What % of The Salary Do You Budget for a Car?

Hi guys,

Just wanted to know what % of your salary do you spend on car repayments. I recently landed a new job and was just considering upgrading my car (CR-V >230k) before it fell apart. I am open to finance as I usually invest most of my income into shares, etc. and I am getting a better return than what I would pay in interest.

I try to invest 40% - 50% of my income and rent + expenses don't exceed 30% of my income, so if my car repayment was to be 20% of my salary would that be optimal?

Just wanted to hear some thoughts from the OzB community to understand how much is not too much expenditure for a car.

Cheers!

Edit 1: Forgot to mention, looking at a nearly new (<30,000 kms) 3 series, C Class, A4, XE/XF, etc. I am well aware of their rock-solid reliability and high appreciation of value but want to experience them regardless (hopefully under warranty) and leasing is not possible.

Edit 2: Just clarifying, I meant <30,000 kms not <$30,000.

Comments

  • +4

    landed a new job

    Depends on the correlation between career opportunities and badge.

    • career opportunities

      Well, the title is Integration Developer for one of the big 4 so they are okay I would say.

      • +58

        Oh well, in that case you will need something nice. And in today's market, this is a High Yield Investment.

      • +1

        What year CR-V do you have? My 2001 has 290k on it and is loving live.

        • 2008 top spec (luxury)… there's nothing wrong per se, just general concerns that the sunroof may break, etc.

          • +3

            @guavatemporary: Never really heard of sunroof may break, unless you mean it stops working mechanically.

            • -9

              @ATangk:

              unless you mean it stops working mechanically.

              Yes obviously.

              • +4

                @guavatemporary: It just sounds like you're saying the glass breaks. But sunrooves are such novelties, just keep em closed.

    • Yeah get yourself a A45 AMG for upside career opportunities and high yield investment.

  • +49

    Depreciating liability so as little as possible.

    • +1

      Unless it's a vintage car.

      • +1

        or you keep it for a long time.

        • +12

          I don't think my vintage Toyota Camry will be worth more than all the other OzBargain-ers Toyota Camrys!

          • +4

            @dust: I raise your vintage Toyota Camry with my vintage Toyota Avalon. One of the only cars not to have rear seats that come down….

            • @suntagonal: My 2017 commodore seats don’t fold down either. Only twice have I wanted them to fold down though.

              • @digitalbath: It amazes me that not all cars have the fold down option? Especially since mine is 2001 Avalon… I thought they would have learnt from their failures.

                Very true though, you don't need it until you need it.

          • -1

            @dust:

            I don't think my vintage Toyota Camry will be worth more than all the other OzBargain-ers Toyota Camrys!

            I wouldn't put money on it. My Camry has people looking at it in confused horror - how can someone in a decent job drive a 20+ year old, paint peeling, battle scarred heap of crap like that? Easy; it works. That's my car criteria at the moment (unless some "spare" money suddenly appears in my bank account).

    • +1

      Unless you get joy out of your car. Everyone has different priorities.

      • +2

        CR-V does not spark joy. Cars listed don’t sound like they’ve been picked because they spark joy in the OP

  • +17

    Oh .. only entry level and budget badges

    Shoot for the AMG ⭐🌟

    perhaps question the wisdom of financing a depreciating asset

  • +12

    Does it need to be a high yield vehicle to impress your new coworkers?

    I would always buy a car outright, and wouldnt consider car loan repayments unless i own a business.
    The money could be saved for a house deposit.

    Also have you considered servicing costs, rising fuel prices, and comprehensive car insurance?

    • +6

      Does it need to be a high yield vehicle to impress your new coworkers?

      Yes, I am 27, young enough to enjoy it but mature enough not to doughnut into killing myself.

      The money could be saved for a house deposit.

      For some reason, I am not so keen on buying a house at this time. I feel like I have missed the boat. Will look into it during the next crisis.

      Also have you considered servicing costs, rising fuel prices, and comprehensive car insurance?

      Actually, most of these options have capped-price service, the remainder of warranty, etc.

      • +1

        most of these options have capped-price service

        just beaware some may not offer long term capped price - my non european car was 3 years.
        Some may also have disclaimers saying x part is not part of capped price servicing so ensure you look at the manual.

        Also as borders open up, I assume the second hand car market will go back to normal pre covid times. So if u buy now, the price may drop in a few months time maybe?

        • Also as borders open up, I assume the second-hand car market will go back to normal pre covid times. So if u buy now, the price may drop in a few months time maybe?

          That is an interesting point, but I assumed the number of cars (due to chip shortages, etc.) will be the same and with borders opening, perhaps with more people coming in the prices will go up instead of down maybe?

      • +4

        If you don't use 100% of your salary on your car, are you really living?

        • +28

          You are really living. In your car.

          • -1

            @Choc83: What a way of life for a 27 yo integration developer

          • +13

            @Choc83: Remember, you can live in your car, but you can't race in your house ;-)

      • For some reason, I am not so keen on buying a house at this time. I feel like I have missed the boat. Will look into it during the next crisis.

        Careful with that mindset. Been hearing it since I first bought in 2008, but I'm sure its been around a lot longer. You might have missed the boat, but you're probably going to have to jump in and swim after it, because its not turning around. If you time things right you might be able to buy into the home market at a bit of a low ebb, but only in the context of long term continuous growth.

        • +1

          Getting a 30Y death loan isn't for everyone.

          OP makes enough money to rent, enjoy the view and move then they get bored.

          • +1

            @rektrading: yeah also, there are a lot better places where I can use the down payments + repayments which I reckon have a better ROE. Also, not earning enough ATM to get one for negative gearing.

  • +8

    but want to experience them regardless

    There isn't that much to experience at that end of the market. They are all pretty meh.

  • +3

    Your car choice (used entry-level germans) suggests you're doing it just for the image? 20% is way too much money to spend on impressing others.

    In terms of experiencing the car, there's not much to experience in 4 year old base model germans that have 100,000kms on them

    • +11

      When I see an entry level German car I straight away think someone trying to impress everyone when they could have brought a high spec Japanese car.
      You come across as a [email protected] and done the opposite in impressing, most people know its a pov pack Mercedes

      • +5

        tbh only car people really know. you could drive around in a 15 year old BMW and people would think you're wealthy

        • This is so true. I have a basically free Peugeot that is 15+ years old and people still think I springed for a nice car (must be the leather seats).

          • +2

            @serpserpserp: which peugeot is that, the ones that were designed by pinafarina?

          • @serpserpserp: Now I've got kids I've considered fancier cars just because I'm so sick of the mess they make on fabric upholstery…

            Not very ozbargain of me.

        • +4

          They must be because the money that's needed to keep an old euro car running… Especially those from the early 2000s

      • yea, just wait til they receive their first service bill!

  • +35

    20% of salary for repayments is insane.. I would be thinking more along the lines of 20% of your annual salary for the whole car

    • Yep. That's my rule of thumb… which probably means I've got an amazing salary or… oh. Oh right…

    • Surprisingly accurate on my last few cars.

    • I'm happily driving around in a car worth 6% of my annual salary!

    • +1

      Mines probably sitting at about 3% of my salary (even with covid inflated prices) and it ain't cause I get paid a shitload.

  • +31

    None, because I save up for my cars and buy outright. I can't stand the thought of paying interest on a car loan or financing. It seems like such a waste.

    • +19

      The issue is if you're into trading/ investing, etc. the S&P return YTD is 27.25% whereas a car loan is 7.69% (literally the first result, Westpac), so it does make sense to invest cash and borrow for a car.

      • +11

        By that logic you should borrow as much as you possibly can and invest that as well.

        • +7

          Yes, it is called a CFD. If for example, you've $100 invested in shares if that goes up 10% you make 10% ($10), whereas if you invested in 1:10 CFD, for $100 you invest you're position size becomes $1000 and if they go up 10% you make the entire profit, i.e. $100 so you'd get a 100% ROE. Similarly, if it drops down 10% you lose all your money (sometimes even more) instead of $10, I hope that explains the risk of borrowing as much as you can for investing.

          • +10

            @guavatemporary: You're suggesting playing with fire mate. Yes you get rich but you can also get wiped clean and even owe money you don't have on some platforms. Very risky.

          • @guavatemporary: I definitely lost enough money for a brand new Honda Civic by trading bear contracts. The adrenaline is high when you can earn $1k over the time of doing a number 2 but the risk is also proportionally shit inducing.

        • +2

          Yeah that's called margin trading and is done all the time. You can leverage yourself into kingdom come.

      • +3

        It made sense if you bought the car at the beginning of the year (with the benefit of hindsight) . Now it would just be whether u think the s&p will continue to provide a return > than the 7.7%

        (as they say…. Past results no guarantee future performance etc etc etc)

        • +1

          yeah, I wish I had invested even more in late March 2020. I could've bought 2x 3 series in cash or 1x 6 series.

          Past results no guarantee future performance

          While there is no guarantee I believe you can make fairly accurate predictions based on long term historical behaviour (not just for the market, in all areas of life).

          • +6

            @guavatemporary:

            Past results no guarantee future performance

            That is the most common excuse used by scared money to justify their decision to keep their savings in a bank account.

            You're doing the right thing by using the trend to trade rather than emotions.

        • Mr President just signed a $1,000,000,000,000 spending bill.

          Yes, what goes up to the right will continue to up to right in the long term.

          • @rektrading:

            Yes, what goes up to the right will continue to up to right in the long term.

            In the legendary words of the geniuses at WSB, "To the moon!"

      • +4

        Yeah cause 27% is going to happen next year…

      • Unless you are some trading wizard and soon to be billionaire, you can probably only expect 7-12%. So a much smaller margin above your 7.7% car loan.

    • +2

      the best investment you can make is yourself - if a car makes your life better then yes its sensible -

  • Just curious…where to find nearly new (<30k) 3 series, C Class, A4, XE/XF for <30k?

    Don’t think they exist at the moment, or how do you define nearly new

  • +3

    As opposed to investing that extra 7.69% and purchasing from that 27.25% return…..

    • +3

      Unrealized gains aren't taxable.

      Selling high performing assets and paying CGT to buy a car is financial suicide.

  • +6

    % does not factor for me. I simply aim for no more than $1500 per year of life expectancy of the vehicle
    .

    • That's a really interesting strategy! I will definitely keep that in mind when looking for cars.

    • I have a similar approach but 1500 is surprisingly low. I guess this doesn't factor in running costs. How do you do it :-)

      You would need to stretch the car to at least 15yo and if you could hit 20yo you would be laughing. But these days cars struggle to hit 15yo which is usually around the time they become uneconomical to repair.

      A transmission failure or something critically wrong with the engine could happen well before you expected.

      Avoiding lemons is hard.

      Personally I'm with you, how much is the car, how long is it expected to last me, what are the running costs and preventative maintenance. Then I model from there. But finding a car that suits this model and our requirements is very time consuming. After that finding a good example (used) takes lots of time.

      • +2

        Purchase price only.
        Registration & insurance alone is $1500
        Last car I bought was $400 18 months ago, so blitzed my target. SA does not require roadworthy inspection for change of ownership or yearly.
        Most expensive car we bought was $34k 21 years ago, it is up to 146000km so
        Both cars are very basic, wind up windows etc
        .

    • Capital only?

      I'm at less than a grand per year across my two corollas. 11500 for two cars that lasted 12 years and counting.

  • +9

    If my salary was $50K, I'd probably spend 10% max. If it was $300K, I'd probably spend up to 30 or 40% (total price of car, not on monthly repayments!). There's much more disposable money in the $300K salary.

    …to understand how much is not too much expenditure for a car.

    If you find yourself eating MiGoreng everyday after buying a car, you've probably spent too much!

  • +4

    Toyota Camry or RAV4

    • Apparently those RAV4 are in high demand.

  • +1

    You mention that you can offset the finance costs against shares, but consider you are purchasing a depreciating asset with a 6-9% finance on it vs the opportunity cost of otherwise investing that money into an appreciating asset like shares

      • +14

        Jeebus

        What’s with these big 4 bank drones(ie you and the the high yield investment guy). It’s scary that you work in finance but have such poor financial literacy

        I’m glad you have a crystal ball and can confidentially lock in >20% return for the next 12 months

        Clearly not everyone is as clever as you

        https://www.bankrate.com/investing/market-mavens-survey-stoc...

        • -6

          I don't work in finance per se, I build APIs to integrate between various platforms. I work for a bank but I don't really need financial literacy for my job. I do trading on my own time. With regards to 20%, that's just an average we quote to encourage people with limited knowledge to invest in ETFs like VOO. FYI, I am up >300% YTD.

          • +6

            @guavatemporary: with that track record you be a millionaire and billionaire in about a decade so live it up

          • +2

            @guavatemporary: I changed my mind on my previous comment.

            Just do it mate, you're young, doing well enough for yourself. Your investment gains is in the triple digits YTD and your salary will only go up given the field you're in.

            Screw the naysayer, whats the point of working if you can't enjoy the fruits of your labour. Life doesn't always have to be about making sound investment choice, sometimes you just want to get something nice, sensibility be damn.

            • +1

              @buckethat:

              what's the point of working if you can't enjoy the fruits of your labour.

              That was pretty much the reason for going for one. What's the point of owning a sports car when you're 70? In hindsight, I shouldn't have posted on a bargains forum, but oh well…

              • +1

                @guavatemporary: Not really replying to this comment specifically but I just wanted to suggest maybe you could look at something without a euro badge in the same price bracket? Like a lightly used 3 series in that price range you’re gonna end up with a fairly lukewarm drivetrain (2.0 4cyl turbo). Don’t get me wrong I love BMWs, especially the older ones. I get the affinity for euro brands.

                But would it not make more sense to get something with a more fun drivetrain before it’s too late? This will in all likelihood be your last car before EVs are mainstream. Find something more exotic, engine wise.

                Like at the very least you could get a Stinger. A Lexus GS350? Or RC350? Or IS350? Worth a look around. An Alfa Romeo giula with at least a much spicier 4 banger would be more interesting.

                • +1

                  @jrowls: I agree.. I love the IS300 with the updated headlight where the DRL tick is integrated into the headlight. Love the RC300 as well, both will probably be much more reliable than the entry level germans too.

                  Though I have to say.. the dash/instrument panel leaves much to be desired for both of those cars. Straight out of the 90s.

  • +8

    Get a 86 or a hot hatch.
    You'll have a better experience.
    You're 27, enough time to get a boring xxxx class later in life.

      • +61

        Lol that's a lot of excuses to say I am a poor driver.

        • +28

          A very verbose way of saying "I was following too closely"!

          • @dtxau: Good drivers are able to look out the windshield and see things like the incline of the road, any debris on the road, the possibility of animal strikes and adjust their following distance accordingly. Someone just recommend him a Volvo so he doesn't kill someone.

        • -3

          IT WAS AN ACCIDENT. Yes, it was my fault as I did not calculate the safe distance accurately. It would've been safe for normal conditions which they weren't at the time. Regardless, it's like saying if you accidentally stub your toe while walking you can't walk. I am not being defensive and I accept it was my mistake but it's just that I don't agree with your judgement.

          • +2

            @guavatemporary: it's more like saying if you are prone to stubbing your toe you shouldn't walk around bare foot :) but alas, the internet is a cruel, unforgiving place

          • +1

            @guavatemporary: Where do I say you shouldn't drive. I just think that you seem to have a false sense of bravado, you seem to think you are a good driver and it was the conditions that caused your accident rather than you. The next accident could end someones life. Using excuses like steep road and sand on the road, these are hazards that are hardly exceptional.

            People have accidents. Admitting their faults and adjusting their behaviour so it doesnt happen again should be the take away rather than saying it was the conditions that caused it

            • @lolz112:

              Yes, it was my fault as I did not calculate the safe distance accurately.

              This.

              Lol that's a lot of excuses to say I am a poor driver.

              This is unnecessarily harsh.

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