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I'm out of school, been working for a year as a construction engineer (not a get-rich-quick field, but I'm making $58k/yr and I expect to be advancing the next few years), and still driving my college beater. It's really pretty lousy and I want out.
I'm currently dreaming of a $23-24k MX-5 Sport. After what I can put down, I'd be paying $300-$350 a month for 60 months. But I realize I could get a $13k older Miata, and instead of financing an extra $10k, I could make that money grow. That'd be nice since I'm starting from slightly less than zero, and helping out my parents at the same time. I'm contributing 15% to my 401(k) and saving besides that too, but it feels so slow.
On the other hand, a new car would really be something. I think I'd be happier in one than in a used S2000 of the same price, even though I always used to think the opposite. It's definitely different when it's not hypothetical anymore.
Anyway, I'm a week or two from getting a car. Whether it's a $13k car or a $23k car, I'm going to second-guess myself a lot. My friends are happy to contribute opinions, but I trust you guys more on these things. What would you do?
One thing I would look at (if you haven't already) is to start a Roth IRA to go along with your current 401K. With the Roth being after tax savings, it too has it's advantages.
Your logic makes sense. Logic always does, I guess.
I am not a Miata expert, but as I stated earlier, my father-in-law is. I have driven quite a few of them, and gone with him to buy a few, and have even bought a couple for him (he lives 450 miles away, so if I see one for sell that is a good buy, I will scope it out and have him send me a certified check).
My point to all of this is that I do realize the new MX-5 is a larger car with many enhancements. However, I have seen him buy many '96-'97 (Gen 1) models with very low mileage for very good prices - some of which were even the "M" Editions with leather. I have even seen pretty good prices on the '02-'03 (Gen 2) models. At his house, he has stacks of Miata accessory catalogues. I have always thought to myself that there is no way I would ever buy a new one...I would just buy a low mileage used one and maybe upgrade a couple of things on it.
That is just my perspective on the whole Miata thing. However, there is also a side of me that says that if you really want a new one, and you work hard for your money, you might as well buy what you really want instead of settling.
Is this "friend" an insurance agent? :confuse:
Anyway, I think I'm going to give the NC a chance and test drive it. I'll have to like it a lot more than an NB to buy it, but I'm worried that I just might, especially as an only car. On the other hand, with a used Miata I'd get into the world of modifications (and spend have the difference to a new one).
I don't want to make any big mistakes though. I've convinced myself that either a new or a used s2000 would likely become one. Now I'm seeing what I can convince myself of when it comes to a new Miata.
You're young, you're unencumbered, you appear to be financially responsible. If you don't get a convertible now,then when? Also, $23k isn't THAT much money, and these things last and hold their value reasonably well. Unless you mile it up.
New cars are a pain, though, cuz you're always worried about them and insurance can be really expensive.. a Miata ain't gonna be the same price as a wagon.
Here's what I would do: Get an older, used Miata. Well-loved, maybe 2nd generation; say, a 2000 or so. First, get (or keep) a decent beater car. That's if the cost won't kill ya; here in MI it's fairly cheap to register and insure an older car; also parking is a concern.
As a real gearhead, you'll enjoy the hunt for the used cars and will be able to get a good deal. $8 should buy a lot of Miata, esp. since they rarely get used hard. Add a decent hiway cruiser; my 96 Millenia is a remarkably pleasant car, and you can get them dirt cheap. Or a '98 Ranger, if that's more your speed. You'll have flexibility and no loans.
Finances:
I'm no CPA (but jlaw is, I think), but I'm good with numbers:
-first, get the 401(k) match.
-next, max out the Roth. BEST deal out there for anyone under 90. Taxes are LOW right now and they won't stay there. Index funds (total market, S&P) are my speed; low expenses and no worries. YMMV
-Forget insurance vehicles. Costs are too high.
Good luck and have fun,
-Mathias
If you don't have a house yet and you are going to be in the area for a while go buy one now.
Interest rates are going to go up a couple of more times before they start dropping and the market has switched to a buyers market in most of the country.
Values will proably float down a little bit over the next few years but if you are going to be in the same place for a while that does not matter to you.
It is worth it for the tax advantages alone.
As for a house... houses in my area are $600,000, and not big ones either. Condos are in the $400k range. Basically I'm not in the market yet; the only half-decent loans start at 10% down payments, so that (at the least) is my goal, once I get a car I can be happy with for 5+ years.
No, I'm not going to move.
Even houses where I work are stupid expensive. We ended up buying a few towns over and 30 minutes away to get something reasonable.
- You really want decent garage space [On Topic!]
- You really want to own your own home.
Financially, it's not so hot unless something crazy like the recent runup happens... afterwards, not so much.
Property tax + interest + insurance costs me, in a "cheap" area of the country -- nearly $800/month. Around here, that buys a lot of apartment. I prefer the house, but standing in my "garage" painting storm windows and wondering when I would ever put another car in there [On Topic!], I thought about a nice town house where someone else mows the lawn.
The house has seriously cut into the time I have available for car hunting... good thing I've got auction access now :-)
-Mathias
'99-'01 Miatas... 95% of what your are getting with the new one at half the price.. Treat yourself and get an LS model with leather..
Technically, a better deal just getting the 401K match, and maxing out the Roth, but the Roth is just too darn easy to put your hands on later.. If I had it to do over again, I'd max out that 401K starting ASAP... You'll have more money than Warren Buffett by the time you are 55...
Man.... I wish I could start over... :surprise:
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He convinced me to open one (although i do have dependents, so its a bit different), and, although I'm not putting alot into it, the projected numbers do seem to indicate its a good investment in the LONG run.
I was hoping it would help buy a nice classic car for my retirement (using mathias's method of staying on topic), but I think I'd have to start investing ALOT more to make that happen.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
As for the car, I'm looking at ~2002 NBs now. I'm not love with the body style, but I don't notice from the driver's seat. Hey, not that I'm going to buy one, but anyone know why there are still unsold 2005 Mazdaspeed Miatas lying around? I didn't think that car was a bust.
Anticipation of the new model coming out in '06 maybe?
http://articles.moneycentral.msn.com/Insurance/InsureYourLife/TheRagingDebateOve- rTermvsWholeLife.aspx
Interesting thing is at the very end of that, it says to not but one for your child as college savings. That's the very thing I was talking to my advisor about last week. He seems to think its a good idea and has one for his kid. Granted, you don't want to buy one to CASH OUT for college, but I was thinking of starting it now and then having it to get a loan from for his education.
Of course, if he wants to be a mechanic instead (HAHA! ON topic! hehehe), he would still have the policy and not a college savings plan that then gets penalized because its not used for college.
Ugh. Finances are SO damned difficult. Gimme a straighforward car deal to peruse any day (HA! topic again!).
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Believe me, there are plenty! Like I said in the CCBA thread, my current promise to myself is that I'm not going to trade vehicles until I pass the bar.
Yes to fully funding your 401 (k). Also a Roth, if you can manage both.
Life insurance - no, it's not an investment. Even long term, it's only so-so. BUT - do you plan to be married some day? Have kids? At that point, you will definitely need life insurance, and it will cost you more because you'll be older. My recommendation: buy maybe $50,000 or so of whole life, and get the guaranteed option to add on to it at low prices at certain ages. Usually you can do this up til age 35. If you've got kids at that point, add on. If not, not.
I'm biased on this point because my own father did not buy life insurance when he was young, because he couldn't afford it, and by the time he needed it and could afford it, he was uninsurable (with high blood pressure), and in fact died suddenly at age 43, leaving my mom with 4 kids under age 10, and no means of support other than the widows and children VA benefit. We had some pretty rough years for a while.
Personally, I bought whole life insurance when I was single, in my mid-20's. I'm now married and in my mid-50's, still have the policy. I may or may not ever cash it in. No kids so never added to it, but it's nice knowing that it will either cover final expenses or be a little stash should I be down to my last nickel and need the money.
I did go for a previous-generation Miata, but conceeded myself a nice one, a loaded 2002 Special Edition (titanium gray, 42k miles). There were cheaper options out there, especially if I had waited a bit, but I've always had that mentality and it has only made me worried and miserable in the past.
I'm very, very happy.
But I still don't get what an "NB" is... you said you bought an '02 Miata, but what does the acryonym stand for?
Whoever said money can't buy happiness clearly wasn't into cars.
Have fun,
-Mathias
Well done. May you have many, many happy miles ahead!
Most companies do something similar, and I guess enthusiasts like it because those designations give away the generation in addition to model name (and sometimes body type and engine, too). Famous Hondas include the EG6 and EK9 (mid and late '90s Civic type R, respectively), the '90s BMW 3-series was the e36, stuff like that.
Oh man I've had so much fun today. Best of all, the Miata's so much fun without having to go fast. It's going to be easy for me to slowly clean up my driving record
Now, I will likely not have a car (or payment) for quite a few years, but he has one, I don't need one, and I'd rather have something to show for working 'someday'. It's all scary, though, and has always been a bit daunting.
Currently I don't make all that much, but I also have negligible expenses - and while my income may rise significantly in the near future, I doubt my expenses will. Theoretically I could divert as much as 90% of my monthly income towards car payments (including all relevent expenses such as insurance, gas, etc.) - not that I'd want to of course, but just for argument's sake.
However, how does a lending organization view this? Would they:
1.) Not give me a loan at all
2.) Give me a loan, but only approve me for a very small amount
3.) Give me the amount I want, but charge me very high APR
4.) Not care at all
For what it's worth, my FICO scores are very good last I checked (720-750 range, depending on the bureau), and I'd probably get a co-signer with excellent (800+) credit as well.
For what it's worth, I prequalified for a loan worth half my gross annual income (rent: 20% of gross, FICO high 700s). Not sure why.
jlawrence - When it comes down to it, why **NEEDS** to buy a NEW car? And you can get a pretty decent vehicle for well under $10k.
Well, hold on, let's think about this.
When I made my statement, it was not to indicate what people are spending, but what is available for them to buy.
If the majority of vehicles made are over $20k and the majority of incomes are under $60k, then we obviously have an imbalance here.
If the majority of people were to suddenly switch to buying used cars .... then what happens when those used cars are bought? Demand would outstrip supply. And if the minority are buying new, where would the majority get their used cars?
So isn't it possible that, to some extent, buyers are FORCED to go in over this imaginary cost/salary line? Ok, ok, I know I'm really stretching the term forced here, but, look at it this way, IF everyone were to suddenly start living by this rule, there would be a huge run on Hyundais, Kias, Mazda3s, Civics, Corollas, Fits, Yariss, etc, and, once again, you have demand outstripping supply and price increases, as a result.
I'm not sure I see any winners here (except the car companies that make inexpensive cars, that is).
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Also, I have been hearing these doomsday predictions about overextended consumers for years, but I have yet to see the sort of widespread carnage that has been predicted come to fruition. For example, high gas prices have had a large impact on many commuters, especially those with vehicles that get poor fuel economy, and gas prices are affecting car purchasing decisions, but many people who own these vehicles are keeping them until they're paid off and trying to spend less in other areas to offset the cost of fuel.
That is already happening. This entry from Wikipedia describes how the average age of a car on the road in the U.S. has been gradually increasing. People are keeping their cars longer and/or buying used.
--------------------
In the year 2001 National Automobile Dealers Association conducted a study revealing the average age of vehicles in operation in the US. The study found that of vehicles in operation in the US 38.3% were older than ten years, 22.3% were between seven and ten years old, 25.8% were between three and six years old and 13.5% were less than two years old. According to this study the majority of vehicles, 60.6% of vehicles were older than seven years in 2001.[5] This relatively high age of automobiles in the US might be explained through gradually declining sales figures since 1998.[6]
The median and mean age of automobiles has steadily increased since 1969. In 2005 the overall median age for automobiles was 8.9 years, a significant increase over 1990 when the median age of vehicles in operation in the US was 6.5 years and 1969 when the mean age for automobiles was 5.1 years.[7] Of all body styles, pick-up trucks had the highest mean age (9.4 years), followed by cars with a mean age of 8.4 years and van with a mean age of 7.0 years. As SUVs are part of a relatively new consumer trend originating mostly in the 1990s, SUVs had the lowest mean age of any body style in the US (6.1 years). The average recreational vehicle was even older with a mean age of 12.5. The mean age has increased continuously for all body styles from 1969 to 2005.[7]
I mean, one could argue that cars have become more reliable, hence the increase in mean age. Also, just because the vehicle is operational does not mean it was not bought new by the current owner.
Do you have a link to that? or tell me what you plugged in to wikipedia to get it? I'd like to see the reference for that declining sales figures statement. I find it really difficult to believe that fewer new cars were sold in, say, 2005 than 1998.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Oddly enough I couldn't find anything (on a five minute search, I didn't spend a lot of time at it) that gave exactly the numbers of new and used cars sold in the U.S.
Still, the mean age increasing does tell you something. It's probably a combination of people keeping their cars longer, because they're more reliable, combined with the fact that car loans are getting longer, and many people want to have their car paid off before buying a new one. And then add whatever number of people are buying cars two or three years old coming off leases, and owning those cars for several years.
All of it of course gets back to reliability. It's no longer unusual to have a car that's 10 years old still be in good working order.
Also - just thinking out load here - it makes it more feasible to have a second car, in some cases. For myself, I'm still very pleased with my 6 year old Maxima, now with 86,000 miles on it, for which I paid cash in the summer of 2000. A few months ago I treated myself to a new 350z, which I wouldn't have done if I had thought the Max was on its last legs. Looking forward to having a reliable, even if aging, sedan for another several years made it seem like an excellent idea to buy a fun, impractical roadster. :shades:
- interesting article on car sales declining in Japan
http://www.referenceforbusiness.com/industries/Retail-Trade/Motor-Vehicle-Dealer- s-New-Used.html
- long article. Includes these points: "New auto sales for 2001 reached a total of 17.1 million units. That total included a little more than 8.4 million passenger cars and about 8.7 million light-duty trucks. ..
The total number of cars in operation continued to rise. According to the NADA, the total number of vehicles in use in 2001 was 216.7 million—approximately 128.7 million cars and 88 million trucks. Of these, more than 38 percent were more than 10 years old, almost 26 percent were between 3 and 6 years old, more than 22 percent were 7 to 10 years old, and almost 14 percent were less than 2 years old."
http://www.bea.gov/bea/articles/NATIONAL/NIPAREL/2001/0201mv.pdf
If we combine that with your last link, biancar, it seems there may have been a decline from '00 to '01.
And, i'm not sure, but I think it went back up to roughly 17.9 mill in '02.
http://www.bea.gov/bea/dn/gap_hist.xls
then a drop again in '03. Then back up over 18 mill in '04. Seems to be a seesaw, but, again, definitely seems to contradict that info about the decline since '98 that I originally suspected to be incorrect.
Anyway .... what were we talking about?
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
I think we were talking about your comment about "If the majority of people were to suddenly switch to buying used cars .... then what happens when those used cars are bought? Demand would outstrip supply. And if the minority are buying new, where would the majority get their used cars?"
ANY-way - back to how much people should spend on a car - I still hold that for most people, it's wise to keep your car payments to no more than 10 - 15% of your take-home pay. Do whatever that takes to get the numbers there, whether it's putting down a big down payment, buying used, or whatever. Or working hard to increase your salary, going about it from the other direction!
Still, there are a lot of variables. A young family stretching to buy a house and feed their kids and pay school expenses needs to stay on the low side, and us old codgers with a paid-off mortgage, no kids at home, pension plan kicked in, can maybe splurge some without worrying.
I'm biased in favor of paying cash, actually, which isn't as hard as people might think it is. If you get a 3 or 4 year loan on a reliable new car, then drive it for 8 years and just keep paying yourself that same payment after it's paid off, chances are good to excellent you'll have enough to pay cash, or close to it, for the next one.
Sometimes if interest rates are really low it might be advantageous to take a low-rate loan and keep your other money invested, of course. But having the wherewithall to do it either way is a real strong peace-of-mind position.
And if everyone started paying off their credit cards every month, Chase and Citibank would go broke. I am sure that they are holding their breath in fear!
Pay cash for a used car. Put aside $300 a month until the used car dies (and take care of the car) and you will be able to pay cash for a new one.
Besides, I'm just not disciplined enough. And I think I have the morning-after disease or something. I get a new (or even lightly used) car and shortly after I begin thinking, "geez. why did i do that? i could drive a beater and save all that money each month." But I inevitably forget that feeling the next time I want to go car shopping.
oh, and let's not forget about repairs on that used car.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
See, now that is very different than what was posted on the other board when this started. I believe the previous number was something like, "the price of the car (not monthly payment) should be 1/3 of gross annual pay."
At a payment of 10-15% of take-home, I'm right there at about 11.7% (average between my and my wife's payments/take-home). And that puts the average family sedan ($25k) in striking distance of someone with ~$50k salary (if i did my quick calculations correctly - i'm sure someone will double check me).
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Let's say gross income is $60,000. Minus Social Security, minus taxes, minus maybe retirement contributions, health insurance, one thing and another, net take home income probably around $45,000 - $48,000 (depending on deductions for kids, mortgage interest, etc.)
Let's be generous and say $4,000 a month take home. Ten percent is $400. A $20,000 car, financed at 5.25% for 5 years, would be $380. So that works pretty exactly - the car cost is 1/3 the gross salary, and payments are about 10% of net.
The same loan for 3 years would run $602 a month, meaning someone should have net income of around $6,000 ($72,000 per year) which would be a gross income of probably something around $90,000.
The first guy, with the five year loan, will pay $2783 in interest; the second guy, with the shorter loan and higher monthly payments, will pay $1660 in interest.
There are lots of ways to fit a given price into a given budget, really depends on whether people want to owe more, for longer, for the sake of lower payments, or have higher payments but be done with it sooner.
The folks who take the lower payments AND try to trade in early are the ones who are headed for trouble.
You're right, it still seems to be about the same.
So this still brings up my original stated problem of someone with an above average salary not being able to afford the average car. It just doesn't make much sense.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Someone with an average salary needs to buy, at least once, a car that costs less than what they, on paper, could afford. Keep that car long enough to pay it off, keep on saving for a few more years, and presto, they can start getting nicer cars. Especially if their salary has also gone up.
Obviously I am very biased because that's the method that has worked for me!
Again, all the disclaimers - if your mortgage payments are a stretch, then you've just got to cut down on car payments. If you've owned your house for a long time and your salary has gone up so your mortgage payments aren't taking a huge bite, then you can afford more on a car.
I think the rule of thumb of "no more than 1/3 your gross income, no more than 10 - 15% of your take-home income in car payments" is still a pretty good one and very workable, as long as people don't let their car lust overwhelm their pay grade.