Feeling a little foolish and weird for spending $150k on a car
#286
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If you didn’t do better than 10% this year on your investments I would suggest you have a chat with your financial advisor. Even my 401K was over 11%. Not saying don’t pay cash but it’s worth thinking about as cheap as money is at this time.
#287
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I disagree with this. First off, at my age (36) paying cash for cars when I can get a 3% loan and get ~10% return on fairly conservative investments does not make sense for me when I’m young enough to accept the higher risk. So I could pay cash, but it just wouldn’t make sense. When I was younger, buying my first Porsche, getting a loan that was greater than my investments was ok whereas now it wouldn’t be. Later in life, paying cash will make more sense than the loans and higher risk investments. So it all depends on your age.
Second, maybe people might be more inclined to loans and pay interest but buy cars much less than every “15 to 24 months” and end up with more money in the end. So you could argue that paying the premiums for buying cars so often, particularly new ones (even if the hit each time you do seems smaller) is actually more reckless than using loans instead of cash but holding onto cars for longer.
#288
Burning Brakes
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This is a really terrible time to be assuming your market investments are going to return 10% going forward. There's little question in my mind that the market as a whole is in a bit of a valuation bubble. Just about any metric you use will point in that direction. About the only counterargument that comes to mind is that bond yields are unattractive enough right now to make possible low returns on equities look good.
My personal rate of return has been 14.25% for the trailing twelve months, and I'd never consider taking out a 5-year loan for leverage. Though what LexVan said about a knee-jerk reaction to debt once you're debt free is spot on as well. I could take out a 30-year mortgage and invest the money in the market, and I'd certainly come out ahead over the course of the loan, but I'm not going to do that either.
Long bull markets tend to skew perspectives for the relatively inexperienced. I remember back in the dot-com bubble, my sister-in-law was asking about putting money into the market... for an expense that was due in 4 months. When people start thinking investments can only go up, that's about as clear a sign as you'll get that the market's due for a big correction, if not an outright crash.
#289
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I do, because when I bought my first Porsche in my 20s I couldn't afford to pay cash and don't regret it for a second. Now that I'm in my 30s, that wouldn't be appropriate anymore.
I agree with you and do plan to deleverage when I'm in my 40s, but I think the leverage makes sense right now to while I'm young enough to recover from another big hit (I bought my first house in 2007 so that was a big hit to recover from but I learned a lot from it) to increase my expected returns. Of course I'll be here!
At 36 you are still very young in relative terms. But in about 4-9 short years you should really strive to live debt-free. That includes your mortgage. Until you've lived debt-free, you really don't understand, and ounce you do, you will never want to, nor need to, ever borrow a penny again. And if you can get 10% returns, you are working in the wrong field and missed your calling.
Get out of debt in your early 40's. We'll talk again then.....I'm sure you'll still be around RL.
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#290
Burning Brakes
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Net worth is simply not a good metric for judging this sort of decision, and there are several different use cases that need to considered separately.
If you're buying a car to use, not a toy, it's an ongoing expense, like buying a house. Like buying a house, most people buying cars are buying something that's more than their cash on hand. Maybe not more than their net worth, taking into account things like house equity or 401(k) funds, but more than they their accessible net worth.
That's not intrinsically a foolish decision, any more than buying a house is. It's a matter of income and expenses. When I bought a used Honda Civic in 1988 for $4000, I didn't have $4000 in hand, but I did have enough income to meet the payments and save money at the same time. In the meantime I had a car for work and everyday tasks. It wasn't absolutely necessary, but it was definitely worth the monthly expense.
When I bought my Toyota Supra Turbo in 1998, that was less of a clear cut case. I didn't need that much car, but I was spending a couple of hours commuting every day, and the idea of having a really fun car to do it was appealing. I only had about $20k in savings, so again I had to take out a loan since the car was $38k, but I did have the income to cover the expense comfortably. The loan was 13% of our take-home pay, but our savings rate was still about 25% after the loan. "Foolish" would have been cutting the savings rate to zero, or going negative - which some people do.
Compared to that, the GTS I'm buying (next week, presumably) is a much smaller purchase - in terms of both cost vs. net worth and cost vs. income.
Once your income gets above a certain point, things change. You can, of course, let all your expenses balloon as your income rises, but you don't have to. We live pretty comfortably on about 25% of our take-home household income, including things like trips abroad every year or two. It really starts making more sense to talk about dollar amounts, because talking about percentages once you're past that point assumes you don't have your other expenses under control.
Net worth only really enters into it once you're depending on investments for income, rather than a salary. Which, admittedly, is where I am, at least partially. My wife is still drawing a salary, but 70% of our income is from investments. Actually rather much more than that this year, but I'm talking about a rough estimate based on my returns for the last 17 years.
Budgeting in retirement is tricky, since you have to take into account things like market downturns. Generally speaking, the Safe Withdrawal Rate is 4%, not the 9%-10% I usually average, because you need a buffer to survive an outright crash. It helps considerably in my case that my wife wants to continue in her job for a while, and that our normal expenses are less than her take-home salary.
Nor can you just look at the cost of the car, since that doesn't take into account how often you change cars, and the incremental expense for the change. My record in that department has been... not good recently, since this is my 2nd new car in 3 years. Incidentally, this ties into my intended topic for this thread, since I don't like reconciling that against what I considered "normal" until recently, which was keeping a car for 16 years.
How much does a GTS really cost? Not $150k unless you buy one every year and throw it away. My incremental cost this time is $80k, but my C4S wasn't a $156k MSRP car. First year depreciation will be something like $40k-$50k, and rather less the second year.
Right now, we can sustain that kind of outlay every year and still save money, but only because my wife is still bringing in a salary. Even though it's significantly less than our investment income, it's a much more stable source of income.
It would be a big, big chunk of our discretionary spending, but that fact alone wouldn't make it foolish. That's the thing about discretionary spending: it's discretionary. If you want to spend money from income on toys, that's your decision. It's when you start dipping into savings rather than spending income that it's a problem.
There's just no smart rule you can make about "percentage of liquid net worth on a toy" in retirement, because you have to specify a lot of clarifying conditions. Keeping a car for 16 years is a lot less expensive than keeping one for 5 years or (mea culpa) 18 months.
#291
Burning Brakes
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Though given how the market has ballooned in response to the forthcoming tax bill, I can't help but think it's a bit of Greenspan's proverbial irrational exuberance. We'll see if it's justified when we start seeing company financials a year from now.
Last edited by Gus_Smedstad; 12-10-2017 at 03:42 PM. Reason: Quote attribution
#293
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Compared to that, the GTS I'm buying (next week, presumably) is a much smaller purchase - in terms of both cost vs. net worth and cost vs. income.
Once your income gets above a certain point, things change. You can, of course, let all your expenses balloon as your income rises, but you don't have to. We live pretty comfortably on about 25% of our take-home household income, including things like trips abroad every year or two. It really starts making more sense to talk about dollar amounts, because talking about percentages once you're past that point assumes you don't have your other expenses under control.
Once your income gets above a certain point, things change. You can, of course, let all your expenses balloon as your income rises, but you don't have to. We live pretty comfortably on about 25% of our take-home household income, including things like trips abroad every year or two. It really starts making more sense to talk about dollar amounts, because talking about percentages once you're past that point assumes you don't have your other expenses under control.
The point being everyone handles their emotions differently when making any purchases...
#294
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$210K income is not enough to buy a $150K car responsibly. It would no doubt put you in financial jeopardy or undo stress.
My advice would be to buy a used one for no more than $100K with CPO. Then sell it after a few years and get another one just before CPO
is up. You can pick up a 2015 CPO GTS for about 100K with less than 5K miles on the clock.
Just my perspective. But you do you by all means.
My advice would be to buy a used one for no more than $100K with CPO. Then sell it after a few years and get another one just before CPO
is up. You can pick up a 2015 CPO GTS for about 100K with less than 5K miles on the clock.
Just my perspective. But you do you by all means.
#295
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If we continue to rise into the spring I'll be raising cash.
Always good to have a plan, sticking to it is rather difficult...
#296
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Originally Posted by love2drive
$210K income is not enough to buy a $150K car responsibly. It would no doubt put you in financial jeopardy or undo stress.
#297
Burning Brakes
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I probably should just ignore these misguided "you can't afford it" posts, since my original intent was to talk about reconciling decades of spending habits vs. this purchase, but something like this so soon after I addressed the topic at length is a tad irritating.
I'm kind of an aggressive investor by nature, in the sense that I think the usual rule-of-thumb allocation vs. age rules are dumb, and my instinct is to be as close to 100% equities as I can manage. Despite that, I've got about 5 years of expenses in bond funds right now, just because finding attractively priced equities has been difficult recently. That's how much you're supposed to have in retirement, incidentally, but not my usual practice.
#298
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Regardless of how you do the math, I bet you’d come up with a higher percentage for “911 owners that can legitimately afford to drive 911s” than for “children owners that can legitimately afford to have children”.
#299
#300
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I disagree with this. First off, at my age (36) paying cash for cars when I can get a 3% loan and get ~10% return on fairly conservative investments does not make sense for me when I’m young enough to accept the higher risk. So I could pay cash, but it just wouldn’t make sense. When I was younger, buying my first Porsche, getting a loan that was greater than my investments was ok whereas now it wouldn’t be. Later in life, paying cash will make more sense than the loans and higher risk investments. So it all depends on your age.
Second, maybe people might be more inclined to loans and pay interest but buy cars much less than every “15 to 24 months” and end up with more money in the end. So you could argue that paying the premiums for buying cars so often, particularly new ones (even if the hit each time you do seems smaller) is actually more reckless than using loans instead of cash but holding onto cars for longer.