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

FrugalDealSeeker on 17/11/2021 - 22:36
Last edited 17/11/2021 - 23:18

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.

Financial

Comments

  • randomusername2017 on 17/11/2021 - 22:42
    +4

    landed a new job

    Depends on the correlation between career opportunities and badge.

    • FrugalDealSeeker on 17/11/2021 - 22:45

      career opportunities

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

      • Kangal on 17/11/2021 - 23:36
        +58

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

      • Intoxicoligist on 19/11/2021 - 14:48
        +1

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

        • FrugalDealSeeker on 19/11/2021 - 21:40

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

          • ATangk on 20/11/2021 - 21:36
            +3

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

              • ATangk on 20/11/2021 - 21:58
                +4

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

    • lukamotiv on 22/11/2021 - 09:08

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

  • BHR on 17/11/2021 - 22:49
    +49

    Depreciating liability so as little as possible.

    • dust on 18/11/2021 - 10:20
      +1

      Unless it's a vintage car.

      • Screamingeagle on 18/11/2021 - 15:49
        +1

        or you keep it for a long time.

        • dust on 18/11/2021 - 16:19
          +12

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

          • suntagonal on 19/11/2021 - 12:49
            +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….

            • digitalbath on 22/11/2021 - 07:55

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

              • suntagonal on 22/11/2021 - 09:48

                @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.

          • banana365 on 22/11/2021 - 15:02
            -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).

    • meowsers on 19/11/2021 - 18:04
      +1

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

      • BHR on 19/11/2021 - 21:41
        +2

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

  • randomusername2017 on 17/11/2021 - 22:52
    +17

    Oh .. only entry level and budget badges

    Shoot for the AMG ⭐🌟

    perhaps question the wisdom of financing a depreciating asset

  • mmd on 17/11/2021 - 23:02
    +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?

    • FrugalDealSeeker on 17/11/2021 - 23:12
      +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.

      • mmd on 17/11/2021 - 23:28
        +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?

        • FrugalDealSeeker on 18/11/2021 - 07:08

          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?

      • th123 on 18/11/2021 - 21:57
        +4

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

        • Choc83 on 18/11/2021 - 23:03
          +28

          You are really living. In your car.

          • th123 on 18/11/2021 - 23:33
            -1

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

          • goonsta on 19/11/2021 - 13:17
            +13

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

      • Chris12345 on 22/11/2021 - 19:47

        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.

        • rektrading on 23/11/2021 - 09:44
          +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.

          • FrugalDealSeeker on 23/11/2021 - 13:34
            +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.

  • brendanm on 17/11/2021 - 23:03
    +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.

  • Keplaffintech on 17/11/2021 - 23:04
    +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

    • Seaeagles on 19/11/2021 - 12:06
      +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 w@nker and done the opposite in impressing, most people know its a pov pack Mercedes

      • Keplaffintech on 19/11/2021 - 19:07
        +5

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

        • serpserpserp on 19/11/2021 - 20:55

          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).

          • juki on 19/11/2021 - 22:48
            +2

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

          • sackrace on 21/11/2021 - 16:26

            @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.

        • Andysjunks on 20/11/2021 - 22:01
          +4

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

      • lukamotiv on 22/11/2021 - 09:10

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

  • Thrawn on 17/11/2021 - 23:05
    +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

    • toristo on 20/11/2021 - 10:58

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

    • blorx on 20/11/2021 - 11:34

      Surprisingly accurate on my last few cars.

    • Ordinance on 22/11/2021 - 12:20

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

    • Chris12345 on 22/11/2021 - 19:50
      +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.

  • katykat on 17/11/2021 - 23:07
    +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.

    • FrugalDealSeeker on 17/11/2021 - 23:16
      +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.

      • JIMB0 on 18/11/2021 - 06:30
        +11

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

        • FrugalDealSeeker on 18/11/2021 - 07:13
          +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.

          • Smol Cat on 19/11/2021 - 11:48
            +10

            @FrugalDealSeeker: 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.

          • ymmf on 21/11/2021 - 20:30

            @FrugalDealSeeker: 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.

        • meowsers on 19/11/2021 - 18:05
          +2

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

      • SmiTTy on 18/11/2021 - 08:15
        +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)

        • FrugalDealSeeker on 18/11/2021 - 09:24
          +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).

          • rektrading on 18/11/2021 - 09:46
            +6

            @FrugalDealSeeker:

            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.

        • rektrading on 18/11/2021 - 09:41

          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.

          • FrugalDealSeeker on 18/11/2021 - 09:49

            @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!"

      • serpserpserp on 19/11/2021 - 20:56
        +4

        Yeah cause 27% is going to happen next year…

      • nigel deborah on 22/11/2021 - 12:10

        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.

    • Stopback on 18/11/2021 - 09:25
      +2

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

  • Gelato on 17/11/2021 - 23:17

    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

  • randomusername2017 on 17/11/2021 - 23:19
    +3

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

    • rektrading on 18/11/2021 - 09:53
      +3

      Unrealized gains aren't taxable.

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

  • Nugs on 18/11/2021 - 07:14
    +6

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

    • FrugalDealSeeker on 18/11/2021 - 07:15

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

    • mrhugo on 19/11/2021 - 21:06

      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.

      • Nugs on 20/11/2021 - 06:52
        +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
        .

    • sackrace on 21/11/2021 - 16:29

      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.

  • bobbified on 18/11/2021 - 07:31
    +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!

  • jdawg7 on 18/11/2021 - 08:08
    +4

    Toyota Camry or RAV4

    • blorx on 20/11/2021 - 11:37

      Apparently those RAV4 are in high demand.

  • vodkaman on 18/11/2021 - 08:23
    +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

    • FrugalDealSeeker on 18/11/2021 - 09:04
      -5

      Here's the math I did:

      A well-optioned 2019 3 series (for example) costs around $65k. Over 5 years in depreciation will cost me around $26000. Approximate interest @7.69% (worst case scenario) is $11,260 for a 5 year loan. Total cost = $37260.

      I put the same amount in literally anything, Spaceship/ S&P/ etc. at 20% (last few years were extremely good but anyway) average return, total interest earned is $96,741.

      So this is how I offset it. Feel free to correct me if I am wrong!

      • parsimonious one on 19/11/2021 - 13:35
        +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…

        • FrugalDealSeeker on 20/11/2021 - 10:56
          -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.

          • Hearthstone on 20/11/2021 - 18:00
            +6

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

      • buckethat on 19/11/2021 - 22:20

        Just wondering mate, and its fine if you're not comfortable sharing but I'm guessing you're making 100-110k+ super? Based on rough calculation with the info you've given. It feels crazy to me to be spending 65k on a car at that salary.

        Also.. that calculation doesn't really hold because, sure the interest expense and depreciation may be all but guaranteed, but your approximate return of 20% is not.

        • FrugalDealSeeker on 20/11/2021 - 10:58

          you're making 100-110k+ super

          Salary-wise, you're very close and my investment yield is about the same as well.

          • buckethat on 20/11/2021 - 11:15
            +2

            @FrugalDealSeeker: 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.

            • FrugalDealSeeker on 20/11/2021 - 11:22
              +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…

              • jrowls on 20/11/2021 - 12:10
                +1

                @FrugalDealSeeker: 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.

                • buckethat on 20/11/2021 - 12:20
                  +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.

  • dasher86 on 18/11/2021 - 08:30
    +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.

      • lolz112 on 18/11/2021 - 09:45
        +61

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

        • dtxau on 18/11/2021 - 10:02
          +28

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

          • Brumby92 on 22/11/2021 - 23:07

            @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.

        • FrugalDealSeeker on 21/11/2021 - 09:15
          -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.

          • May4th on 21/11/2021 - 09:19
            +2

            @FrugalDealSeeker: 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

          • lolz112 on 22/11/2021 - 09:05
            +1

            @FrugalDealSeeker: 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

            • FrugalDealSeeker on 22/11/2021 - 09:32

              @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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