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No more than 10% of total net worth should be used to buy a car is a good guideline for financially thrifty people.
That's a fairly pointless guideline. If I have $2 million in my 401(k) and my home is paid for, should I be buying a Lamborghini?
I pay cash for my cars. It keeps me from over-buying. It's really easy to fall into the trap of rationalizing "it's only another $100/month" and "it's only 72 months instead of 48 months".
A depreciating asset like an automobile is a particularly bad place to overspend. Most people who buy that luxury car they don't need also buy a house that is much bigger than they need. At least with the house, it probably won't depreciate. That expensive European luxury sedan is going to end up in the junk yard crushed into a cube in 15 years just like every other car.
In my opinion, if you're not maxing out your 401(k) and if your credit cards are carrying a balance, you should be driving an econobox.
Or you invest the entire amount in your 3% blue chip at the beginning. Even bigger win, if the 3% assumption holds.
So what happens when interest rates go up and the stock price on that dividend stock collapses? Those widows & orphans stocks are great until they're not. It's fine to have those stocks in your portfolio but you have to be aware of the interest rate risk just like you have to be aware of the interest rate risk with long term bonds.
Wow. No wonder people are always so broke and complain about money. Instead of saving, they overspend by the thousands on crappy cars.lol.
Might as well buy a new one.. I have seen cars listed in dealer's websites with over 100,000 miles. Prices pushing $10,000. Might just as well spend more for something that might last longer.
That's a fairly pointless guideline. If I have $2 million in my 401(k) and my home is paid for, should I be buying a Lamborghini?
I pay cash for my cars. It keeps me from over-buying. It's really easy to fall into the trap of rationalizing "it's only another $100/month" and "it's only 72 months instead of 48 months".
A depreciating asset like an automobile is a particularly bad place to overspend. Most people who buy that luxury car they don't need also buy a house that is much bigger than they need. At least with the house, it probably won't depreciate. That expensive European luxury sedan is going to end up in the junk yard crushed into a cube in 15 years just like every other car.
In my opinion, if you're not maxing out your 401(k) and if your credit cards are carrying a balance, you should be driving an econobox.
I agree. 10% of your net worth on a car?!? No way. Our house is paid off. Our 401Ks are maxed. We have no credit card debt and our retirement is on track. And yet, I still buy gently used cars a couple years old in cash. I'm in the market for one now and will spend about 6-7% of our annual income on it. Not net worth, income. I cannot imagine anyone who thinks 10% of net worth is a reasonable amount to spend on a depreciating asset.
Might as well buy a new one.. I have seen cars listed in dealer's websites with over 100,000 miles. Prices pushing $10,000. Might just as well spend more for something that might last longer.
I think the whole always buy used idea is slightly over blown. It's very possible to get good deals on new cars that make them almost as cheap as their slightly used counter parts. Now if you want a car with 80k+ miles you likely won't find these deals, but when I was searching in the 40-50k mile range I was finding I could negotiate a new car price to within 10-15% of the same car used and 2 years older with 50k miles on it. Add to that an interest rate of 1.59% vs a 3+% interest rate on a used car. But if you just look at the sticker price and assume that's what you will pay, yes used cars are almost always a better deal.
Bottom line. After paying $30,000 plus other fees after the last payment is made what do you have? The potential for major repairs on a 4-5 year old car or starting over again. It's a never ending cycle unless you have an asset such as a rental property to pay that monthly nut.
Bottom line. After paying $30,000 plus other fees after the last payment is made what do you have? The potential for major repairs on a 4-5 year old car or starting over again. It's a never ending cycle unless you have an asset such as a rental property to pay that monthly nut.
Man, major repairs on a car with 50k miles on it? What cars do you drive?
I agree. 10% of your net worth on a car?!? No way. Our house is paid off. Our 401Ks are maxed. We have no credit card debt and our retirement is on track. And yet, I still buy gently used cars a couple years old in cash. I'm in the market for one now and will spend about 6-7% of our annual income on it. Not net worth, income. I cannot imagine anyone who thinks 10% of net worth is a reasonable amount to spend on a depreciating asset.
I purchase new. I pay cash. My last car, the cash component was about 15% of my gross income counting registration costs, sales tax, and a 7/100K extended warranty. I do that every 7 or 8 years before road salt gets the car. So automobile counting insurance and routine maintenance is about 3% of my gross income. I'm sure there are lots of people driving around where it's more like 10% to 15% of their income between lease/car payment, insurance, taxes, and maintenance.
So what happens when interest rates go up and the stock price on that dividend stock collapses? Those widows & orphans stocks are great until they're not. It's fine to have those stocks in your portfolio but you have to be aware of the interest rate risk just like you have to be aware of the interest rate risk with long term bonds.
Depends on when it happens. If it happens just after you buy the car then in hindsight you would have been better off leaving your money in cash until just after the crash and then buying in. With a slightly different timing or a slump that continues for several years after buying the car, it would have made sense to do as I had said earlier (post #94). Of course without a crystal ball one can only guess.
Man, major repairs on a car with 50k miles on it? What cars do you drive?
Pretty much any car should go 100,000 miles only needing tires and brakes. Somewhere with a really hot summer, you'd be replacing batteries, too. I buy the OEM 7/100k extended warranty because I think it's cheap mechanical insurance for the peace of mind it brings me. Turn the key and go for 7/100k. If there's an issue, let the dealer cope with it. Spread out over 7 cars where I've had the 7/100k warranty, I've more than made my money back on the extended warranties. Even the reliable brands have problems. They're cars.
I'm in the land of road salt or I'd keep cars longer. At 8 years, I start seeing corrosion-related failures.
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