myw

i had to chuckle a little at your compromise (which 'dreamcar' should i choose hehe).

thejoee

Affordability is subjective and also depends on your priorities. Personally, the first thing I asked myself was if it will affect my family and our lifestyle and living standards.

And btw, there are ways to write off your mortgage interest in canada

Cuda911

We can??? Yippeee!!! I musta' missed that tax code change. Can you please show me what line to put that on, since I'm getting my tax stuff ready to file?

JustinCase

My attitude is that *no* car is affordable unless you can pay cash for it, and even then only when paying cash is not a personal hardship. Further, I always plan to maintain it well and keep it forever (i.e., not trade every several years). My first car or two were not much to brag about, but they were paid for, allowing me to "make regular car payments" to myself, and to upgrade every decade or two as they utterly wore out, harnessing the power of compound interest in my favor (instead of the other way around as with loans and leases). As a result, I bought my 997 one and one-half years ago after roughly 47 years of desire.

Another advantage of my approach to (depreciating) cars is that I have lots of time to research the heck out of every single purchase -- there are no costly emotional impulse buys, and my wife is an integral part of the planning process. I recognize that my approach is old-fashioned and way too conservative for most, and plenty of people buy their dream car at a much younger age and do just fine. Many people don't share my values, and lots of them live very happy lives just the same.

My son (who seriously covets either a Cayman or a 997) asked me what I would do in his place after not being able to pull together (a) a deal to sell his perfectly fine 100% owned car and (b) a deal to buy the car of his aspirations. I told him I could not tell him what to do as he was an adult. He said, "Okay, then, what would you do in my circumstances?" (By the way, he makes great money.) I told him in his shoes, I would continue to make my "car payments to myself" and save them up towards buying a well-selected house, which is exactly what I did at his age. I dearly love my new car, but I will always love providing well for my family (current and future) more. Plus, the investment prospects are typically better.

One potential game-changer could lie in your mechanical abilities. I am no longer much interested in more than just some basic PM, so my maintenance costs run higher than many on this forum, even with great indys. A strong aptitude and interest in doing most of your own maintenance could push the date you pay cash for a new-ish Pcar by 10-15 years earlier than for me. However, at that time I had just paid to put myself through graduate school, my wife's undergraduate, was looking at immediately putting my two children through college, and was just about to start my manufacturing business. I still have a Porsche sticker on the exhaust stack of a paint/bake system in my factory reminding me (a) that the installed system cost as much as a Porsche (wiping out my Porsche fund for the umpteenth time) and (b) I was still going to get me one.

I sincerely hope you get your car earlier than I did, but I would never trade my family or livelihood to have done so.

myw

im a youngin' here and i share/apply your values and method completely; i believe there are some younger kids here in their 20s and 30s here that feel the same.

surprising how fast this thread blew up.

Tcc1999

Your ethic is laudable (and I'm sure unintentionally paternalistic: “Many people don’t share my values, and lots of them live very happy lives just the same”). But paying with cash is often more an emotional/ethical decision – not to be criticized and no one’s business but yours. So, just to be clear, this is not a criticism, just a very broad, cursory peek at the other side of the argument. That is, cash payments have an emotional value and this value should have some quantification. I don’t know how you quantify emotion but assessing financial costs of cash payment seems like a good place to start. To this end, a couple simple formulas come to mind.

1. Money that would have been made by investing instead of paying with cash.

((1+interest rate)y^x) * $ amount

(where x is a discrete period)


2. Money that you “Earn” by paying up front and making a monthly investment instead of a car payment

((1+ (interest rate/x))y^x) – 1)
(interest rate/x)

The above sum * $amount

(where x is a discrete period).



Here’s a simple example: Instead of paying $50,000 up front you finance for 36 mo. at 3.5% (payment = $1,465). What is the difference in what you pay in interest on the loan versus what you would have made by investing in an S&P 500 indexed Mutual Fund (most current after tax three-year annualized gain of 15.52%, admittedly high but it is what it is)

Investment Return = ((1+.1552)y^3)* $50,000 = $77,079.97
Sum of Loan Payments = $52,470.

Gain (emotional cost) = $77,079.97 – 52,470 = $24,609.97


Now, if you paid cash up front and made a monthly payment to your investment account for what the loan would have cost you up front then the value of these payments in three years would be:

(((1+ (0.1552/36)) y^36)-1)
(0.1552/36)

(the above sum) *$1,465 = $57,067.54

Loan Payments = $52,470

Gain (emotional reward) = $57,067.54 - $52,470 = $4,597.54


In the second example you come out ahead of the game but are still worse off compared to what you would have gained if you just invested everything up front and took out a loan. But maybe you are not worse off if foregoing the gain had a greater emotional return.

Of course there are numerous permutations of this formula, you could lose money by investing (but capture some back by harvesting the losses), interest rates change, finances change. There is just no way to know whether you’d be better off paying cash, financing, or buying $50,000 worth of gold bullion and burying it your back yard in the expectation that world markets will crash. The point remains, paying cash when interest rates are low is an ethical decision, one with an emotional value and particularly conservative (small “c”; and not that there is anything wrong with that). While is works for some, its not right for all - but I think that assigning some numbers to decisions is always helpful.

As to whether the OP can afford it? I don’t know, all I’d say is evaluate as many of the possibilities and make the best decision that’s right for you.

JustinCase

Tcc1999, no argument from me. Nothing wrong with your analysis. Very thoughtful comment.

It's what you invest in that can make a big difference. As an example, our real estate investments beat the market (S&P and others), and our investment in our business had an ROI approaching 65% for 2013, and was only below 40% for our first year in business. One of my acquaintances who collects and restores old Porsches has also done quite well, but I do not have his expertise (note tone of envy in my voice). Most "normal" financial investments don't do nearly as well.

I suppose I would have gotten my Pcar much earlier had I started our business earlier in life, but I'm not sure I would have had the experience to be nearly as successful, nor the saved up resources to do it right.

With respect to my "paternalism," you are entirely correct. It's a consequence (and benefit) to getting older. Just ask my son.

Meanwhile, my car is *not* an investment. It is for driving, and I really enjoy doing so as often as possible.

rodsky

Afford is very personal. Many, many factors play into that. If you are <30, no kids, saving a bunch, and getting a 997 costs you $400 a month more than a C300 Merc and you really will enjoy it, why the hell not. If you are married or going to get married and have or are about to have kids, you deinitely cannot afford it, nor should you buy a 997. My first two Porsche purchases were in young and single days and I was pretty cavalier. Latter two have been in married + kids phase. Lets just say, If i were single, I would be going crazy on cars. Maybe its better that I'm not At the end of the day, I still really like my 997.2. Love driving it as much as I can. My other friends dont understand why I bought a P car. But its about fun and personal enjoyment thats worth more to me than the delta in $ to a boring DD sedan car.

rodsky

Great post Tcc1999!!

Captsteve123

You can analyize, crunch the numbers a million times, and then find more reasons to go back a re-evaluate the numbers, investment choices, interest earned, etc. When it comes down to it, you can either afford to pay cash, or make payments based on your income. If the purchase is going to create tight finances for you, then do not buy the car.
You either buy the car for enjoyment and forget about how much you could have made with that same money, or you invest that same money. No guarantee tomorrow will come, so that same investment may never be seen.
I've worked with people that save all their lives, investing every penny and drop dead never seeing what they worked for all those years. You can aim all day long, but you either pull the trigger or put the gun away.

Jamolah

Just want to thank all of you for the input and comments.

Hf1, you're right it's not guaranteed, but other than death what in life is? Not real-estate, as witnessed by the 2008/2009 housing crash. Not the stock market, as witnessed numerous times notably the tech bust of 2001. So my pension is as close to guaranteed as anything else.

For further clarification, yes I am single with no dependents. I 'own' a house (meaning I pay a mortage), my C300 is fully paid-off. I have no credit card debit or any other type of debit. And the $1600 of disposable money is after all the necessities are paid for like housing(mortgage, tax, heat, hydro), transportation (insurance,gas,parking), food, cell phone and cable/internet.

But with all said, I've decided to put this purchase off for at least 2 years (which puts me at 40, perfect for a mid-life crisis, hahaha). It'll be very difficult because once I obsess about something my OCD kicks in (lol), but I have no choice.

Any further comments or suggestions are greatly appreciated. This is becoming a very interesting thread.

mikeborden

Dude, if your disposable income is 1600 after everything is paid like you said, you CAN do it. It sounds like you have your budget down.

You can do as some others suggested, save the payment that you think you are going to pay for a few months, look at cars while you are doing that, and then when you find the one, you'll have some cash to put down and have an idea how much you can afford.

I was actually going to do the same thing, but I came across a CPO'd 2007 with a little less than 43k miles for about 40grand and pulled the trigger. I couldn't pass that up! I thought that was a pretty good deal.

The way I see it, I wasn't getting any younger and I didn't want to drop dead without having own my dream car. I'm only 38, but people DO drop dead with NO warnings.

That's my 2 cents.


Mike

myw

Waiting 2 years not a bad thjng , a 997.2 would be very obtainable then based in the numbers I've seen you post thus far.

LexVan

I did not hear you say you are maxing out your retirement savings. Are you? Pay yourself first. Then pay the guys in Stuttgart.

myw

i believe he is saying that he doesnt need to max his rrsp (cdn 401k equivalent) since he has a pension. my friends that have govt pensions almost never ever (for better or worse) max their rrsp.