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Old 10-10-2012, 04:01 PM   #9
Winston
Scooby Newbie
 
Member#: 161298
Join Date: Oct 2007
Chapter/Region: TXIC
Location: Houston, TX
Vehicle:
2006 Baja Turbo
Black

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1. I agree, you pretty much need a car in Houston because our public transportation system sucks and the city is so spread out. However, nobody said you need an expensive car.

2. Paying interest is a great reason not to finance a car. Throwing away $1k a year for no good reason is a big deal. If it's no big deal to you, I'll PM you with my PayPal address and you can give me some money. Gift only, please.

However, let's suppose you get zero percent financing. Free money. Why not finance then?

At risk of sounding like a financial planner stick-in-the-mud, here goes:

Simply put, if you have to finance a car because you don't have the cash to pay for it all at once, the total cost of the car is almost certainly a financial burden and the simple act of paying for a car that's out of your financial league will impact your finances for the rest of your life. Sure, you may be able to make the payments just fine... but what could that money be doing for you instead of rotting inside a depreciating asset? It could be working for you, making more of itself. Of course, I want to retire while I'm still young enough to enjoy it, so YMMV.

Now, if you have plenty of cash on hand and could buy the car outright without a second thought, then it's worth it to get zero percent financing and invest what you would have paid for the car in something that will make you money.

So how much car should you buy in the first place?

Here's a good gauge to determine how much car you should buy:

(your annual income) * 20% = the maximum you should spend to buy your car.

For example, if you make $35,000 per year, you should pay no more than $7000 cash for a car.

If you want that STI, you should be making

($32,263 (base)) / 0.20 = $161,315 annual income!

I know you probably think the "20% rule" is insane. That's fine. However, it works well in that it allows most folks to buy enough car to not be driving a total hooptie, yet keeps the financial losses to a minimum when compared to their overall nest egg. At least it's not as extreme as this guy's 10% rule (which is the one *I* actually follow now):

http://www.financialsamurai.com/2012...e-must-follow/

I certainly don't ascribe to all of his rules/advice/opinions, but I happen to like the 10% rule. For most people it's too extreme, though, which is why I brought up the 20% rule.

Oh, and FYI I'm not some finance/money manager/blogger guy. I'm just an engineer with a regular 9-to-5 (well, 7:30 to 4:30 typically) job that's trying to save a fellow TXICer from overbuying.
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Last edited by Winston; 10-10-2012 at 04:16 PM.
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