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People have been conditioned to see debt as a bad thing. But that isn't always the case. Individuals and businesses borrow all the time, even when they have the cash already. What matters is whether you're taking on debt that you can manage. When I bought my car, I had the money to pay for it all up front. But I had to weigh the pros and cons of doing so. How much would I pay in interest? How confident was I that I'd have a steady income for the next 5 years? Would I need that money for something else?
For someone starting out, building a good credit history is important. Maybe the only thing you ever had to worry about was a credit card. Now you're out in working world, looking to buy a house. Lenders want to see what kind of debt you can handle. Which do you think looks better? A guy who's only had to worry about a credit card with a $5000 limit? Or a guy who, in addition to the credit card, could also handle a $30000 car loan? The latter demonstrates to me that he can handle a larger debt. But a $1000 credit card debt doesn't even approach a $200000 mortgage. Taking on a car loan is one way to build up your credit rating, which helps you later on when you're ready to buy a house.
Business takes on debt to INVEST not to consume!
If you need a car to go to work and you don't have the money, then of course, take on the debt. You obviously needs to make that debt as small as possible so that it can be repaid from your salary. This is an investment because no car, no work, no money.
Credit rating is important but if you have to take on mortgage to buy a house, you are NOT ready to buy a house. Please note the word "have to."
I really have a hard time seeing anybody needs a car over $20,000. A simple 4 door Civic or Corolla sedan would satisfy probably over 90% of people.
Credit rating is important but if you have to take on mortgage to buy a house, you are NOT ready to buy a house. Please note the word "have to."
I really have a hard time seeing anybody needs a car over $20,000. A simple 4 door Civic or Corolla sedan would satisfy probably over 90% of people.
Now "want" is something very hard to satisfy.
What world do you live in? Most people have no choice but to borrow if they want to buy a home. Even if I wanted to buy $50000 1-bedroom condo, it would take a long time to save up that kind of money, especially if I also had to worry about a car, student loans, etc. As for the car, again it's a matter of saving up the money. $20,000 is still a lot of money. Show me the fresh college grad with $100000 in students loans who has $20000 on hand.
What world do you live in? Most people have no choice but to borrow if they want to buy a home. Even if I wanted to buy $50000 1-bedroom condo, it would take a long time to save up that kind of money, especially if I also had to worry about a car, student loans, etc. As for the car, again it's a matter of saving up the money. $20,000 is still a lot of money. Show me the fresh college grad with $100000 in students loans who has $20000 on hand.
Like I said, then you shouldn't take on more debt. I had lived in rental apartments for 12 years after I graduated.
In reality, most people shouldn't even buy houses because they simply can't afford. A house is a luxury not a necessity. A car is a necessity in most parts of America.
i think you can spend as much as you want on a car as long as it fits your overall financial goals. everyone has different priorities. some just want whatever gets them from point A to point B. some people want a high performance fun car. some want something in the middle somewhere. its up to them to spend the right amount given their long term financial goals.
I don't think anyone is going to tell you what you want to hear. You keep bringing up different scenarios such as getting a mortgage, better return on investments,etc. You have your mind made up and you are looking for some form of justification. You won't get it from anyone that understands personal finance.
I've searched all over the internet and there doesn't seem to be a consensus. Some use gross income while others use net income. Some only talk about your monthly payment while others include things like gas, insurance, and maintenance. What do you recommend and can you explain how you arrived at that figure? Also, I'm mainly referring to a car that you're financing and have already put a down payment on. If you think the formula should be different for a leased car (assuming you can't write any of it off), please say so. Lastly, if one was to discover they were over budget on their auto expenses, which would make more sense? Trading in for a less expensive car even though you may owe more on the car than it's worth and would still have to incur some expenses from switching cars? Or doing what you can to pay off the car you have so that you can completely eliminate the monthly payment?
What others spend does not apply to you. I would pay 100% Cash for a used vehicle. It should not effect your financially down the road though if you pay cash for the vehicle. I pay my insurance for the whole policy upfront in lump sum to get discounts.
You "should" spend what you want to on a car in light of your requirements and the balance of your finances allow.
Even if you are affluent with no debt and a steady large income, there's no formulaic number that is "right" or "proper".
Some folk will spend a lot more than others for image, performance, or utility. Some folk will spend only what is needed to accomplish the purpose of transportation consistent with their needs. Some have fleets of motor vehicles because that's where they choose to spend their money. Some will spend a minimal amount of money, perhaps not even own a car if their transportation needs are met in other ways.
That's their perogative to do so and their sole financial decision.
There's simply no hard and fast rule or financial guideline that is applicable to everybody.
The underlying assumption that spending more money on a car gets you a car that is entirely "better" than something you could buy cheaper is faulty. If you live in a non-rusting climate, which any proper car guy does or at least will go to when he can, you can own an old, simple, fully depreciated but perfectly functional, and if you want to go there, cosmetically attractive car that does not depreciate.
Recent example, a numbers matching '65 Mustang, hardtop, red, with original 200 CID I-6 and 4-speed manual, very presentable, a driver though, not in show condition went for $5000. This is financially a much better deal than any late model, and for a real car guy, it's a much more satisfying ride.
The underlying assumption that spending more money on a car gets you a car that is entirely "better" than something you could buy cheaper is faulty. If you live in a non-rusting climate, which any proper car guy does or at least will go to when he can, you can own an old, simple, fully depreciated but perfectly functional, and if you want to go there, cosmetically attractive car that does not depreciate.
Recent example, a numbers matching '65 Mustang, hardtop, red, with original 200 CID I-6 and 4-speed manual, very presentable, a driver though, not in show condition went for $5000. This is financially a much better deal than any late model, and for a real car guy, it's a much more satisfying ride.
i think this is a good philosophy for someone like my mom's boyfriend. he is a very simple minded blue collar type guy. wouldnt understand the concept of how to use financing to your benefit.
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