Car purchase, income ratio

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keith6014
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Car purchase, income ratio

Post by keith6014 » Sun Feb 17, 2019 11:16 am

my old camry died, 200k/15 years.
Was planning to buy a Subaru suv, costing about $46k (Out of the door price).
Was wondering what income to car ratio people use.

Age: Late 30s / Family of 5
Assets: 50k cash.
Net worth: 730k. Not including house equity BUT including liability (3.9 x 30 yr fixed mortgage) -- just being conservative.
Location: HCOLA
Avg monthly net income: 22k.
Avg monthly expense (including mortgage): 13k.

Encinoman
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Re: Car purchase, income ratio

Post by Encinoman » Sun Feb 17, 2019 11:30 am

You should easily be able to afford a $46k vehicle with a $9k per month income after expenses. $46k seems about $10-15k too high for a Subaru SUV though.

02nz
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Re: Car purchase, income ratio

Post by 02nz » Sun Feb 17, 2019 11:52 am

You can afford it. I assume this is a top-of-the-line Ascent. I'd also look at a Mazda CX-9, which IMHO looks and drives better.

runner3081
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Re: Car purchase, income ratio

Post by runner3081 » Sun Feb 17, 2019 12:26 pm

You can afford, but do you really need to spend 46K on a car? Yikes!

Don't forget your increase in licensing (most likely) and insurance.

BarbBrooklyn
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Re: Car purchase, income ratio

Post by BarbBrooklyn » Sun Feb 17, 2019 12:35 pm

Must be looking at the Touring model. What is there in that package that you can't live without?
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

adamthesmythe
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Re: Car purchase, income ratio

Post by adamthesmythe » Sun Feb 17, 2019 12:39 pm

Wrong question to ask. Do you have to give up anything more important to buy this car?

It's a lot to spend on a Subaru, in my opinion.

tibbitts
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Re: Car purchase, income ratio

Post by tibbitts » Sun Feb 17, 2019 12:44 pm

Of course you can afford that. Just make sure the vehicle is big enough for everyone, pets, gear, etc. That's a lot of people.

Topic Author
keith6014
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Re: Car purchase, income ratio

Post by keith6014 » Sun Feb 17, 2019 1:23 pm

BarbBrooklyn wrote:
Sun Feb 17, 2019 12:35 pm
Must be looking at the Touring model. What is there in that package that you can't live without?
Java brown leather and moonroof.

Topic Author
keith6014
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Re: Car purchase, income ratio

Post by keith6014 » Sun Feb 17, 2019 1:25 pm

adamthesmythe wrote:
Sun Feb 17, 2019 12:39 pm
Wrong question to ask. Do you have to give up anything more important to buy this car?

It's a lot to spend on a Subaru, in my opinion.
yeah, thats what I thought. Looked at Odessey and Sienna. Way too big for me. Looking at Ascent Touring.

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Go Blue 99
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Re: Car purchase, income ratio

Post by Go Blue 99 » Sun Feb 17, 2019 2:06 pm

I don't like to use car to income ratios because they are so general, but here's a couple that I've heard over the years:

1) no more than 10% of monthly net on car payment
2) no more than 10% of monthly gross on car payment + insurance + gas
3) total car value should be less than 50% of your annual gross income

BarbBrooklyn
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Re: Car purchase, income ratio

Post by BarbBrooklyn » Sun Feb 17, 2019 3:19 pm

So you want a moon roof and real leather. And three rows of seats?? Make a list of what you need and what you want. Then weigh all the options.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

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Nate79
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Re: Car purchase, income ratio

Post by Nate79 » Sun Feb 17, 2019 3:21 pm

Can you pay cash while keeping 3-6 months of emergency fund?

Morgan Dollar 1921
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Re: Car purchase, income ratio

Post by Morgan Dollar 1921 » Sun Feb 17, 2019 9:50 pm

02nz wrote:
Sun Feb 17, 2019 11:52 am
You can afford it. I assume this is a top-of-the-line Ascent. I'd also look at a Mazda CX-9, which IMHO looks and drives better.
Early Ascents had some paint and weld issues, I trust that they have been corrected, I have not been in my Subaru dealer, since Sept, but I would look into this and check the inventory you are looking at to be preferable post- build these issues. I cannot comment on any of the Ascents features and equipment. I am sure you can find enough info and data otherwise. I would also consider a Mazda and a Toyota. Good Luck.

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keith6014
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Re: Car purchase, income ratio

Post by keith6014 » Mon Feb 18, 2019 7:06 am

Nate79 wrote:
Sun Feb 17, 2019 3:21 pm
Can you pay cash while keeping 3-6 months of emergency fund?
no. it will take me 2-3 months to get my savings back in line

PressIt
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Re: Car purchase, income ratio

Post by PressIt » Mon Feb 18, 2019 7:21 am

runner3081 wrote:
Sun Feb 17, 2019 12:26 pm
You can afford, but do you really need to spend 46K on a car? Yikes!

Don't forget your increase in licensing (most likely) and insurance.
46k is a lot of money, but compared to OP’s income and previous car use (15 years with one car) it seems pretty reasonable.
While you could certainly find one cheaper, I think your return (overall comfort for getting a fully upgraded vehicle) over 15 years, combined with your high discretionary income after expenses, easily justifies the price of this car.

This is assuming you get similar use out of this car as you got out of your last one.

I say go for it.

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Nate79
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Re: Car purchase, income ratio

Post by Nate79 » Mon Feb 18, 2019 7:43 am

keith6014 wrote:
Mon Feb 18, 2019 7:06 am
Nate79 wrote:
Sun Feb 17, 2019 3:21 pm
Can you pay cash while keeping 3-6 months of emergency fund?
no. it will take me 2-3 months to get my savings back in line
We just purchased an Ascent Premium level about 1 month ago. It is a great SUV. We absolutely love it.

Topic Author
keith6014
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Re: Car purchase, income ratio

Post by keith6014 » Mon Feb 18, 2019 7:58 pm

Nate79 wrote:
Mon Feb 18, 2019 7:43 am
keith6014 wrote:
Mon Feb 18, 2019 7:06 am
Nate79 wrote:
Sun Feb 17, 2019 3:21 pm
Can you pay cash while keeping 3-6 months of emergency fund?
no. it will take me 2-3 months to get my savings back in line
We just purchased an Ascent Premium level about 1 month ago. It is a great SUV. We absolutely love it.
cool. will probably be my last car.
i suspect in 10 yrs car ownership will be uneconomical.

HornedToad
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Re: Car purchase, income ratio

Post by HornedToad » Mon Feb 18, 2019 8:10 pm

I like the 10% rule. Don't spend more than 10% of gross income on a car. For some people that's too low, for a very few it's too high, but it's a good reasonable target that keeps you from buying too much car. If you are spending $45k/each on two cars with ~$250k takehome then that's alot invested in cars.

Patrick584
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Re: Car purchase, income ratio

Post by Patrick584 » Mon Feb 18, 2019 8:11 pm

Even though he didn’t follow it, I like Financial Samari’s number. Car cost < 1/10th annual income. Cars are a great way to reduce wealth. Think of the opportunity costs of that 46k. You could accomplish the same thing for much less.

Topic Author
keith6014
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Re: Car purchase, income ratio

Post by keith6014 » Wed Feb 20, 2019 7:42 pm

i bought
:sharebeer

JGoneRiding
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Re: Car purchase, income ratio

Post by JGoneRiding » Wed Feb 20, 2019 8:46 pm

Encinoman wrote:
Sun Feb 17, 2019 11:30 am
You should easily be able to afford a $46k vehicle with a $9k per month income after expenses. $46k seems about $10-15k too high for a Subaru SUV though.
Not if it has a few bells and stuff. My ll bean 2008 outback was originally 35k (not that I paid that) so for a bigger vs and all the extra safety features that seems right

JGoneRiding
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Re: Car purchase, income ratio

Post by JGoneRiding » Wed Feb 20, 2019 8:48 pm

keith6014 wrote:
Sun Feb 17, 2019 1:23 pm
BarbBrooklyn wrote:
Sun Feb 17, 2019 12:35 pm
Must be looking at the Touring model. What is there in that package that you can't live without?
Java brown leather and moonroof.
I love my moonroof! And 10 yr on no issue with it unlike some other brands. And with kids and pets leather is a no brainer.

Miguelito
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Re: Car purchase, income ratio

Post by Miguelito » Wed Feb 20, 2019 9:21 pm

I don't know what is the correct "ratio," but when you are pulling in that kind of money and have a net savings rate of $9k/month you can get basically whatever you want provided you are not getting new cars every two years. Frankly, it's silly to even ask the question, IMO.

You make enough money where normal rules of thumb no longer really apply. What would make sense to the median household income would have you buying a Rolls Royce. Instead, you need to just start with the cost of the car and how much value you get out of it. At $46k, that's not even that much nowadays for new cars. Even $75K is probably not "a lot," meaning, you still get something for your money (not implying necessary stuff, but better engines, more equipment, better materials, etc.). Beyond that you start to spend money on very marginal gains. Do you really need insane amounts of power? Outrageously opulent materials and features? But where you are on price, there is nothing to rationalize. It's just a freakin' new Subaru you can easily afford. Just buy it.

You can pay for this car outright with 5 months of savings. This is nothing to even think about if you are planning on keeping the car even just 4 years, never mind 6 or more.

You are not cash-rich and I would not totally deplete your savings to buy it in cash, but I would put a good 20-25% down, and finance the rest and pay it off within a few months. Done.

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