How much car can you afford?

[Northstar]

So I've taken a few months off to just relax after graduating in December, but it's time to start looking for a real job (I work at a campus bar right now). With that, comes the exciting prospect of shopping for a car. The '95 Olds LSS has served me well, but it's in bad shape after spending the last 8 years on campus (sister and then me) and it's not something I'd want to trust to get me to and from work all of the time.

The average salary for my major from the school I went to last year was $61k, but I'm guessing most of that was in Chicago. The two jobs I am going to send my resume to are both in my hometown and $61k in Chicago translates to $50k here, so I think that's about what I can except, $50-55k. Going with $50k leaves me with $37.5k after taxes ($3125 take home per month). I haven't started looking for my own place yet, but I think $850/month would be at the top of the range for around here (for a 1 bedroom), and I could easily find something cheaper, especially if I were to find some roommates.

So let's say after housing costs I have $2200/month. Obviously need to save some of that, food, entertainment, gas costs, shopping costs, etc. What I can realistically afford per month for a car?

[Croc]

Honestly, how much does the LSS cost per month? Gas* + averaged annual maintenance? Also assume you need an extra 1-2k per year as an emergency fund for unexpected repairs. That's your baseline, so assume whatever you get you're aiming for less in terms of gas + averaged annual maintenance (always have the emergency fund).

Next question is, how easily can you afford your baseline? I have no idea how much you spend per month on food/entertainment/shopping/etc. (keep gas costs under "vehicle costs" and not your non-housing general budgetary expenses).

Don't forget to factor in savings. What kind of retirement plans are you likely to come across? You should ALWAYS contribute the maximum matching funds for a 401k** if your employer offers matching funds because that is FREE MONEY. Do you also have debt? Student loan payments, consumer credit card debt, etc.?***

Take an afternoon and figure this all out; you'll probably come up with a ballpark close to what you can actually afford, and you'd know far better than any of us what you're comfortable spending. It's like home buying--just because you're pre-qualified up to a certain amount does NOT mean you can actually AFFORD that amount.

*Figure your gas budget as at least $0.20 higher than the current highest price of gas in your area times how many times you anticipate filling up per month. Don't forget to factor in potential new commutes.

**If your potential employers aren't doing matching 401k contributions in these times, then look into Roth IRAs.

***When paying off debt, put priority on your student loans, then consumer debt, then any savings you want to set aside (down payment for a home, investments, retirement contributions, etc.). Student loans are insidious debt that can grow extremely quickly if you don't make your payments for whatever reason and they will find a way to get their money back. Credit card debt is unsecured, meaning that if you can't pay, they can't come and take your stuff back. The only possible exception to this prioritization is if you have a matching 401k, because again that is FREE MONEY.

Hope this helps!

[the_yellow_dart]

When I first got my job, I was making $45k/year. The apartment I found was $950/mo. That's also when I bought the Cobalt. After paying my $440/mo car payments, insurance, gas, rent, food and some reasonable entertainment, I was just breaking even every month. Mind you, this was also back when I was getting raped by the insurance companies for having totalled the Sunfire, and was paying $5700/yr for insurance. So if your insurance company doesn't rape you that bad, you can probably afford more car than I did.

[Drew Dowdell]

I wouldn't buy new. I would buy certified pre-owned.

Let someone else take the depreciation hit.

[vonVeezelsnider]

I wouldn't buy new. I would buy certified pre-owned.

Let someone else take the depreciation hit.

That's the route I'll probably go in the next few years as I get my degree and get out on my own. Realistically my budget for a new car is probably going to be around 25-26k when I graduate and move out. If I bought new I'd be able to afford a low-spec Malibu LS or a mid-high spec Cruze LT. If the car doesn't have to be new you can look at more well equipped cars- Malibu 2LT and LTZ, Terrain, LaCrosse CX, Regal etc etc...

Look at it this way, a new Malibu LTZ-4 costs about $32'000 MSRP and at one or two years old with less than 30k KM the same car sells for $22'000-$24'000, throw on a GMPP extended warranty to compensate for it not being new and you're still well ahead of where you'd be if you bought it new.

[Northstar]

Honestly, how much does the LSS cost per month? Gas* + averaged annual maintenance? Also assume you need an extra 1-2k per year as an emergency fund for unexpected repairs. That's your baseline, so assume whatever you get you're aiming for less in terms of gas + averaged annual maintenance (always have the emergency fund).

I'm really not sure what the LSS costs. It hasn't needed a repair in quite a while, it's just in really poor shape and not something I'd want to drive outside of the area if I had to go somewhere. It's also not something I'd want to drive people around in... it's been in several accidents and has simply gotten beat up from being on campus... my sister backed into something so it has a big dent in the trunk, scratches all over the place (it is a black car so they show easily), someone ripped off one of my outside rearview mirrors, there's other damage from a couple accidents that wasn't repaired 100% so to not total the car, interior is really falling apart, etc. All I really do is put gas in it, but I don't drive anywhere except from my campus apartment to home (which is very close, 10 minute drive).

Next question is, how easily can you afford your baseline? I have no idea how much you spend per month on food/entertainment/shopping/etc. (keep gas costs under "vehicle costs" and not your non-housing general budgetary expenses).

This is a tough question as well. I really don't know how much I spend. I don't spend a ton of money on food. I normally come to my parents house and eat something there at no cost to me.

Don't forget to factor in savings. What kind of retirement plans are you likely to come across? You should ALWAYS contribute the maximum matching funds for a 401k** if your employer offers matching funds because that is FREE MONEY. Do you also have debt? Student loan payments, consumer credit card debt, etc.?***

Take an afternoon and figure this all out; you'll probably come up with a ballpark close to what you can actually afford, and you'd know far better than any of us what you're comfortable spending. It's like home buying--just because you're pre-qualified up to a certain amount does NOT mean you can actually AFFORD that amount.

I do not have any debt at all.

I definitely will be looking into used cars rather than new cars. One reason to look into new cars, however, is that my parents have like $3500 in GM card credits. My sister just used $3700 + $500 bonus on the Cruze, but they have two cards (now one) both with basically the same amount.

I am sort of thinking I would take out a 60 month loan at something I know I can easily afford, and then after making the payment for 2 or 3 months, see how much I am able to save versus how much I need to save, and start paying off the car more quickly.

[SAmadei]

I'm really not sure what the LSS costs. It hasn't needed a repair in quite a while, it's just in really poor shape and not something I'd want to drive outside of the area if I had to go somewhere. It's also not something I'd want to drive people around in... it's been in several accidents and has simply gotten beat up from being on campus... my sister backed into something so it has a big dent in the trunk, scratches all over the place (it is a black car so they show easily), someone ripped off one of my outside rearview mirrors, there's other damage from a couple accidents that wasn't repaired 100% so to not total the car, interior is really falling apart, etc. All I really do is put gas in it, but I don't drive anywhere except from my campus apartment to home (which is very close, 10 minute drive).

Croc has given you some very good advice. One thing I'd add is that in this economy, that jobs aren't guaranteed... even if you find one, it might not last.

For this reason, I would suggest finding another LSS (or similar) owned by a little old lady, purchased for dirt cheap. Insurance will be low. You know its basically reliable.

I do not have any debt at all.

I definitely will be looking into used cars rather than new cars. One reason to look into new cars, however, is that my parents have like $3500 in GM card credits. My sister just used $3700 + $500 bonus on the Cruze, but they have two cards (now one) both with basically the same amount.

Well, the total paid for a new car is going to depend heavily on the terms, and $3500 isn't going to seem as much if the Cruze turns into $40K+ of actual payments. And that doesn't factor in the cost of the mandatory insurance requirements during the term of the note.

Well financing a used car saves you the new car depreciation hit, but in my experience most financing deals for used cars are awful. I'd rather pay cash now... by choosing a somewhat cheaper used car.

I am sort of thinking I would take out a 60 month loan at something I know I can easily afford, and then after making the payment for 2 or 3 months, see how much I am able to save versus how much I need to save, and start paying off the car more quickly.

Problem with that plan is that once you have the car, getting rid of it if its costing too much is a problem... financially and for many, emotionally.

Get yourself something super affordable and give yourself time to save up a nest egg/emergency fund... so you can shelter yourself for any drought. A nicer car will be waiting for you in a couple years.

[Drew Dowdell]

I'm also assuming you're going to be moving to a new apartment soon and will need the requisite upgrade in furniture and appointments for that.

Save up some cash now and buy something older... like another LSS as previously suggested, or a Bonneville, or Park Ave, or Fleetwood.

It sounds like cosmetic issues aside, the LSS starts and runs every day. Fix any outstanding mechanical issues. A replacement mirror for an LSS is $24 on ebay plus shipping.

and just keep driving it until you have the cash for some super sweet Ebay or Craigslist deal near you.

[Blake Noble]

My Challenger is only $297 a month. I make only 1k a month and can easily pay that and, with some certainty, there will be a better job in the near future that will allow me to pay double that a month and pay the loan off in half the time. I didn't so much focus on the term, just the figure I'd have to shell out monthly. Keeping that figure as low as possible would ensure a better chance of keeping my car should I have to take a job where I could be making less money.

I'll admit, it may have not been my ideal course of action, but I'm confident in what I did regardless.

Since I also bought it new way cheaper than I would a used one, should I have to part with it in a worse case scenario, I can get enough out of selling it to pay the loan off. Honestly, the price gap between, let's say, a used 2010 Camaro with 10 to 15k miles and a brand new 2011 model optioned the same way one is so small, the monetary gain is so miniscule it really isn't worth it, especially considering how most people treat their cars.

I'll elaborate on that last bit and this sort of opened my eyes just a little bit more. Recently, I was astounded to find just how poorly people do on oil changes when I was doing research as to what schedule I should adhere to on my Challenger (the standard 3k/3 months schedule or the 6k/6 month schedule suggested by the owner's manual). Some people weren't bothering to change their oil on whatever car they were driving until 15k miles and changing the filter somewhere in between that mileage point. I'm sorry, but that does not spell out "well maintained" to me.

Sure, with a used car, you may be letting someone else take the depreciation hit for you, but you may also be inheriting a horribly neglected car. No matter how low the mileage may be or how clean the seats are, it doesn't mean some idiot didn't have the chance to own it and I know first hand how deceitful a Carfax can be.

I'd also be a little cautious of any grandma special too. Short, sporadic drives where the engine doesn't have enough time to adequately warm up isn't easy on a car and I'd say you would run into long, drawn out maintenance schedules there too.

tldr; find leftover inventory marked down cheap, forget buying a used car.

[Nick]

Don't buy new. Unless, of course, the car you are getting is really cheap...even so, buy one that is a year or two old...It is still fairly newish, and you won't take as much of a depreciation hit. As long as you stick to tried and true brands and models, and do your homework you shouldn't have too many issues with a used car. Stay away from ze Germans.

Don't spend a lot of money on it. I know it is very tempting to have a nice car, but at this point it just may not be worth it for you. take Croc's advice..start investing, and especially take advantage of 401k's if you are offered it (though, I know some businesses have a eligibility requirements, and you may not be eligible right away). Even if you aren't eligible for the 401k right away, open up a traditional IRA which will allow you to lessen your tax liability...If you are worried about not having access to that money, open up a Roth...you won't lessen any tax liability, but you will still be able to put some money aside, and if you ever need it, you can pull it out of the account far sooner than with a traditional IRA.

Use the money you saved on the car, and put it towards saving up for a home. Of course, if you aren't planning on sticking around a particular area for very long then it may not make sense, but consider this...FHA loans are at around 4.75% fixed for 30 years...with 3.5% down. I was looking to move out about a month ago into a rental of some sort...my price range (and the typical price range of most places around here) is between 1.5k to 2k a month...That's just for renting. That doesn't even take into consideration the move in total which is around the 5k range.

For a little more than it would cost me to move in to a rental (be it apartment, condo, townhouse, home, etc) I could own a place. For around 8k I could move into something priced in the 250k+ range (assuming closing costs are covered by the seller, which I would venture to say many agents can get taken care of) and in some cases I'd be paying less per month than what it would cost me to rent the same place.

Now, this is just an example of one of the approaches you can consider...it is an idea that will work for me, but not everyone, of course, and I just figured I'd throw it out there for consideration.

[Croc]

Don't buy new. Unless, of course, the car you are getting is really cheap...even so, buy one that is a year or two old...It is still fairly newish, and you won't take as much of a depreciation hit. As long as you stick to tried and true brands and models, and do your homework you shouldn't have too many issues with a used car. Stay away from ze Germans.

Don't spend a lot of money on it. I know it is very tempting to have a nice car, but at this point it just may not be worth it for you. take Croc's advice..start investing, and especially take advantage of 401k's if you are offered it (though, I know some businesses have a eligibility requirements, and you may not be eligible right away). Even if you aren't eligible for the 401k right away, open up a traditional IRA which will allow you to lessen your tax liability...If you are worried about not having access to that money, open up a Roth...you won't lessen any tax liability, but you will still be able to put some money aside, and if you ever need it, you can pull it out of the account far sooner than with a traditional IRA.

Thanks.

Northstar, remember: a car loses 20% of its value the second it's driven off the lot. If you MUST go new, then wait until September or October and snap up one of the last brand new 2011s because they'll be heavily discounted since the 2012s will be out. A brand new car for the price of a 1-year-old used car. And full warranty.

Now Nick I gotta disagree with you on the traditional IRAs. I do not recommend the traditional IRA (or a 401k outside of an employer-matching one) because all of the money you put into it is tax-deferred. With a Roth IRA, the contributions are not tax-deferred, meaning you've already paid tax on them. Do you want to risk tax brackets changing unfavorably by the time you want to access your retirement funds? Would you rather pay tax before you even contribute to your retirement fund, or pay tax on the total value of your fund after all of your contributions and earned interest from whatever investment vehicles are contained within your IRA? When you withdraw your traditional retirement account, you will be taxed at your income tax bracket at the time of retirement. You do plan on being successful, don't you?

Suze Orman does a great job in this article of explaining the benefits of Roth IRAs in comparison to traditional IRAs, even if the article is a couple years old and slightly dated (the maximum allowable contribution is now capped at $5,000 annually, not $4,000 like it was in 2005).

[SAmadei]

I'm not trying to rain on your parade, but I can't leave this post stand unanswered.

My Challenger is only $297 a month. I make only 1k a month and can easily pay that and, with some certainty, there will be a better job in the near future that will allow me to pay double that a month and pay the loan off in half the time. I didn't so much focus on the term, just the figure I'd have to shell out monthly. Keeping that figure as low as possible would ensure a better chance of keeping my car should I have to take a job where I could be making less money.

Unless your going to add to that paragraph about how living IN your Challenger DOWN BY THE RIVER is going well, you're numbers aren't working. In the real world rent, utilities, food and clothing are costing people more than the $1K you are earning. So either you steal a lot or live with your parents/sugardaddy.

Since I also bought it new way cheaper than I would a used one, should I have to part with it in a worse case scenario, I can get enough out of selling it to pay the loan off. Honestly, the price gap between, let's say, a used 2010 Camaro with 10 to 15k miles and a brand new 2011 model optioned the same way one is so small, the monetary gain is so miniscule it really isn't worth it, especially considering how most people treat their cars.

You got a helluva deal, no doubt about it. I feel your logic is somewhat flawed, however, because you are using used car dealer pricing. What is your total term? Can you pay it off early and save interest payments? Some loans are precalculated. A dealer is unlikely to give you $20K for your car right now... and selling it yourself is where you are going to discover that people are going to expect you to undercut the used dealers. There IS depreciation here...

Even if you do have the ability to flip it and recoup 100%, that window of opportunity will shrink FAST. There is a reason it was sitting on the lot... demand for it must be soft in your area... that affects resale.

I'll elaborate on that last bit and this sort of opened my eyes just a little bit more. Recently, I was astounded to find just how poorly people do on oil changes when I was doing research as to what schedule I should adhere to on my Challenger (the standard 3k/3 months schedule or the 6k/6 month schedule suggested by the owner's manual). Some people weren't bothering to change their oil on whatever car they were driving until 15k miles and changing the filter somewhere in between that mileage point. I'm sorry, but that does not spell out "well maintained" to me.

There's nothing wrong with changing your oil every 10K. Many oil engineers have agreed to it, off the record. However, oil companies want to sell oil and car manufacturers want to find any reason possible to deny a warranty claim.

I've done the bulk of my driving in 3-4 cars with 15K+ oil changes... with no engine problems to 200-250K... the reasons the cars were put out to pasture was everything else.

OTOH, my GF's Corolla was bought new, has had 3K oil changes religiously, has 50K on it now and sounds worse than my 230K Bonneville. Clickity, clickity Clack...

Changing your oil daily would not help save you from driving without coolant, rubbing every curb on the way home, trying to outrun the cops, putting diesel in the gas tank, etc.

Sure, with a used car, you may be letting someone else take the depreciation hit for you, but you may also be inheriting a horribly neglected car. No matter how low the mileage may be or how clean the seats are, it doesn't mean some idiot didn't have the chance to own it and I know first hand how deceitful a Carfax can be.

You past posts indicate that you have a very narrow criteria for cars you want... and your preferences are for cars that people beat the snort out of... Camaro, Firebird, G-body Regal, etc. Even if the oil gets changed daily, some F-body owners are going to do horrible things to their cars.

How many Camrys, Impalas, Tauruses have you owned to compare to?

Carfax? Useless unless you are looking for obvious problems. Carfax only gets data at certain points, and they get more from some states than others. They don't get data points from Shady Bob's Trusty Auto Shop to band-aid the suspension damage from the car chase.

I'd also be a little cautious of any grandma special too. Short, sporadic drives where the engine doesn't have enough time to adequately warm up isn't easy on a car and I'd say you would run into long, drawn out maintenance schedules there too.

In theory. In practice, grandma specials are great... the problems are overplayed. My friends and I have enjoyed crazy, cheap, reliable mileage from granny cars.

Ask around here about a car named Marie.

[Northstar]

I already do have a Roth IRA with $11k or so in it, definitely plan on investing the $5k/year in it when I have the money to do so...

If I have $2200 after housing costs, invest $400 a month ($5k/year), spend $300 a month on groceries, $500 on entertainment (including eating out, seems like a very high estimate), $200 a month on clothes (is that really necessary?), that leaves $500 for savings and car + insurance. I ought to be able to spend $300 of that on the car + insurance and save $200. And really I could find a place for much less than $800 a month if I wanted to, which I will probably decide is a much better idea.

Here's a question:

If I get a job and go 3 months before buying a car to see what I'm spending, and have $750 a month leftover in addition to the $400 a month for the IRA, am I doing anything wrong by spending $500 a month on a car?

[ocnblu]

The "Certified" used car programs are for marketing purposes. I've worked at various dealerships for 18 years. They're not any better prepped for sale than any other used car, except you have a warranty, which you may be using quite a bit, depending on how the people before you treated the car. If the "Certified" car wasn't sold at your purchasing dealer new, that's another complication, that dealer cannot know the car's complete history. It is the murkiness of the car's history that concerns me about buying used. I know how I treat my vehicles... I have no way of being sure to my satisfaction about the history of a used vehicle.

So many one-year-old used cars are off-rental vehicles that have been beat hard. Buying a used car is like playing roulette, sometimes you get lucky, sometimes you don't.

I prefer putting a sizable down payment on a new vehicle, which helps overcome most, if not all, of the payoff/market value ratio at trade-in time.

Be careful when considering a used vehicle is all I'm saying. You might be all to the good, but you might be in for a bad surprise. Check thoroughly for peace of mind.

Edited April 27, 2011 by ocnblu

[Croc]

I already do have a Roth IRA with $11k or so in it, definitely plan on investing the $5k/year in it when I have the money to do so...

If I have $2200 after housing costs, invest $400 a month ($5k/year), spend $300 a month on groceries, $500 on entertainment (including eating out, seems like a very high estimate), $200 a month on clothes (is that really necessary?), that leaves $500 for savings and car + insurance. I ought to be able to spend $300 of that on the car + insurance and save $200. And really I could find a place for much less than $800 a month if I wanted to, which I will probably decide is a much better idea.

Here's a question:

If I get a job and go 3 months before buying a car to see what I'm spending, and have $750 a month leftover in addition to the $400 a month for the IRA, am I doing anything wrong by spending $500 a month on a car?

You're not doing anything wrong per se, but you're keeping your margins tight. In this economy, that isn't what I would personally do. Instead, what I would do is try to go as low as you can and save the difference to start building an 8-month emergency fund that would fund your average monthly expenses in total. That way if you lose your job (you won't have seniority protections yet, obviously) or something happens, you have 8 months to play with minimum, more if you start living with austerity.

Life is choices, and life is a crapshoot. You could be fine either way. My inclination is, in general, to live less like a baller now so I can retire earlier and more comfortably later. Of course, this is coming from someone who has yet to land his first professional job, and it's been a year since graduation. Boo.

[Nick]

Don't buy new. Unless, of course, the car you are getting is really cheap...even so, buy one that is a year or two old...It is still fairly newish, and you won't take as much of a depreciation hit. As long as you stick to tried and true brands and models, and do your homework you shouldn't have too many issues with a used car. Stay away from ze Germans.

Don't spend a lot of money on it. I know it is very tempting to have a nice car, but at this point it just may not be worth it for you. take Croc's advice..start investing, and especially take advantage of 401k's if you are offered it (though, I know some businesses have a eligibility requirements, and you may not be eligible right away). Even if you aren't eligible for the 401k right away, open up a traditional IRA which will allow you to lessen your tax liability...If you are worried about not having access to that money, open up a Roth...you won't lessen any tax liability, but you will still be able to put some money aside, and if you ever need it, you can pull it out of the account far sooner than with a traditional IRA.

Now Nick I gotta disagree with you on the traditional IRAs. I do not recommend the traditional IRA (or a 401k outside of an employer-matching one) because all of the money you put into it is tax-deferred. With a Roth IRA, the contributions are not tax-deferred, meaning you've already paid tax on them. Do you want to risk tax brackets changing unfavorably by the time you want to access your retirement funds? Would you rather pay tax before you even contribute to your retirement fund, or pay tax on the total value of your fund after all of your contributions and earned interest from whatever investment vehicles are contained within your IRA? When you withdraw your traditional retirement account, you will be taxed at your income tax bracket at the time of retirement. You do plan on being successful, don't you?

Suze Orman does a great job in this article of explaining the benefits of Roth IRAs in comparison to traditional IRAs, even if the article is a couple years old and slightly dated (the maximum allowable contribution is now capped at $5,000 annually, not $4,000 like it was in 2005).

Traditional IRAs are great for reducing your tax liability up to the max allowed contributions every year. Are the funds tax deferred? Yes, but so are those in 401k's (as you mentioned). In a 401k you are typically restricted to investing in whatever your provider offers. In a traditional IRA you are free to invest in what you want (well, to an extent) while still taking advantage of the deferred taxes including capital gains. The idea behind the traditional IRA is once you are 70.5 and required to take distributions, by that time you will be retired and in a significantly lower tax bracket than where you currently reside while the funds accumulate and grow in the account.

[Nick]

Oops, got cut of...There are benefits to both the Roth and the traditional. The Roth's are especially great in their tax-exempt status being that gains grow tax-exempt as well. Roth's don't have contribution limits, or any required minimum distributions. It would be good to take advantage of both, if not for the ability to at least defer 5k in income with the traditional, which could be particularly useful if you are bordering a higher tax bracket. Otherwise, contribution limits are much higher for 401k's which I believe right now is set to $16,500, and with employer matching they are a great way to go.

[Croc]

Oops, got cut of...There are benefits to both the Roth and the traditional. The Roth's are especially great in their tax-exempt status being that gains grow tax-exempt as well. Roth's don't have contribution limits, or any required minimum distributions. It would be good to take advantage of both, if not for the ability to at least defer 5k in income with the traditional, which could be particularly useful if you are bordering a higher tax bracket. Otherwise, contribution limits are much higher for 401k's which I believe right now is set to $16,500, and with employer matching they are a great way to go.

Roths definitely do have contribution limits--currently $5,000 annually, $6,000 if you're over 50.

Check this Wikipedia page for a pretty good comparison of Roth v. Traditional IRAs. Honestly, if eligible, the Roth is the way to go in the vast majority of cases. As for the 401ks, only fund them if you're getting free money from an employer. Otherwise you're much better off in a Roth. And do a Roth IRA Rollover when you can on those employer-contributed 401ks.

[Drew Dowdell]

Back to the actual cars,

I'd have no fear of a granny car. If you're fine driving an H-body or W-body, I'd just look for a new one of those to beat around in for now.

[vonVeezelsnider]

So many one-year-old used cars are off-rental vehicles that have been beat hard. Buying a used car is like playing roulette, sometimes you get lucky, sometimes you don't.

I prefer putting a sizable down payment on a new vehicle, which helps overcome most, if not all, of the payoff/market value ratio at trade-in time.

Be careful when considering a used vehicle is all I'm saying. You might be all to the good, but you might be in for a bad surprise. Check thoroughly for piece of mind.[/b]

We've had many ex-rentals. The trick is to pick one up with like no miles on it, less people have the opportunity to rag the car. If you buy one off the GM lot, GM won't take back rental cars that have been in major accidents.

[Croc]

Back to the actual cars,

I'd have no fear of a granny car. If you're fine driving an H-body or W-body, I'd just look for a new one of those to beat around in for now.

Not trying to be argumentative, but Northstar's question isn't about what cars to look at, but rather trying to figure out what he can afford. As a result, any post not containing financial advice or numbers preceded by a dollar sign is actually more off-topic than a slight tangent on IRAs.

[Drew Dowdell]

I just have nothing to add to the investment advice. I'm adding to the "saving money on the purchase" advice. Feel free to continue the 401k advice.

[GMTruckGuy74]

Okay, mind if I hijack this thread with a financial question for my own well-being?

As noted, I was laid off from my teaching position last June. I was a teacher in NJ for 10 years, contributing to a 401b plan (for public service employees). I have not touched that 401b yet, as I can leave it with the state for up to ten years (however, it grows no more since June '10; the reason not to touch it is if I return to teaching, I can continue contributing to it under the rules that applied when opened - if I cash it out and put it into another savings plan, if I go back to teaching it will be under new rules). With my current contingent employment going well, I am anticipating making a career change to the pharmacuetical business this summer if offered full-time, permanent employment. While teaching will become a fall-back option, I'd rather see my 401b investment put to use. What should I do with it to be as successful as possible?

[Drew Dowdell]

once you are firmly comfortable in your new position (i.e. after your 30-60-90 probationary period) move it into a growth plan either with your employer or just an IRA.

My employer (not always a good example because they treat us exceptionally well) will allow us to open an IRA in addition to our 401k through our existing 401k plan. Any fees that are normally charged by the IRA get covered by the 401k plan. Basically a two-fer deal, but over time it adds up to a substantial savings.

[Croc]

Okay, mind if I hijack this thread with a financial question for my own well-being?

As noted, I was laid off from my teaching position last June. I was a teacher in NJ for 10 years, contributing to a 401b plan (for public service employees). I have not touched that 401b yet, as I can leave it with the state for up to ten years (however, it grows no more since June '10; the reason not to touch it is if I return to teaching, I can continue contributing to it under the rules that applied when opened - if I cash it out and put it into another savings plan, if I go back to teaching it will be under new rules). With my current contingent employment going well, I am anticipating making a career change to the pharmacuetical business this summer if offered full-time, permanent employment. While teaching will become a fall-back option, I'd rather see my 401b investment put to use. What should I do with it to be as successful as possible?

So.........are you sure it's a 401b and not a 403b?? Basically you need to figure out if you're going to go back to teaching or not. What are the probabilities? I wouldn't do anything with your 403b UNTIL you make a career change, for sure. That being said, do you like your investment options within your 403b plan? Honestly, my first instinct is to recommend converting it into a Roth IRA, but I'm not familiar with the specifics of your retirement plan or the differences in the rules you mentioned.

Consult a financial advisor?

[GMTruckGuy74]

Thanks for the info, Olds. The employer I am contracted to treats their employees very well too, and have an excellent 401k program (my wife has been with this company for almost 12 years now). Hopefully I'll know whether or not a permanent position will be available by mid-summer, and if it is I'll find out what the probationary period is and what 401/IRA options are available.

[GMTruckGuy74]

Okay, mind if I hijack this thread with a financial question for my own well-being?

As noted, I was laid off from my teaching position last June. I was a teacher in NJ for 10 years, contributing to a 401b plan (for public service employees). I have not touched that 401b yet, as I can leave it with the state for up to ten years (however, it grows no more since June '10; the reason not to touch it is if I return to teaching, I can continue contributing to it under the rules that applied when opened - if I cash it out and put it into another savings plan, if I go back to teaching it will be under new rules). With my current contingent employment going well, I am anticipating making a career change to the pharmacuetical business this summer if offered full-time, permanent employment. While teaching will become a fall-back option, I'd rather see my 401b investment put to use. What should I do with it to be as successful as possible?

So.........are you sure it's a 401b and not a 403b?? Basically you need to figure out if you're going to go back to teaching or not. What are the probabilities? I wouldn't do anything with your 403b UNTIL you make a career change, for sure. That being said, do you like your investment options within your 403b plan? Honestly, my first instinct is to recommend converting it into a Roth IRA, but I'm not familiar with the specifics of your retirement plan or the differences in the rules you mentioned.

Consult a financial advisor?

Sorry, brain fart. Yes, it is a 403b, not a 401b (I guess seeing 401 all over the place stuck in my head). I am not sure about the new rules, but I believe they were instituted with new hire teachers in 2009 or 2010 - all I know is the local union president said not to touch it until I absolutely know I won't come back to teaching. As for going back to teaching, I'm only licensed in the state of NJ and my certification (Business, Data Processing, Cooperative Education/Structured Learning Experience) is in an area that is dying or being cut back severly, so if this temp gig goes permanent I'm jumping ship. I figured I would consult a financial advisor, but with all the great free advice northstar was getting, I'd float my situation here to maybe learn something new

[Croc]

Awesome. Yea, I'd recommend in that case converting your 403b into a Roth IRA and taking the tax hit now--when you make your final decision, of course. With the Roth you will have the flexibility to choose your own indices instead of being limited to your employer's options, and your future gains won't be taxed.

By the way, I was completely retarded when it came to finances just a few months ago, but being out of college has made me think a lot about this stuff and so I've come a long way in a short time. My secret? I watch the Suze Orman show every Saturday and have read one of her books, and am looking into getting her newest, The Money Class. I like her, and her program is endlessly entertaining. She really does a good job of making complex stuff easy to understand and digest without sparing any of the details in the process.

[A Horse With No Name]

I wouldn't buy new. I would buy certified pre-owned.

Let someone else take the depreciation hit.

Exactly...and even with the income numbers your hitting, I would go for a used Focus or Cobalt.

Which is about what I'm going to be able to realistically afford...

[Nick]

Oops, got cut of...There are benefits to both the Roth and the traditional. The Roth's are especially great in their tax-exempt status being that gains grow tax-exempt as well. Roth's don't have contribution limits, or any required minimum distributions. It would be good to take advantage of both, if not for the ability to at least defer 5k in income with the traditional, which could be particularly useful if you are bordering a higher tax bracket. Otherwise, contribution limits are much higher for 401k's which I believe right now is set to $16,500, and with employer matching they are a great way to go.

Roths definitely do have contribution limits--currently $5,000 annually, $6,000 if you're over 50.

Yes, I misspoke on that one...what Roth's don't have is contribution limitations (as in, the ability to contribute) if you are older than 70.5. You cannot make a contribution to a traditional if you are over 70.5, and yes, the 1k catch-up contribution comes into play when you are 50. I believe it is 5.5k for 401k's.

Also, remember that you cannot contribute or you have limited contribution ability to a Roth if your adjusted gross income (and I believe these limits are new for 2011) is between 107k and 122k filing single, or 169k to 179k if you are filing jointly. Roth's are great when you are young, but they aren't always an option in the long run. I should also note based on a statement I made earlier that it is impossible to predict where your tax bracket will be when you retire, and while many will be in a lower tax bracket, you may end up in the same (or even higher) tax bracket depending on how much you have accumulated and how much your required minimum distribution adds up to (not including any other income you may receive).

It may be worth noting that traditional iras can be rolled into 401k's. 401k's are eligible to accept IRA rollovers, but, of course, this depends if the plan will accept it. Some do, some don't.

Edited April 27, 2011 by Nick

[Nick]

Northstar, I think this was mentioned before, but don't forget to include costs like utilities, furniture, appliances, and internet/tv/phones etc. into the equation. Though, some apartments may cover some utilities, and they typically include appliances. Also, gas costs are dependent on the car and miles driven, but I shell (heh) out probably around 250-300 a month on gas...granted, my car is a bad example. Don't forget insurance and registration, as well. You definitely don't want to stretch yourself thin.

It is also not a bad idea to set up a savings account of some sort as an emergency fund. Typically, 6 months of living expenses is a good goal to reach. You never know what will happen down the road.

[smk4565]

Get the job and see what your salary is, and then figure out your monthly expenses, plus you want to have some emergency fund in the bank. Then you should know how much disposable income you have. Probably best to not max out on what you can afford to pay on a car, if it means living pay check to pay check or even falling behind. Unless you rarely spend money on entertainment or vacations, etc.

I agree with Oldsmoboi, get a used car, much more cost effective.

[regfootball]

The "Certified" used car programs are for marketing purposes. I've worked at various dealerships for 18 years. They're not any better prepped for sale than any other used car, except you have a warranty, which you may be using quite a bit, depending on how the people before you treated the car. If the "Certified" car wasn't sold at your purchasing dealer new, that's another complication, that dealer cannot know the car's complete history. It is the murkiness of the car's history that concerns me about buying used. I know how I treat my vehicles... I have no way of being sure to my satisfaction about the history of a used vehicle.

So many one-year-old used cars are off-rental vehicles that have been beat hard. Buying a used car is like playing roulette, sometimes you get lucky, sometimes you don't.

I prefer putting a sizable down payment on a new vehicle, which helps overcome most, if not all, of the payoff/market value ratio at trade-in time.

Be careful when considering a used vehicle is all I'm saying. You might be all to the good, but you might be in for a bad surprise. Check thoroughly for peace of mind.

having been selling for a bit now, I think blu is on the right path. there is a little bit more scrutiny and prep and fix on a lot of the certified vehicles to start with...although generally the vehicles that get certified are better to start with.

the main point blu hits nail on the head is used vehicles are roulette, its chance whether you get a good one or not.

at least if they have few miles the chance is greater that its an ok vehicle.

paying more for new is the best piece of mind. but lightly used is not bad either.

i think the rentals these days although they may be beat on by drivers a bit, at least i think their oil gets changed. lots of people who buy and lease a vehicle don't even change oil these days.

personally myself i have either bought new or used 15k or less miles ever since i bought a 7 year old SHO and sunk some dough into it. and not that the SHO was ever considered a good vehicle as far as reliability.....i should have expected to invest more in a 7 year old vehicle after the purchase than i did.

that's why i may lease again someday if the deal is right. it would have to be a cheap lease....but i certainly like the idea of new.

my dad has done well on used cadillacs, but he scopes them out pretty hard....he also is never in a position of needing to buy at any given time. he is not like a lot of customers that back themselves into a corner with vehicles and due to their situations, end up buying for reasons other than want or due diligence.

i cringe when i see people buying cars with 120, 130k and having to finance big amounts / long terms for them. recipe for disaster.

[regfootball]

oh as far as used vs. new prices....right now, it seems quite foolish to me to pay 19 grand for say a two year old altima that sold for 20k new, and that will be worth 10k in 3 years. you could shop harder and buy a new malibu for 19 grand, still lose a bunch of money but at least your 19 grand is not going on a two year old car then. smart shoppers will not overpay right now for the inflated used prices right now, and will find little pockets of good new vehicles to pick from.

[Blake Noble]

I'm not trying to rain on your parade, but I can't leave this post stand unanswered.

Unless your going to add to that paragraph about how living IN your Challenger DOWN BY THE RIVER is going well, you're numbers aren't working. In the real world rent, utilities, food and clothing are costing people more than the $1K you are earning. So either you steal a lot or live with your parents/sugardaddy.

One step at a time, that's all I'm going to say.

My debt is not above my means at the moment.

You got a helluva deal, no doubt about it. I feel your logic is somewhat flawed, however, because you are using used car dealer pricing. What is your total term? Can you pay it off early and save interest payments? Some loans are precalculated. A dealer is unlikely to give you $20K for your car right now... and selling it yourself is where you are going to discover that people are going to expect you to undercut the used dealers. There IS depreciation here...

Even if you do have the ability to flip it and recoup 100%, that window of opportunity will shrink FAST. There is a reason it was sitting on the lot... demand for it must be soft in your area... that affects resale.

What I've seen and what I'm continuing to see through KBB and Auto Trader suggests otherwise.

Who knows? Hopefully I won't have to turn this rock over completely but I will add that I wouldn't feel as confident like I do about this unless I had some sort of substantial evidence.

There's nothing wrong with changing your oil every 10K. Many oil engineers have agreed to it, off the record. However, oil companies want to sell oil and car manufacturers want to find any reason possible to deny a warranty claim.

I've done the bulk of my driving in 3-4 cars with 15K+ oil changes... with no engine problems to 200-250K... the reasons the cars were put out to pasture was everything else.

OTOH, my GF's Corolla was bought new, has had 3K oil changes religiously, has 50K on it now and sounds worse than my 230K Bonneville. Clickity, clickity Clack...

Changing your oil daily would not help save you from driving without coolant, rubbing every curb on the way home, trying to outrun the cops, putting diesel in the gas tank, etc.

A regular oil change does go a long way in keeping an engine healthy and I did put emphasis on that in my post, but I did not imply that it's the "end all, be all" solution to preventing mechanical issues. What I'm saying is that most drivers do not treat their cars with much of any respect and act as if they are disposable commodities. I do not want to own something blatantly treated that way ever again and chances of buying a basket case used car keep getting higher and higher considering that we're becoming more and more of a idiocratic society.

[Blake Noble]

You past posts indicate that you have a very narrow criteria for cars you want... and your preferences are for cars that people beat the snort out of... Camaro, Firebird, G-body Regal, etc. Even if the oil gets changed daily, some F-body owners are going to do horrible things to their cars.

How many Camrys, Impalas, Tauruses have you owned to compare to?

The type of car it is honestly is a moot point. People beat the snot out of Impalas, Tauruses, and Fusions too. These bread 'n butter sedans sometimes get treated even worse than their niche market counterparts. I've seen a few 2008 Malibus that have wound up in just about as bad of shape as say a '98 Trans Am before (litter piled up in the backseat, body panels misaligned because of neglect, more rash on the rims than a one year old's ass, etc., etc.). This goes back to what I said earlier: A LOT of people treat cars like disposable commodities, no matter how much they paid for them.

Carfax? Useless unless you are looking for obvious problems. Carfax only gets data at certain points, and they get more from some states than others. They don't get data points from Shady Bob's Trusty Auto Shop to band-aid the suspension damage from the car chase.

My point here exactly.

In theory. In practice, grandma specials are great... the problems are overplayed. My friends and I have enjoyed crazy, cheap, reliable mileage from granny cars.

Ask around here about a car named Marie.

Dsuupr's Celebrity is something you don't run into everyday. He managed to get very lucky with that car.

I'll just leave it at this: My Challenger is new. I bought it a couple grand cheaper than I would a used one with a lot more mileage. I'm the first owner and I know how to maintain it and get my money's worth out of it well after it's paid off. I don't have to inherit a previous owner's headaches and if I do run into a problem, there is a full factory, bumper-to-bumper warranty on my car for the next 3/36 to solve the problem and another one that runs 5/100 to correct any powertrain issues.

Reg's last post tells the rest of the story.

[knightfan26917]

Goodness.

I feel even poorer now after reading this...LOL!

I put MORE than what my company matches into my 401K, I put money into my IRA, and I have some money saved. Yet, I still can't afford a newer car, much less a place of my own. My salary is far less than most, I guess. Course, it doesn't help when you have medical crap hanging over your head all the time either, but I HATE even mentioning that because I do NOT see it as an excuse, or even a reason, for that matter.

Cort | 37.m.IL.pigValve.pacemaker | 5 Monte Carlos + 1 Caprice Classic | * meet_05.21.11_FrnkGrv.IL *

MCs.CC + CHD.models.HO.legos.RadioShows + RoadTrips.us66 = http://www.chevyasylum.com/cort

"You probably won't remember me" __ Jan Arden __ 'Insensitive'

[Drew Dowdell]

I've always viewed Certified Pre-Owned as a way to get a used car with a really good extended warranty from GM, Ford, whoever.

[CSpec]

Wait... what happened to your GTO?

[Croc]

I put MORE than what my company matches into my 401K

Why?

[regfootball]

You past posts indicate that you have a very narrow criteria for cars you want... and your preferences are for cars that people beat the snort out of... Camaro, Firebird, G-body Regal, etc. Even if the oil gets changed daily, some F-body owners are going to do horrible things to their cars.

How many Camrys, Impalas, Tauruses have you owned to compare to?

The type of car it is honestly is a moot point. People beat the snot out of Impalas, Tauruses, and Fusions too. These bread 'n butter sedans sometimes get treated even worse than their niche market counterparts. I've seen a few 2008 Malibus that have wound up in just about as bad of shape as say a '98 Trans Am before (litter piled up in the backseat, body panels misaligned because of neglect, more rash on the rims than a one year old's ass, etc., etc.). This goes back to what I said earlier: A LOT of people treat cars like disposable commodities, no matter how much they paid for them.

Carfax? Useless unless you are looking for obvious problems. Carfax only gets data at certain points, and they get more from some states than others. They don't get data points from Shady Bob's Trusty Auto Shop to band-aid the suspension damage from the car chase.

My point here exactly.

In theory. In practice, grandma specials are great... the problems are overplayed. My friends and I have enjoyed crazy, cheap, reliable mileage from granny cars.

Ask around here about a car named Marie.

Dsuupr's Celebrity is something you don't run into everyday. He managed to get very lucky with that car.

I'll just leave it at this: My Challenger is new. I bought it a couple grand cheaper than I would a used one with a lot more mileage. I'm the first owner and I know how to maintain it and get my money's worth out of it well after it's paid off. I don't have to inherit a previous owner's headaches and if I do run into a problem, there is a full factory, bumper-to-bumper warranty on my car for the next 3/36 to solve the problem and another one that runs 5/100 to correct any powertrain issues.

Reg's last post tells the rest of the story.

our Wazuki store has a promo this month. free upgrade to a 7/100 BTB warranty, no cost. I'm trying to figure out if i should get that Sportback I want.

i know the brand is not hip or popular but i've also seen the flip side right now. People paying huge bucks for stuff like hondas and all with warranties long since expires and 75k miles on the odo..............

[knightfan26917]

I put MORE than what my company matches into my 401K

Why?

??

Because I can....

My company matches .50 for every $1 up to 4%. I put in 7%. If I didn't, I probably wouldn't have the discipline enough to save that extra 3% elsewhere. Yes, I stick to my budget very well, but I don't think I'd save that 3% elsewhere. PLUS ... the more I put in, the less of my salary is taxed.

Cort | 37.m.IL.pigValve.pacemaker | 5 Monte Carlos + 1 Caprice Classic | * meet_10.15.11_Volo.IL *

MCs.CC + CHD.models.HO.legos.RadioShows + RoadTrips.us66 = http://www.chevyasylum.com/cort

"Don't look now, things just got worse" __ Dog's Eye View __ 'Everything Falls Apart'

[Drew Dowdell]

The problem with that theory is that you cannot access that 3% without going through a big process.

I would stick with what the company matches and then have a savings account that you direct deposit the other 3% into until you have at least 6 months worth of salary saved as an emergency fund. Put it into an account that DOESN'T have a debit card attached to it and takes time to move the money... so you don't do impulsive things with it.

Once you've hit that 6 months of salary mark, then invest your 3% in a stock that pays good dividends. (I have a few suggestions there) It is slightly less liquid than a savings account, but it earns better money, and grows quickly with the quarterly dividends reinvested.

No, it's not tax free, but if you suddenly needed to come up with $2,000 extra in the next month for a required expense... would you? could you?

[Croc]

I put MORE than what my company matches into my 401K

Why?

??

Because I can....

My company matches .50 for every $1 up to 4%. I put in 7%. If I didn't, I probably wouldn't have the discipline enough to save that extra 3% elsewhere. Yes, I stick to my budget very well, but I don't think I'd save that 3% elsewhere. PLUS ... the more I put in, the less of my salary is taxed.

There are other retirement vehicles that would earn you a better return than a 401k. The only reason to even bother with a company's 401k plan is if it's matching, so match up to but exceeding the maximum matching contribution point because that's free money...and never turn down free money.

The biggest reason not to stay with the 401k beyond the maximum matching contributions is that you're assessed income tax on it when you finally retire and withdraw it...at your current tax bracket. It's better to invest in retirement with money that's already been taxed because then there's no gotcha! at the end, your tax rate is likely a lower bracket now, and it's pretty damn easy to outperform whatever "savings" you'd have with pre-tax, tax-deducted money.

Basically, you'll come out ahead.

[Satty]

Marry a girl who makes a $h!load of money and you can afford whatever the f@#k you want.

[Croc]

Marry a girl who makes a $h!load of money and you can afford whatever the f@#k you want.

But Suze Orman's gay.

[Satty]

Marry a girl who makes a $h!load of money and you can afford whatever the f@#k you want.

But Suze Orman's gay.

Gender reassignment surgery+a place in New York=problem solved

[pow]

As someone who just graduated from college and is seeking employment, I find this thread fascinating... thanks all!

[Northstar]

Ok, so revisiting this thread...

Finally got a job, start on July 1. Not making quite as much as I posted earlier, but still a pretty good amount and have great benefits and I get 5 weeks vacation a year.

But, the LSS leaked brake fluid all over the place and is now in the shop. I'll find out what exactly is wrong with it today.

Depending on the severity of the LSS repair, I may be forced to get something sooner than I wanted to.

[Croc]

Ok, so revisiting this thread...

Finally got a job, start on July 1. Not making quite as much as I posted earlier, but still a pretty good amount and have great benefits and I get 5 weeks vacation a year.

But, the LSS leaked brake fluid all over the place and is now in the shop. I'll find out what exactly is wrong with it today.

Depending on the severity of the LSS repair, I may be forced to get something sooner than I wanted to.

Well, here's what I'd suggest: if you really feel you NEED a car, then you want to go for low price, low cost of ownership, and excellent gas mileage. If I were you, I'd be looking at the latest crop of compacts that get 40+mpg. Several of these only cost around $15k-16k brand new, so wait until August/September when the 2012s come out, and then look at 2011 inventory. You'll get a new car with a year's worth of depreciation knocked off the sticker, full warranty, etc. In other words, a great deal.

If that doesn't appeal to you, then I'd look at late-model used cars. As in no more than 2 years old (so there's still some kind of warranty).