How bad would it be for me to buy a new car?

How bad would it be for me to buy a new car?
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#1

Hello all, For a while i’ve been wanting to get myself a new car. I am 24,

I know a new car is a waste of money, and its a good way to turn $35,000 into $5,000 over a few years. I fully understand its not a bright thing to do, but I personally have no desire for homeownership yet, with maintenance ,HOA fees, insurance, Mortgage financing, pmi, etc.

I make around 55,000 my apartment is 1,100/month (no utilities) I have no debt, funding a 401k

I am anticipating having around $20,000 by the time I want to buy the car.
considering doing 15,000 down on a 35-40 car.

for a car payment of 250-300/month over 6 years + an insurance cost of 300/month.

I was anticipating paying the car off at 30, then buying a house when i’m older more responsible, and more able to adequately care for the property.

I know that in 10 years time I would be better off if I took a reasonable mortgage and paid it down, but would it be crippiling to do so?


#2

@anonymousPenguin, welcome. Money is a tool for having the life you want. You appear to want to retire someday, and you appear to want to be able to knock off many of the other traditional goals in life like a home. And you want a car. Nothing wrong with that.

You can do more than one thing at a time. There are lots of ways to do the mental math but my favorite is a basic 50/30/20 budget. That’s 50% for needs, 30% for wants, 20% for savings and paying off debt.

If you’re knocking off the basics (an emergency fund, regular retirement savings) and buying the car won’t derail any of that, budget for what you want and go for it.

The best part about laying out a financial path and sticking to it is that you enable a lifetime of wonderful choices — a car today, but maybe a house tomorrow or a college for the kids later on.

Also, do not venture anywhere near a car dealership without this car-buying cheat sheet, from our colleague Phil Reed. The new wears off much more slowly if you feel good about the deal you got.

Good luck out there!


#3

Hey thanks for the awesome reply.

I guess at the end of the day it comes down to lifestyle choices.

I guess I was looking for more of an answer about whether the numbers I outlined were reasonable or if I was going overboard or not.


#4

If you are going to buy a new car, you’re thinking about it the right way.

$15K is more than most people put down and will keep you from being upside down on the car. It takes discipline to amass that kind of cash and leave it alone.

There’s no “right” monthly payment, but if you can avoid a six-year car loan, you should. Interest rates tend to be higher, and you are likely to encounter large repair and maintenance expenses before the loan is paid off. (That’s why we harp on emergency funds so much.)

You didn’t mention your credit situation, but good scores make a big difference not only in the auto loan rates you can get but in the cost of your car insurance.

So no, you’re not going overboard unless there is a key essential you’re missing.


#5

As @des said, if you put down a fat down payment and limit the loan length, you’ll at least be buying a new car the right way. But I think you touched on something when you mentioned lifestyle choices. It’s super easy to let your spending drift up with your income…it’s called lifestyle inflation. Pretty soon we take for granted the lifestyle we have, and start wanting to step things up again. (That’s called hedonic adaptation.) What’s REALLY hard is stepping back your lifestyle. Most people aren’t going to want to buy a $10,000 beater after they’ve owned a $40,000 car. That could be a problem if you run into a financial setback. It’s a heck of a lot easier not to add to your lifestyle than to have to give something up after you’ve gotten used to it.

Another thing that’s good to know: you’ll be getting your biggest raises in your 20s and 30s. It can be tempting to think the good times will go on indefinitely. In most cases, though, raises throughout mid-career will be more modest, plus you’re likely to have more expenses (mortgage, possibly kids, etc.).

I am SUPER glad that before getting married and starting a family, I saved a big chunk of my income, as in 20-22%, and kept a lid on expenses. It gave me a lot of freedom later. Plus, the more reasonable your expenses, the easier it is to reach the point of financial freedom where you only have to work if you want to.