tell me why my son shouldn't buy this car.

ebelements said:

P.S. - Not a single person on this board makes good financial automotive decisions and if they think they do, they're delusional. Or they're not posting anything. Or they mis-typed whatever URL they really wanted and ended up here by mistake. 

$1000 per year in additional ownership costs to get something newer/nicer than a $10k car = Terrible!

$1000 per year in tires, brakes, and entry fees on top of a $7k car + $3k in track day/autox prep = Awesome!

I'm the OP. Thanks for all the thoughts. Even when they've run off track, they've kept me thinking, and that's the main point. 

After much discussion , we're seriously looking at something that I've never done myself: Leasing a mid-sized car. Here's why:

-He's 20 years old. He makes about $40k/yr gross, lives at home and has a decent nest-egg established, which I'd rather not see him blow on a single purchase.

-Who knows how long he'll be "into" this sort of car? In 3 years he may be a truck or sports car guy

-Payments are reasonable and he won't tie up a bunch of capital

-He's careful and is unlikely to trash the thing.

-Neither of us like wrenching on modern cars

Thoughts?

In reply to Kreb (Forum Supporter) :

buy an accord.

In reply to Kreb (Forum Supporter) :

The only real thing I don't like about leases is you still have to pay all the registration taxes/fees with the state. I really don't like it now since in Oklahoma they recently added another tax to registering a vehicle that increased the costs by 60% or so. 

I registered a $30k car in 2012 for $1100. I registered a $16k car last year and it was $850.

In reply to z31maniac :

Some of that is state dependent. 
 

For example, in Mass you pay sales tax on the monthly lease payment, not the full purchase price, so you only pay sales tax on the portion of the value you use. 

No Time said:

In reply to z31maniac :

Some of that is state dependent. 
 

For example, in Mass you pay sales tax on the monthly lease payment, not the full purchase price, so you only pay sales tax on the portion of the value you use. 

Thanks for the clarification. I should double-check with our DMV here. If that's the case, maybe I'll go lease something stupid. 

rodknock said:

ebelements said

P.S. - Not a single person on this board makes good financial automotive decisions and if they think they do, they're delusional. Or they're not posting anything. Or they mis-typed whatever URL they really wanted and ended up here by mistake. 

Shoot, I thought I was on the beige sedans forum. 

Yeah.... poster child here for poor financial automotive decisions. Lets buy a 16 year old Korean car for $500 and then sink $6k into it to make it reliable enough for OLoA. BRILLIANT! Or the $9500 I sank into a 1978 C10 that is sitting in my garage needing work. 

Daily drivers have been better. We pay cash for moderately used korean crap and run them into the ground then sell off and do it again. 

In reply to mtn (Forum Supporter) :

What do you mean by "Retirement accounts and investment accounts?" ???

yupididit said:

In reply to mtn (Forum Supporter) :

What do you mean by "Retirement accounts and investment accounts?" ???

 

What do you have in your retirement and investment accounts? And how much equity in any property? I'd hope that at 31 you have more than $16k saved in your TSP and IRA or any 401k/403b you may have leftover from a prior job. 

Argument for leased new penalty box:

Kreb (Forum Supporter) said:

-He's careful and is unlikely to trash the thing.

Argument against purchased used nice car:

Kreb (Forum Supporter) said:

we live in the city, so he's likely to scrape the thing up, being pretty new to driving

...Seems a bit contradictory to me.

Regarding leasing, in my opinion it being the better choice is the exception rather than the rule. Generally speaking, leases are designed to take all of the drawbacks associated with financing a depreciating asset and deceptively make them worse.  They also designed to encourage a (poor) cycle of dependency through the short sighted combination of 'monthly payments' and 'time to upgrade' mentalities.

At the very least, the lower relative monthly payment of leasing a given car vs buying it should not be a deciding factor in whether you are willing and able to afford that particular car. It should only affect how you choose to pay for it. The difference between purchase and lease payments should be pure (in-th-bank or invested) savings, and even then you'll quickly fall financially far behind keeping the car a mere one or two years longer on a purchase. If you aren't willing and able to afford purchasing the car new, you shouldn't be willing and able to afford leasing it either.

If he falls into the common 'lease mentality' trap now, it will be far costlier for him in the long run than than buying that Genesis ever could be. Meanwhile, learning to buy smart so as to happily extend the length of his 'upgrade' cycles will pay off in spades later in life.

mtn (Forum Supporter) said:

yupididit said:

In reply to mtn (Forum Supporter) :

What do you mean by "Retirement accounts and investment accounts?" ???

 

What do you have in your retirement and investment accounts? And how much equity in any property? I'd hope that at 31 you have more than $16k saved in your TSP and IRA or any 401k/403b you may have leftover from a prior job. 

I have always wondered why people here are so interested in what other people have saved for retirement. 

Snowdoggie said:

mtn (Forum Supporter) said:

yupididit said:

In reply to mtn (Forum Supporter) :

What do you mean by "Retirement accounts and investment accounts?" ???

 

What do you have in your retirement and investment accounts? And how much equity in any property? I'd hope that at 31 you have more than $16k saved in your TSP and IRA or any 401k/403b you may have leftover from a prior job. 

I have always wondered why people here are so interested in what other people have saved for retirement. 

I'm honestly not interested in what yupididit or even Kreb's son have in their retirement accounts. But Kreb is looking for reasons why his son shouldn't buy the car... Well, that is a potential one. I would not be happy with so much of my net worth tied up in a depreciating asset. I want the majority of my net worth to be working for me, so I don't have to work for my entire life. And it is so much better, so much easier to get there, if you're stock piling it while young rather than trying to catch up later. 

But hey - if one finds more life satisfaction in a car, and is ok with working until you're 62/67/75/death to keep you in cars... go for it. Personally, I would rather sacrifice* while I'm young than when I'm old. And in this case, sacrifice would mean instead of buying a $17k vehicle, you spend less than that. Especially as it sets a poor precedent when you consider that his expenses are going to increase dramatically when he's off of his parents insurance, health insurance, paying rent/mortgage, etc. Sure it makes sense now, but you need to make sure you're looking into the future. 

FWIW, we bought a $30k van.... when we were 28 and 29. Prior to that, the most expensive car we owned was $7k. We didn't really sacrifice before that $30k van; we had an Acura and a Miata and a Mazda Tribute. Total value of all of them was about $13k.... for 2 working adults, not subsidized by parents. 

I don't know. I get so sick and tired of these so called "Investment Professionals" calling me up asking me what I have in my "Retirement Account". Most of them are glorified life insurance salesmen with fewer business and accounting courses on their transcript than I have. Hey, I can read the Wall Street Journal and make guesses just about as well as most of these guys can. One of those "Financial Advisors" called my office once and demanded to know whether I was a Partner or an Associate. I told him I was a janitor who made $7.50 an hour and was just reaching to empty the trash can when the phone rang and I picked it up. He actually got pissed at me. 

I told another one of these finance telemarketers that my retirement plan was to save nothing, run up big credit card bills and drink myself to death with cheap vodka and Everclear and I don't have to pay anybody a commission to do that. These guys have NO sense of humor. I told one of the really persistent, nasty high pressure investment scam salesmen that my retirement was on the Smith and Wesson plan. I will leave that one to your imagination. 

Ever get one of those fancy packages in the mail from Ken Fisher of Fisher Investments? Everybody with a pulse does. One of my dogs got one just last week. 

I don't know. Maybe I'm just getting tired of Mrs. Snowdoggie listening to Dave Ramsey every night while she's checking on her Tesla stock. Time to go ride the dirt bike. 

we're lucky that the school provides someone to manage our retirements for free. Well, free to us. They pay them to help the teachers with their investments. So Ive never had to deal with one. I put money into X and it turns into Y magicaly for me. 

bobzilla said:

we're lucky that the school provides someone to manage our retirements for free. Well, free to us. They pay them to help the teachers with their investments. So Ive never had to deal with one. I put money into X and it turns into Y magicaly for me. 

Getting away from the thread topic... but anyways, there is not much management is really necessary, honestly. "Stick it all in VTSAX" is likely better advice than most of the managers are able to give. That is not to say that there are not true wizards out there - i.e. Michael Burry and the Big Short - but they're few, far between, and often their expense makes it not worth it. 

And now, to return to the topic at hand... Which engine is it that he's looking at? I want to try the 5.0. Was that still around in 2017?

I really think that you learn how to handle money from your family. Not from your dad or mother ranting at you but from example. My dad was an Arkansas hillbilly who got 3 years of engineering school on the GI Bill. He managed to spend everything he made and then some, leaving my mother in debt and still owing a big mortgage when he died. She sold the house and moved in with me and I had to take care of her. A lot of dad's money went to my sister's drug dealer before she trashed her kidneys with meth and died. I have cousins with even worse stories. 

Mrs. Snowdoggie came from a family of Doctors, Lawyers and educated professionals and even a few congresscritters in Texas. Needless to say her attitude towards money was different from mine. I learned a lot from her and I think differently now. I'm still not sure how I landed so well with such a shaky start. 

In reply to mtn (Forum Supporter) :

5.0 is still available I believe. 

Leases...Always a fun topic on here.  The answer shouldn't be "leases are evil", there's more to it.

Hypothetically,  I could lease a new accord for $219/month. Amortize the $2600 due at signing and the monthly cost is $291.  There's probably better deals out there, but this will work. 

The total payments will be $10,500 at the end of three years. 

The Hyundai is $17k. Would the monthly cost on it be less than $291/month?
Let's see... With $2600 down (same upfront as the lease) and 5% , payments would be a little over $270/month for 60 months. So the total financing cost at 36 months would be $270x36 +2600 = $12,320. 

I know, your going to say the Hyundai will have value and can be sold, so depending on how it depreciates that can offset some of the cost.

At 36 months the balance in the loan will still be more than $6500.  Assuming equal maintenance cost (not likely since the higher mileage vehicle could be out of warranty and likely to need repairs, or at least consumables),  the Hyundai would need to be sold for more than $8500 to be approx the same cost as the lease over 3 years.

I'm not saying the lease is good or bad, but that many things go into the decision to determine what is the right choice for a situation. 

When I was 22 and just out of college, I made about $45k per year. Living in NJ and near NYC, I paid about $1k per month in rent, and car insurance wasn't cheap, either. So I don't think I was that much different than Kreb's son. My financial position was probably worse because of the rent costs. I had no garage, and lived in an apartment 2.5 hours away from my parents, so I didn't have access to tools on a regular basis.

I needed something more reliable and comfortable than my '89 C1500 and wanted A/C, so I purchased a 2.5 year old Camry CE (cheap edition) with a 5spd and 52k on it for $11k.  I was on a budget and needed to show up to work every day, so I needed something that wouldn't kill me between insurance and expensive repairs. It was definitely not a chick magnet!

It ended up being a solid car, I owned it until I was married. Operating costs were low, repairs were minimal, it was relatively presentable, and insurance was reasonable. My friend bought it from me, and was in the process of driving it into the ground when someone rear-ended him and totaled it.

I think a relatively new, used car should generally be safer and have fewer issues than an older car.  I think the buy-in is a little high for his income level, but that's something everyone has to come to their own conclusion on. I'd recommend getting an insurance quote on any car he's considering. In my case I wanted a Maxima, but it would have been 50% more expensive to insure, and I couldn't afford that.

That purchase was a good lesson for me, and set me up with a good framework to use for future purchases.

mtn (Forum Supporter) said:

yupididit said:

In reply to mtn (Forum Supporter) :

What do you mean by "Retirement accounts and investment accounts?" ???

 

What do you have in your retirement and investment accounts? And how much equity in any property? I'd hope that at 31 you have more than $16k saved in your TSP and IRA or any 401k/403b you may have leftover from a prior job. 

Please help me with some of these terms.

My retirement is like 40% of what I'm earning at time of retirement, I think. Not sure what that'll be or is.

I invest in project cars, usually European and cheap cheap. 

I don't own any property. 

TSP and IRA? 

401K/403B sounds like tax forms. I've worked for the same employer since I was 18.

In reply to dj06482 :

Yeah. Having a car that can get you to work everyday on time is a good thing. 

Honestly, that Genesis sounds like a safe, reliable, practical, fairly hassle-free daily driver. While $17k does sound like a lot, it's a minimal premium over a well-equipped two-year-old Mazda 3 and if he keeps it for 7 years it should be a faithful companion. I don't really see why GRM is so against it.

In reply to G_Body_Man (Forum Supporter) :

GRM isn't. I'm all for it lol

yupididit said:

mtn (Forum Supporter) said:

yupididit said:

In reply to mtn (Forum Supporter) :

What do you mean by "Retirement accounts and investment accounts?" ???

 

What do you have in your retirement and investment accounts? And how much equity in any property? I'd hope that at 31 you have more than $16k saved in your TSP and IRA or any 401k/403b you may have leftover from a prior job. 

Please help me with some of these terms.

My retirement is like 40% of what I'm earning at time of retirement, I think. Not sure what that'll be or is.

I invest in project cars, usually European and cheap cheap. 

I don't own any property. 

TSP and IRA? 

401K/403B sounds like tax forms. I've worked for the same employer since I was 18.

Common investment and retirement accounts: 

• 401k – Employer-provided defined contribution plan (403b is included in this as well – same rules for any conversion at our level).
  • 2020 limit is $19,500 for those under 50. If you’re over 50, there is a catchup provision that lets you contribute another $6.5k.
  • This is open to anybody that has it through their employer. There are income limitations for highly compensated employees, but that is close to $300k – well above my paygrade
  • Traditionally this will be a pre-tax option, but I’ve now had a Roth (after tax) option for ¾ employers I’ve worked for. Unlike a Roth IRA, there are no income limitations (outside of the highly compensated employee limitations) for contributing to the Roth.
  • Often have a match. In my case, the match goes into whatever account I’m saving to – Roth or Traditional
  • Usually you have limited fund options that you can pick, determined by your employer. Most of them are some sort of target date fund.
• IRA – Individual Retirement Plan. You do this on your own.
  • 2020 limit is $6,000, with an additional $1,000 catchup if you’re over 50
  • Can be Roth or Traditional, or both, but total contribution limit is $6k
  • Contributions to the Roth IRA can be distributed without penalty after 5 years.
  • Depending on the institution you hold it at, it can be in stocks, bonds, mutual funds, etc. For instance, I have one with Vanguard that is all in VTSAX and another with Fidelity that is in individual stocks.
• HSA – Health Savings Account, offered with some health insurance plans
  • $3,550 limit for an individual and $7,100 for a family. As far as I know, it is all pre-tax. You can have it in cash, or in stocks/bonds/mutual funds (i.e. I manage mine through TD Ameritrade)
  • It is the BEST retirement savings account available. Why? Because you can reduce your income with the pre-tax, enjoy tax free growth, but also get tax free distributions – IF you plan it right
    • Designed for health expenses – eyeglasses, dental, doctor visits, hospital visits, prescription meds, along with a bunch of other stuff. The idea is that you use it to pay for those things as they occur, great! That was tax free. But there is currently no expiration date to those distributions. So if I pay for medical bills in 2020 for $5,000, I can pay for them in cash, keep all the receipts (and digital copies too), and in 2025 say that something happens and I need $5k quick – I can then use the receipts from 2020 to get a $5,000 distribution. I doubt this loophole gets fixed, since it is probably a very small user group using it. The contribution wasn’t taxed, the growth wasn’t taxed, the distribution wasn’t taxed. And if you don’t use the loophole and just take it now, it is still a huge tax advantage.
    • After you turn 65, it acts like a traditional IRA. So the distribution will be taxed as income, but you can take it for anything, even if it isn’t health related
• Taxable Brokerage account
  • Buy stocks and mutual funds. Using already taxed income, any growth will be taxed as income for holdings under a year and 15% for over a year.
• Pension
  • Employer funded perpetuity that pays a defined benefit (income) for life. Very rare nowadays for people our age. In the news a lot today with Teachers and the USPS.
    • A perpetuity is an annuity for life. An annuity is a series of payments made at equal intervals, i.e. mortgage payments or regular deposits to a savings account

I don't know exactly how military retirement works, but you have what is essentially a pension if you hit 20 years - that would be the 40% of your income at retirement. You could ballpark its NPV (Net present value, i.e. what would it cost today for you to give that up) if you wanted to include it in your net worth.

You also should have the TSP - Thrift Savings Plan, which is essentially a 401k. You should have 3% of your income minimum going to that, automatically, and you are likely able to contribute up to $19.5k a year to it. Don't quote me on any of that, as I've never looked into it at all as I'm not in the military or government.

So your net worth is likely a lot more than the $16k you alluded to earlier, IF you count your future pension as part of your net worth - there are definitely reasons to do that and not to do that. I am not very good with figuring out the NPV (net present value) of a pension, but I would estimate it like this: 

• Assuming you retire at 20 years of service at 38, get the pension immediately, and live to be 80
• Assuming you retire earning $50k annually, thus $20k annually in retirement
• Assuming that our rate of return is 7% - using this because that is what the total stock market returns after inflation on average for basically forever
• 8 years from now, the NPV of that $20k annual payment is roughly $269k, or $469k if it were to increase 3% every year
• If we discount that for 7 years (you're 31 today), at 7%, it is worth $167k or $292k if the payment increases 3%
• Thus, we could say that your net worth should include your pension worth between $167k and $292k. 

All sorts of risks with making those assumptions obviously, but that is how I would do some back of napkin calculations if I had your probable pension. 

In reply to mtn (Forum Supporter) :

Oh lol. Um...I was just messing around man lol 

I know what all those are lol. Yes, I have a military pension coming in less than 7 years. I do contribute pretty well to my TSP. No property right now and no debt right now lol. I was serious about all my E36 M3 being worth maybe 16k

I do like buying things under the premise of YOLO though 

But thanks for that effort. I do appreciate the willingness to type all that out for a stranger. You're a real one for that.