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What will the missed earning potential be on that 65k, if you spend it on a car instead of investing it?
~~~~Net worth and car choice are not usually related. Warren Buffet has a caddie.~~~~
As far as socking away a million so you can retire goes, that figure needs revision. You will need shoot for three or more times that to retire early.
~~~~Buffett kept one Cadillac for 8 years before donating it to charity and buying a new one, only because he was convinced by an automotive friend that the new ones were far better, and named off about 50 points of better, according to one article I read. He still bought just a $45k modest model, when he could easily have afforded their top of the line most expensive model. And the man is worth some $85 BILLION dollars.
Perhaps, OP, when YOU are net worth of $85BILLION dollars, you can afford your dream car. Save the money buy modest or two year old reliable model ( with a lot of depreciation off it) and MAYBE you'll have a stab at $85BILLION!!~~~~
Appreciate the advice and stories. Maybe I should not have mentioned the $1 million in 20 years as it seems to be causing some confusion. That figure is simply what I would have in my 401K and Roth IRA if I maxed out my contributions including the employer match. That is assuming a 0% market return which is obviously ultra conservative. If I even assume a modest market return it would be at least double that amount.
The figure also excludes any taxable savings which is currently higher than my retirement savings. Just wanted to clear that up but the points that were raised are being receivied. I am no stranger to compound interest so I understand the money being spent on a car now could have been invested for the future. I do have to balance that with my current wants and needs. I think even though I could swing the $60-$70k car, I will probably be settling for something less. I just have to think about that balance another poster mentioned about my wants now versus my financial goal of retiring early.
Using net worth is weird...when buying a first house many times the figure is 2-3 times your annual salary....and that's for a HOUSE. How much is this $70k car? Close to a year's salary? Even more? Doesn't this help put it in perspective? You're a car enthusiast...so what? Would you spend $70k on photography equipment? Why is a car so different as a hobby?
I am serious and I acknowledge I want to test the limits of what would be reasonable to spend but what is the reasoning to not use net worth? The only other metric I could think of is income which only makes sense to me if I am financing the car.
That's definitely a salient question. One consideration is age. If you're 30, presumably the majority of your working-years remain in the future. And there's reasonable expectation of salary-increases over many of those years. Present net-worth pales compared to presumptive savings possible over the ensuing years. If you're 50, likely your salary has peaked, and remaining working-years aren't too numerous. In that case, present net-worth matters considerably more, than what one might additionally save in the future.
Viewed alternatively, consider the ratio of net-worth to annual salary. If this ratio is moderate - say, 5:1 - then a large part of annual portfolio growth is from additional savings. If this ratio is very large - say, 30:1 - then further savings don't matter, since annual returns on the portfolio would presumably be greater than any possible annual savings.
This is the justification for dedicated frugality when one's young, but more liberal spending (though not outright profligacy) later in life. The $60K car that's a silly indulgence at 30, isn't too silly at 50, and not silly at all at 70.
Say a kid is just out of college but working and earning, and is driving Mom's retired Jeep Grand Cherokee he's has for the last seven years and is truly on its last legs and only worth $1,500...
If he spends $10K on a car, whether he finances it or pays cash, is that unreasonable? The car ties up nearly all of his net worth, assuming he doesn't have much else.
But, a guy that has $50K in equity in a house and $50K in a 401K and $20K in liquid savings...If he spent $19K on a car assuming he didn't want to finance it he would be left in an awful tight spot if the wind blew the wrong way or he even tripped going down the stairs...
You need to look at what your liquid cash reserves can handle. Even if you aren't financing, your income plays a role, since (I assume) you want to replenish your reserves after spending on a car that's likely to go down in value. Retirement accounts, equity in Real Estate, etc, aren't nearly as relevant as income and liquid assets.
Depends on what else you want or need to spend your money on. If you want to take a $10K vacation, you might have to reduce your car expenditure by $10K. A care is just one of the items in your overall financial picture.
Many of the 'enthusiast cars' can be purchased at 5 years of age for 25% or less of the original sticker price - still in great condition. The best way to own an impressive looking/performing car at minimal cost is to buy it used.
i understand what the op means as far as how much to spend on a car .
one of the problems is while there is tons of info out there about how to save money and how to invest , there is very little on how to spend . for starters live below your means means little .
means changes as well as one can live below their means but without a good percentage of discretionary vs non discretionary spending they can still be in trouble .
i always say i would love to live in manhattan instead of queens . our budget could be the same . however the discretionary spending budget would be low and non discretionary high . they both would take the same dollars a year to live .
but if we need to cut back there is no where to cut back from when everything is a need and not a want .
so as a rule the old live below your means does not cut it. people need real actionable guides for spending .
i recently saw an idea which at least is actionable and gives you an idea as to how to kind of structure . this sets a side 30% for "free play money" what you consider "free play is up to you ". it is like for health reasons i consider my gym mandatory and a non discretionary expense . others may feel differently and are prepared to sub it or drop it. some may prefer a nicer car over traveling or spending on hobbies , but at least it gives you an idea on how to divvy up the pie .
AND yes , some will have no money to save so no need to chime in , this would not pertain to you .
Hi guys hopefully this is the right forum for this! I just turned 27 years old and my previous car was totaled by my insurance. I now need a new car and was was looking to splurge a little bit. Please keep in mind that I am a car enthusiast so I am looking to spend a bit more than others would who are just looking for an A to B type car. I also want to stay within my financial means which is why I’d like to know you’re opinions!
I calculated my current liquid net worth to be approximately $285k. I do include retirement assets in the calculation but also excluded equity in a couple homes (not sure if this is right way to calculate). I do want to leave income out of the picture since I am looking to pay cash, however I do have a stable job and have already budgeted the insurance cost. I am looking to splurge on a car and was thinking on spending around $60k-$70k. Is this reasonable given my situation? Let me know if there are any critical details I am leaving out. Thank you for any advice!
27 years old and $285K net worth. Hummmm
You must be a world class poker player or something.
You must be a world class poker player or something.
I'm a natural cynic mind you
Its really not that unheard of...It can happen a lot of ways too...He made the right bet on a tech job with stock options, he's a natural saver in a stem field, he started work young in a trade and saved and bought real estate. I have a few acquaintances that inherited young. Parents were divorced, one parent died, kid's get the estate and/or life insurance. One friend's mom died, he and his brother were beneficiaries of a $250K policy, and were the sole heirs of her house that had $150K in equity...Their mom was essentially broke aside from the equity in her home and her ins policy from work...
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