vs. non-taxable - or even vice versa?

The difference is mostly a matter of needing take into account reduction due to taxes, and also accessibility prior to either a certain age (e.g., penalties) or employment status (e.g., possibly not accessible at all).

But having wealth concentrated in taxable avoids the accessibility problem, and doesn't cause other seriou "problems", especially if there is some attention paid to tax efficiency.

RM
Skewed because both the owner of the accounts and the advice that they receive tends to assume that money in taxable accounts is entirely available for withdrawal today should one wish. $650k in cash and zero designated for retirement paints a different picture of what one may reasonably wish to spend on a large purchase than $600k in retirement and a $50k emergency fund.

My advice is to merely help the poster here consider how that difference may affect their own perceptions.
I strongly disagree that it generally makes a huge difference in the type of "skew" you mention.

Especially since money in accessible tax-deferred accounts (e.g., IRA's) *is* available if needed.
But for others, people can - and do - go into debt.

Some people are more responsible in terms of managing money, both currently and in planning for the future, and this happens almost all along the income spectrum, and with varying types of accounts.

In the case above, with $600k and $50k emergency, what about the *income*?
That should be - and usually is, here and elsewhere - a critical factor in "advice" about whether someone can afford something that is discretionary (in total, or in "type/model").

RM
This signature is a placebo. You are in the control group.

researcher
Posts: 500
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Re: how much car can we afford?

Post by researcher » Mon Aug 13, 2018 9:38 am

magicrat wrote:
Mon Aug 13, 2018 9:25 am
Of course you can afford a $40k car.
+1

OP -
How is it that you make $300K/yr, have $650K in non-retirement savings, and somehow not know whether you can afford a $40K vehicle?
You clearly should know the answer to this question. Of course you can.
Last edited by researcher on Mon Aug 13, 2018 9:39 am, edited 1 time in total.

Nate79
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Location: Portland, OR

Re: how much car can we afford?

Post by Nate79 » Mon Aug 13, 2018 9:38 am

basspond wrote:
Mon Aug 13, 2018 7:22 am
Whatever you can pay with cash.
+1

MichCPA
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Re: how much car can we afford?

Post by MichCPA » Mon Aug 13, 2018 9:48 am

If you spend 0.5% to 0.75% for each person out of your net worth (minus the house) on a car annually, you can have 48k cars on an 8 year replacement schedule. This is fairly conservative and you might even be able to pay for your new car by switching from active to passive funds

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wander
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Re: how much car can we afford?

Post by wander » Mon Aug 13, 2018 9:49 am

researcher wrote:
Mon Aug 13, 2018 9:38 am
magicrat wrote:
Mon Aug 13, 2018 9:25 am
Of course you can afford a $40k car.
+1

OP -
How is it that you make $300K/yr, have $650K in non-retirement savings, and somehow not know whether you can afford a $40K vehicle?
You clearly should know the answer to this question. Of course you can.
+1 Average Joe cannot make $300k a year, Op should be a smart person so s/he should not need advice for this small purchase.. Unless s/he is bored and decides to generate a thread for fun. If s/he loses $40k, it takes only 2 months to get it back. World peace. :sharebeer

onourway
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Re: how much car can we afford?

Post by onourway » Mon Aug 13, 2018 9:50 am

ResearchMed wrote:
Mon Aug 13, 2018 9:35 am
I strongly disagree that it generally makes a huge difference in the type of "skew" you mention.

Especially since money in accessible tax-deferred accounts (e.g., IRA's) *is* available if needed.
But for others, people can - and do - go into debt.

Some people are more responsible in terms of managing money, both currently and in planning for the future, and this happens almost all along the income spectrum, and with varying types of accounts.

In the case above, with $600k and $50k emergency, what about the *income*?
That should be - and usually is, here and elsewhere - a critical factor in "advice" about whether someone can afford something that is discretionary (in total, or in "type/model").

RM
Income is very much a 3rd factor because expenses vs. the total wealth one has accumulated is a much more important metric. It reveals most of what we need to know about what is spent vs. saved.

The most widely distributed advice here regarding how much car you can afford seems to be 'whatever you can pay for in cash'. In that context it matters very much whether you consider that $650k as available cash or locked away as retirement income, and absolutely skews the advice.

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