[SlowDough]

Maybe, instead of the salary, one can look at overall financial plan. In simple terms, you should be aware of your financial net worth goals at an individual and family level. Buying a car should be part of the plan, not against it.

In my case, even though I have enough net worth to make a withdrawal for a car, my goals did not allow me to do that until just a couple months back. A withdrawal would have meant a drop in my financial capital that is currently earning a good interest (or passive income). Our only and current car is a 2011 i10 that now needs a service checkup every 3 months (just sent it for one today), and we are very conscious of how much car we need in our life (which is not a lot). We are preparing to buy a car now, after a decent increase in my salary 2 months ago, and consciously trying to have a good car ready for use in case the i10 succumbs (which it has threatened to, on some days). The new car will be funded from the increased amount in salary, rather than what we have already saved so far or had been saving. In this way, we will manage to not disturb the existing income stream and financial growth.

[KeepReading]

Very interesting thread.

Generally, I follow this.
not more than 4.5% of Active (money + investments).

That gave a financial discipline while upgrading, not to overspend.

Considering the times we are in, cycles are getting shorter. we will be aware of what's in line after 5/10 years. Better to be frugal and spend less on Depreciating assets.

[srgntpepper]

The more I have started understanding money, investing, power of compounding etc, the more I am convinced that I need to be aware of and stay away from the emotional pull of depreciating and or illiquid assets.

Infact have reached a point, that despite being a loan free home-owner, I think rental is the only way to go. The cost in the form of opportunity lost to build wealth/sizable invested corpus is huge. Having a sizable invested corpus, isn't good only because you can spend it but because it gives you options in every decision you take in the future.

I put cars squarely in the category of worst possible asset class (10% in 5 years). and unfortunately, in the highest possible emotional class.

My rule of thumb is no more than 20-25% of your net surplus cash flow should go towards the cost and maintenance of a car.

Take Home : 100
mandatory Living Expenses : -30 (Rent/Maint/Food/Shopping/Kids' school/Insurances everything)
All EMIs : -30 (Home, any other)

Surplus in-hand : 40
Mandatory Investing : 70-75% of surplus = 30

Car and other emotive things = 10

While this may seem low, it can be met by making wiser choices, used options etc.

When you truly start thinking like this : driving a Polo TSI and parking it anywhere you want, is capable of making you happier than driving a 1cr S-class.

Of course this applies to folks with limited resources, not to ones with tons to spare. But the only way to get to being the latter is to prioritize that over the need to fulfil short-term emotion driven spending.

[na_agrawal]

Going by this recent posts/discussion on this thread, am I right if I conclude that -

Some of my senior colleagues who are driving a BMW X1 or Mercedes C 200 are earning atleast 2Cr per annum??

Secondly, the colleague who sits just 2 places besides me, bought a 25L Alcazar. He must be earning atleast 1Cr.

I know wife/kids/home/emis/other aspirations do come into the play and along with family heirloom and side businesses, but still, its a bit incomprehensible for me (26 yo with 5 y work exp).

...and have I made a huge grave mistake by spending 90% of my annual income in procuring a VW Vento last year? Only healing balm is the fact that I didn't take any loan. Phew...

-NA

[anshumandun]

I don't calculate this in terms of net worth and CTC etc. I just see what EMI I can afford easily for 5 years. I keep cars for 8 years minimum so I finish the EMI by end of 5 years and 3 years without emi.

If I were to be extremely financially prudent and buy a car without having to pay EMIs, I would be driving cars that score poorly on safety, experience and driving pleasure. What good that life be for people like us who enjoy driving and riding?

A car is much more than a depreciating effort. It is a major part of your road-trip vacations. It becomes a part of your memories. It takes you on journeys that you remember for a long time. If I look back at my photos with friends with family, there is always a car that took us somewhere. You can't put a price to that.

[srgntpepper]

Originally Posted by PetrolRider

Sorry for being rude here, but this is purely evilization of someone with a better car.

No, nobody is being mocked.

A car is an extremely expensive need and comes at the cost of other maybe productive options. The OP and some of the replies here are trying to make sense of what a reasonable compromise between the two is.

[FocusAssist]

See how much EMI can you afford comfortably. Mine was 12k. Add 3-4k for maintenance, upgrades washing per month)
Check how much you will travel and hence consume fuel (add 30% to whatever you assume now).

Set a repayment time line. Salaries will be significantly greater in 4-5 yrs. Keeping that in mind and your personal preferences, get rough quotes and start saving for down payment. If you want a higher variant, wait for 4-5 months, increase down payment using EMI saved.

Credits to Shumi from PD, Motorinc for this calculation.

[Bhodrolok]

Originally Posted by anshumandun

I don't calculate this in terms of net worth and CTC etc. I just see what EMI I can afford easily for 5 years.

So how much of the monthly take home would you be comfortable for a car EMI?

Originally Posted by anshumandun

It is a major part of your road-trip vacations. It becomes a part of your memories. It takes you on journeys that you remember for a long time. If I look back at my photos with friends with family, there is always a car that took us somewhere. You can't put a price to that.

This! It's also about the daily experience especially with our roads and traffic. A good car brings a smile on the lips every time you start it. I would rather spend more on a safe and enjoyable car than buy jewelry every year.

[shivrajvp]

Don't know the details but a well know financial advisor quoted - "You should not buy a car costing more than your annual net income."
To detail, he had considered the usual maintenance costs associated with the car, running cost etc.and worked out this simple thumb rule.
I feel this is somewhat correct and makes sense.

[DDIS_RE650]

I have one philosophy, keep yourselves debt-free. A Car should not be more than 6 months' net salary and a home not be more than 5 years' net take home.
You should be able to close a car loan within one year and a home loan in 5 years.
Never say yes to any personal loan, settle credit card due before salary credit day and pay EMI or SIP during 1st week of month.
Maintain 1 or 2 bank accounts and only 1 credit card for ease of transactions.
I always believe, that none of the bank credit card offer is worth getting additional card.

Note : This is only applicable to taxable salaried people. For business men they have the option to declare losses, and expenses and buy assets to save taxes.

Never have more than the required fun/luxury on borrowed money.

[click]

Originally Posted by na_agrawal

...and have I made a huge grave mistake by spending 90% of my annual income in procuring a VW Vento last year? Only healing balm is the fact that I didn't take any loan. Phew...

-NA

Vento is a superb car that will serve you well for a decade if taken care off. And the best part... no loan on you. Enjoy the car and the driving pleasure that very few cars in that segment can match.

[anshumandun]

Originally Posted by Bhodrolok

So how much of the monthly take home would you be comfortable for a car EMI?

This again depends on others debts, assets and financial commitments. If there are no other major financial burdens, then around 25% of monthly take home seems fair to me.

[Pancham]

Originally Posted by anshumandun

I don't calculate this in terms of net worth and CTC etc. I just see what EMI I can afford easily for 5 years. I keep cars for 8 years minimum so I finish the EMI by end of 5 years and 3 years without emi.

Finally something that makes sense. I dont understand the concept of "never buy a car on loan", or "never be on debt", etc. Given the price of cars of late, buying a car with all cash down could be one of the worst financial decisions ever I feel. Any decent car costing 15-20L paid in cash would mean you have substantial disposable liquid cash which means you are most certainly above the average income size in the country. Either ways (unless you have more than eight/nine figures lying in your bank account as liquid cash - which might not be the case for many salaried folks), paying 15-20L cash or even 8-10L is not prudent financially.

So, ideally, take a loan - make sure the EMIs are under control (I prefer to keep them within 20% of your take home salary) - and invest the money somewhere else. If you invest well, in all likelihood you will earn more than the interest rate you pay for the car loan. This is something that is hard to digest for most folks - because human beings are inherently impatient. They dont want to wait to see results on the money they invested.

Lastly, as petrol/diesel heads, cars are not just depreciable assets for us. Look at your day-to-day responsibilities, plan ahead and go for the car you love. Like millennials say - YOLO. We ought to enjoy once in a while and indulge in buying things that give us happiness.

[svsantosh]

Originally Posted by PetrolRider

What restaurant at what salary?
What clothing brand at what salary?
How many days we eat paneer on what salary?

/.....but this is purely evilization of someone with a better car.

Some may call it market study and it is directly linked to marketing.

Look at the car industry in the country and overall world in the last 2 decades. Also look at Restaurants, Clothes, er Paneer too.

All you see around is a debt driven economy and the current overall macro economics is purely based on debt and risk. No wonder hedge/fund managers make more money than many others.

Hope of such studies is the consumer will benefit more tomorrow as compared to yesterday. Yes, the debt and related industries also will grow together.

At the end of the day, all the worlds economy is a sum of natural resources only right? Without Crude Oil, Soil (minerals), Water, Air, Forests/Plants, Animals there is zero economy.

Funny how the world works right? That is IMHO pure evilization.

[jagan88]

Originally Posted by greyhound82

Off topic : same here. At 41, am watching a lot of motorcycle reviews. Mid 30's it was cycling tours and trekking . Never owned a motorcycle but eagerly watching the reviews to buy one.

Am I ageing early mentally?

Early 20s, Apache 160 rtr.
Late 20s, fast cars. Got an Abarth punto urban cross for speed.
Early 30s, cycling related stuff.
Mid 30s, switched to used Tata Hexa automatic for comfort cruise and got a used Ninja 300 last week as the motorcycling itch isn't going away.