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 Post subject: what to spend on a car?
PostPosted: Sun Sep 09, 2012 7:50 pm 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
When I try to do research on this, mostly what comes up is advice on what your car payment should be. I guess I am really trying to decide how much I should spend on cash for my car. I can't seem to find any guidelines. Curious if you all know better.

For reference, I've had my current car for 5 years and it's on it's last leg. Net worth is around $250k (100k home equity, 80k retirement, 70k cash). I should be good with an emergency fund of $50k. Is $20k too much to spend on a car? I've always been fairly cheap when it comes to cars, but I like the idea of spending a little more than I did 5 years ago ($4500) on a car that will last me longer and is a bit nicer. Considering a Subaru Legacy.

Thanks for the help!


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 Post subject: Re: what to spend on a car?
PostPosted: Sun Sep 09, 2012 8:23 pm 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1200
I wouldn't spend any more than $20K. $10K sounds even better.


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 1:35 am 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
A year ago I spent about $10.300 for a 2005 Toyota Yaris verso (small MPV) with just 21.000 miles on it. It is - not surprisingly - in excellent condition. By servicing it and taking care of it I think we will use it some 5-6 years/55.000-70.000 miles and still get something (not much though) for it when swapping for something newer. That will turn out to be a very low price depreciation per mile. The model is among the most reliable on the market so I do not anticipate any massive repairs. Insurance (full coverage) is $ 680 a year. On highway (55-65 mph) it makes about 38-40 MPG and in city traffic more like 32-34. Folding the rear seats makes it possible to store a couple of bikes in the back - it´s huge!

Very nice bang for the buck.


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 2:02 am 

Joined: Thu Apr 05, 2007 3:05 pm
Posts: 1356
Most "rules of thumb" apply to the hypothetical average person, which means they apply to hardly anyone in real life. I would ignore any rules of thumb about how much you "should" pay for a car and instead focus on your own financial situation and decide for yourself how much you can afford based on your financial goals and priorities.

The ideal strategy from a financial standpoint is to pay cash for a lightly used car (one that's 2-3 years old, and a brand with high reliability ratings) and keep it for 10 years or longer. That way you effectively eliminate the need to think about how fast your car depreciates: by the time you're ready to sell it, the car won't be worth much and you will have gotten your money's worth out of it. You'll save thousands of dollars by not buying new (not only in purchase price but insurance and sales taxes). Consumer Reports did a study a few years back and found that this "buy and hold" approach was by far the most economical strategy for owning a car, as long as you stick to reliable brands or models.

As for Subarus, they do get good marks for reliability but I find them overpriced. Unless you absolutely need 4WD (I used to lived five miles up a steep dirt road in Vermont and got by fine without it), you could spend a lot less on a good Honda, Toyota, or Hyundai.


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 6:06 am 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Thanks, a lot of good points.

One other thing to add. We're looking to have a baby in the next few years, so think it might be wise not to go for the smallest car.

My wife is also hoping to trade in her Honda Accord in a few years for a small SUV (house + babies).

I was thinking for now, buy a reliable sedan and then trade in her car for in SUV in a few years.


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 7:11 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
I like to say that we can all have a few splurges in life (and that we probably should!). If a car is one of them, by all means, have at it.

I think the idea of buying now and getting an SUV later is a bad idea. You'll loose a fair amount in transaction costs etc. I also think a Subaru is a horrible idea. I know people in Colorado have an obsession about buying their Subaru from El John Way, but they aren't that great imo. My BIL had one and just sold it, he said is Sonanta did better in the snow that the AWD Subaru Legacy.

I'd buy a decent car and stick with it. An SUV is not a requisite to have children despite what today's society thinks.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 7:16 am 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Sorry if I wasn't clear. I meant I buy a Legacy now.

And in the next few years, she will trade in her car for a small SUV. I couldn't agree more that an SUV isn't needed to have a child, but there are some things in life I choose to let my wife win over my frugalness.


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 7:59 am 

Joined: Thu Apr 05, 2007 3:05 pm
Posts: 1356
I don't want to add to your desire for a Subaru, but seeing as you live in Boston, you'll appreciate this story: I used to live in Concord and worked in Cambridge. One winter afternoon we got a huge snowstorm and all the businesses in town shut down early. I hit a big traffic jam on Route 2, on that big hill that you hit after leaving Cambridge (which is actually the rim of an ancient volcano), where there were dozens of cars stranded, unable to make it up the hill. I put my Subaru wagon into 4WD and carefully snaked my way around them and got home in 35 minutes. One of my housemates with a regular FWD car had left work around the same time and it took her 4 hours. ;-)

That said, there are much cheaper 4WD alternatives than Subaru -- even the Toyota Matrix comes in a 4WD version, although it's a bit underpowered. I've been driving a two-wheel drive Matrix since 2005 up here in snowy Montréal and it has performed very well.


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 8:08 am 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Ha. Thanks for the story Brad.

I know I don't really need AWD all the time. But I've had some bad winters in Boston and it sounds pretty nice. Plus, I do like to ski and try to head up north a bit...


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 8:29 am 

Joined: Fri Jul 11, 2008 3:29 pm
Posts: 167
I generally like Subaru's and if you like it I think you should get that. The 4WD might cost you a bit more in purchase price and a few MPG but if it makes you feel safer then it is probably worth it. Most newer cars these days are very reliable compared to the cars 20 or even 10 years ago. I expect any newer car will run for 200k+ with proper maintenance.

Another option is to get a FWD drive car and a set of snow tires. That's what I have living in the Denver area. It works great in the winter and I have never been stuck. I don't go to the mountains for skiing that much but when I do I usually ride with a friend in a Subaru or a 4WD SUV. :D


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 9:00 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
I've never had a problem with a FWD vehicle. I've only lived in Minnesota, Iowa, Michigan, Indiana, Colorado and Utah. For the record, I have posted 40+ skiing days in a year a couple of times, all on a FWD vehicle. Go as far as you can, park, put on ski gear and start walking with your thumb out. Done it many times, picked up people many times in Colorado and Utah. Never waited more than 3 minutes for a ride. YMMV.

It's your money, so do what you want. My brother in law owned a Legacy and said it was crap, took a hit on it and sold it. He lives in Colorado. Just another opinion. Good luck.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: what to spend on a car?
PostPosted: Mon Sep 10, 2012 10:10 am 

Joined: Fri Jul 11, 2008 3:29 pm
Posts: 167
I agree that FWD will be fine in most weather situations and perfectly fine for pavement. I don't think you need a 4WD just because you live in a state that has a lot of snow. Now if you wanted to go off roading or activities like that I would be more inclined to get a 4WD and one with as much ground clearance as possible.

I've only heard good things about Subaru's but have never owned one. I personally think that Subaru's are a good compromise between a 4WD vehicle and and a commuter car with decent gas mileage. Much better than the giant trucks and SUVs I see around here commuting to work in.


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 Post subject: Re: what to spend on a car?
PostPosted: Wed Sep 12, 2012 6:02 am 

Joined: Wed Sep 12, 2012 5:44 am
Posts: 4
Honda

I bought my Honda Civic when I was 18 (8 years ago) for $12,000. It was a 1998 model.
I have never had any problems. I still drive it now. It still runs like a gun. I am saving for my next Honda.

I think 20,000 is reasonable. I'd rather buy a second Hand Honda, than a brand new Korean car.


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 Post subject: Re: what to spend on a car?
PostPosted: Wed Sep 12, 2012 8:07 am 

Joined: Sat Jun 16, 2012 8:06 am
Posts: 98
>>I'd rather buy a second Hand Honda, than a brand new Korean car.>>

Have you ever OWNED a Korean car recently? I used to be a Honda/Acura fan, but in 2003 we bought a Hyundai Santa Fe for $4K less than the CR-V. Bigger engine (which is important to us, we live in a very hilly area), roomier, FAR more comfortable than the Japanese cars. The 100K all-inclusive warranty was $1K and fully refundable, also transferrable - rare at the time.

The Santa Fe has been one of the very best cars we have ever owned. The price included everything we wanted, no need to spring for unnecessary options as like Honda, Hyundai includes just about everything you'd ever want on the three model options offered for each car. My sister bought a later model Acura TL and honestly, I like my Santa Fe better. I haven't liked any Honda or Acura models outside of the Pilot/MDX in years, despite the fact the rest of my family adores Honda/Acura and has bought them for the last 40 years.

I looked into the Subaru models in 2003 but thought they were more expensive and no better made than the Hyundai, but we only took a test drive so the latter is just the superficial 'first impression' opinion. We do have friends that love them, but for us AWD was not a necessity as the OP feels it is. I will say that AWD is one of those things you don't need all the time but there are certainly times when it can be useful!

Do remember that depreciation is highest in the first year. It's always tempting to buy a shiny new car, but in reality, the used cars we have purchased from dealers have been just as as reliable as our new ones. The one time we got snookered was long ago buying a car 'from a friend of a friend' - that was a REAL waste of money, LOL. Next time we got smart and went back a dealer, purchased a used Taurus that was in excellent shape and gave us no trouble for seven years with only routine maintenance.

Since you are looking at the possibility of buying two cars in less than five years, it might be smart to look into the recent model used-car market. Saving $8-10K is not a small thing. And for all that people talk about fuel economy, remember that gas is less than 35% of the cost of actually owning/running a car.


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 Post subject: Re: what to spend on a car?
PostPosted: Wed Sep 12, 2012 8:14 am 

Joined: Mon Jul 30, 2012 3:59 pm
Posts: 28
berg wrote:
I guess I am really trying to decide how much I should spend on cash for my car.




Spend less than the amount of cash that you have available for one. Do you want almost 10% of your net worth in a depreciating asset? Buy a low mileage, great condition used car.

Are you using 5 years as a yardstick? How many miles to you like to reach before you look for a new one? Or do you consider maintenance costs?

I like to reach 125k to 150k miles on a car and have done so a few times. But I also make sure to properly maintain them.

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