Considering first big purchase - mid 20s

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OutOfCollegeInvestor
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Considering first big purchase - mid 20s

Post by OutOfCollegeInvestor »

Hi everyone,

Been working for 2 years now out of college and I’ve always wanted a nicer car. I understand it isn’t an investment, but my birthday is soon and this has been my dream car since I was 17 so I was thinking of getting it.

My 401k and Roth IRA get maxed out and have been maxing for 2 years. So far I have roughly $70,000 in retirement and $15,000 in savings as an emergency fund. $5,000 in a brokerage. So I guess my net worth is almost $100,000.

After maxing my ESPP, and my expenses (rent, vacation, etc) I am saving $500 a month. When I sell my ESPP I usually get around $4,000-$5,000. This happens every 3 months. And then I also get company stock, which averages to $1k a month. So I guess in a year I will save a bit over $20,000.

My dream car is a tesla model 3. Not looking for people to change my mind (I know about the quality issues, I’ve researched the car a lot). I like EVs because you can’t get instant torque with ICE cars. This car would cost me $50,990 (the long range AWD model, the cheapest model is $44,990 and isn't worth it since you get less range and no AWD). I tried looking for used Teslas since usually buying used is smarter but a used long range 2018 model 3 with 40,000 miles is $45k. Since the prices are not that different, I would rather not spend $45k on a 3 year old car with that many miles put on.

Was planning on financing with 1.90% interest at $780 a month, $0 down. No point in putting a down payment when interest rates are so low and I would rather invest the down payment in VTWAX.

Wanted to know your thoughts. Downsides I see are the opportunity cost, like saving for a house. However I don’t want to move and median home price in my area is $900,000. Besides that I already budget in vacation.
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JoeRetire
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Re: Considering first big purchase - mid 20s

Post by JoeRetire »

$780/month for a car is a lot more than I'd ever want to pay. But it's your money, your dream, and your birthday.

I assume you have no debt at all? That's good. You haven't indicated our income.

You don't want to move now. Perhaps some day you will want to own a home. Perhaps not.
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OutOfCollegeInvestor
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Re: Considering first big purchase - mid 20s

Post by OutOfCollegeInvestor »

JoeRetire wrote: Fri Jan 21, 2022 5:24 am $780/month for a car is a lot more than I'd ever want to pay. But it's your money, your dream, and your birthday.

I assume you have no debt at all? That's good. You haven't indicated our income.

You don't want to move now. Perhaps some day you will want to own a home. Perhaps not.
Right no debt. Graduated on a full ride scholarship from University of Florida (go gators!). Make a tad over $100,000. Hopefully I will get a raise soon with a promotion that should put me closer to $140,000.
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JoeRetire
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Re: Considering first big purchase - mid 20s

Post by JoeRetire »

OutOfCollegeInvestor wrote: Fri Jan 21, 2022 5:32 am
JoeRetire wrote: Fri Jan 21, 2022 5:24 am $780/month for a car is a lot more than I'd ever want to pay. But it's your money, your dream, and your birthday.

I assume you have no debt at all? That's good. You haven't indicated our income.

You don't want to move now. Perhaps some day you will want to own a home. Perhaps not.
Right no debt. Graduated on a full ride scholarship from University of Florida (go gators!). Make a tad over $100,000. Hopefully I will get a raise soon with a promotion that should put me closer to $140,000.
Nice! Good luck.

I would advise my friends and family in their mid 20s to focus on their long term goals rather than luxuries at this point in time.

But as I wrote, your money, your dream, your birthday. You get to decide what's important to you.
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onourway
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Re: Considering first big purchase - mid 20s

Post by onourway »

If you want it, save up the cash for it.

The other issue is that spending big on a car has a much larger opportunity cost at your age than it does later in life.
Walobolo
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Re: Considering first big purchase - mid 20s

Post by Walobolo »

Go for it! You are doing great and this is something you will be able to enjoy everyday. There is more to life than retirement account balances. What is the point of all this if you can't buy a few things that bring you happiness.

No reason to pay cash when this is your only debt at 2% interest.
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OutOfCollegeInvestor
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Re: Considering first big purchase - mid 20s

Post by OutOfCollegeInvestor »

onourway wrote: Fri Jan 21, 2022 5:39 am If you want it, save up the cash for it.

The other issue is that spending big on a car has a much larger opportunity cost at your age than it does later in life.
Does cash make sense when interest rates are low? And if I’m already maxing out retirement, is the opportunity cost significant?
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climber2020
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Re: Considering first big purchase - mid 20s

Post by climber2020 »

Depends entirely on your priorities, which may change as you get older.

The extra money you spend on this car vs a less expensive alternative and investing the difference (or holding on to your current one for a while longer) will likely end up requiring you to work a few extra years toward the end of your working career to make up the difference, because the money you invest now will likely be multiple times larger when you're old.

If you enjoy your work and don't have any intentions of retiring early, then go for it. If you'd rather have an extra year or two of the best remaining years of your life to do whatever you please, then go with that option.
jharkin
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Re: Considering first big purchase - mid 20s

Post by jharkin »

Walobolo wrote: Fri Jan 21, 2022 5:51 am Go for it! You are doing great and this is something you will be able to enjoy everyday. There is more to life than retirement account balances. What is the point of all this if you can't buy a few things that bring you happiness.

No reason to pay cash when this is your only debt at 2% interest.
+1

This forum is full of people that hate cars and see the only purpose of working and saving is to create 7 figure charitable bequests later on when they are too old to leave the house.

Back in reality, once you get the promotion you are spending no more than 1/3 of your income, are otherwise debt free and have possibly 40 more working years ahead of you. Even if 50k sounds big in absolute numbers to those of us who remember when Honda Accords cost 15k (raises hand), you are in a better situation than 90% of American cur buyers are in. And you are at the age you will enjoy it.

FWIW, when I was 27 I was making 50k, had 40k of student debt and spent 22k on a car. And I turned out just fine. Don't sweat it.

Actionably I would make a couple tweaks in how you are paying for it:
#1 - I would put money down. I don't care how low the rates are or how good VTI did last year, you never want to be underwater on a car. Throwing 10k at it should be easy and will bring the payment down a bit.
#2 - If you are sure you will get that promotion this year, just wait for it to come though then buy. You can think of it as rewarding yourself and the payment will be even easier on the bigger paycheck.
#3 -With tax, title and destination charges I'm guessing $52-53k OTD price, so "$780 a month at 1.9%" sounds like you are taking out a 6 or 7 year loan. I would NOT take a car loan that long. Go for no more than a 5 year term and I would pay it down at a 3 year rate if at all possible. At 140k you will easily have the income to do it while still maintaining your other savings goals.
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Re: Considering first big purchase - mid 20s

Post by Jack FFR1846 »

Where will you charge it. I would think someone in their 20's who doesn't see a house in the near future is in an apartment. If so, are there adequate chargers set up in the parking area? Or are you thinking that running 300 feet of extension cord is a good solution? At work....are there chargers or is the building like my work office park where notices have gone out that nobody is allowed to run extension cords to electric cars?

Other than that, a model 3 isn't any more expensive than an average car.

There are plenty of car guys on this forum. If you look out for them, you'll find Lamborghinis, Porsches and Lotus in here. I consider myself an enthusiast with track and show backgrounds and on the lookout for a cool car in the near future.
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onourway
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Re: Considering first big purchase - mid 20s

Post by onourway »

OutOfCollegeInvestor wrote: Fri Jan 21, 2022 6:07 am
onourway wrote: Fri Jan 21, 2022 5:39 am If you want it, save up the cash for it.

The other issue is that spending big on a car has a much larger opportunity cost at your age than it does later in life.
Does cash make sense when interest rates are low? And if I’m already maxing out retirement, is the opportunity cost significant?
The point of saving the cash is that it is typically much more difficult to part with a large chunk of cash than to sign up for a monthly payment. Once you've saved, if interest rates are still preferable to cash, then go ahead and finance.

Ignore the comments that there aren't car enthusiasts here. There are a lot of us - many with multiple fun cars and track backgrounds.

Perhaps if you gave us a bigger picture of your situation, my opinion might change, but generally I think it's a good life plan to save for big, non-essential purchases.
kada
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Re: Considering first big purchase - mid 20s

Post by kada »

Go for it. Older you will have a lifetime of memories. Be sure to take a bunch of road trips, pictures, etc. I do think there will be a lot of good EV options from all auto makers down the road, though, so I am not too gassed about Tesla only. I am a big Toyota fanboy though. Hmmm almost time for an oil change though. That would be cool to get rid of.
runner3081
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Re: Considering first big purchase - mid 20s

Post by runner3081 »

Go ahead and waste money on cars now. One day, you will see your mistakes and regret it. But at least you will enjoy it now.

Don't ask me how I know :)
IowaFarmBoy
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Re: Considering first big purchase - mid 20s

Post by IowaFarmBoy »

I'm mixed on this. I think it really depends on your priorities. The challenge is whether the priorities you have today will be your priorities a few years down the road and you are at a life stage where priorities can change quickly. For example, right now you don't care about owning a home but if you were to get married and start a family, that might move up your priority list. Buying the Tesla is not a make or break decision that will preclude pursuing other priorities down the road, but it might make them harder for a few years.
niceguy7376
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Re: Considering first big purchase - mid 20s

Post by niceguy7376 »

If you order it now, will you get it for your coming birthday or the one after?
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Re: Considering first big purchase - mid 20s

Post by muffins14 »

OutOfCollegeInvestor wrote: Fri Jan 21, 2022 6:07 am
Does cash make sense when interest rates are low? And if I’m already maxing out retirement, is the opportunity cost significant?
It depends what significant means.

You can either have a Tesla or invest $780 per month in stocks. "Maxing out retirement" probably isn't going to be enough for you to retire when you think you want to retire
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Admiral
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Re: Considering first big purchase - mid 20s

Post by Admiral »

Buying anything has an "opportunity cost" if the alternative is investing.

I think you can afford it. I had a similar decision in 2020: Buy a new car for $30k, pay all cash (and pay tax b/c it required liquidating stocks), finance it entirely at 2%, or some combination. I hate car payments, so here's what I did:

Paid $10k in cash which I had already and did not require liquidating anything
Financed $20k @ 2% but only for 36 months.

This allowed me to stay invested and pay $575/mo, with a total interest of about $600 over three years. To me that was an immaterial amount of money.

My car has a 6 year bumper to bumper warranty, so 36 mo financing also means I will still have plenty of warranty left when it's paid off. I also don't drive all that much so it also means the car will be paid off when it still has less than 20k miles on the clock.

I keep my cars a looong time. 18 months later I could pay it off and save a few hundred bucks in interest, but I'm not.

Just something to think about.
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Re: Considering first big purchase - mid 20s

Post by Admiral »

runner3081 wrote: Fri Jan 21, 2022 7:22 am Go ahead and waste money on cars now. One day, you will see your mistakes and regret it. But at least you will enjoy it now.

Don't ask me how I know :)
Ha! This really speaks to me. I spent a LOT of money on fast/expensive cars when I was younger. I still love cars but I don't need to drive an expensive one!
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Re: Considering first big purchase - mid 20s

Post by jebmke »

Not a fan of financing cars if at all possible to avoid. In fact, not a fan of financing any wasting asset but that is just me. My first car was a well-used Opel Cadet which I bought with summer earnings right before my sophomore year in college in order to live off campus. Ran that car right into the ground (not literally).
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stoptothink
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Re: Considering first big purchase - mid 20s

Post by stoptothink »

Admiral wrote: Fri Jan 21, 2022 7:48 am Buying anything has an "opportunity cost" if the alternative is investing.

I think you can afford it.
+1. Depends on your priorities. You can definitely "afford" it, but does the purchase align with your lifestyle and goals? I got my "dream car" at 20 when I got my first real post undergrad job and had saved a bit of money; paid for half in cash and had it paid off in ~6 months. Looking back, easily one of the 5 worst financial decisions I ever made, and I've made some doozies. Now that I make enough and have enough to afford whatever vehicle I could possibly dream of, I have no desire for anything but a budget appliance (and wife and I have shared a single car for 6yrs); maybe it's a good time for you to learn the same lesson as I did or learn that you really do love nice cars?
james3547
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Re: Considering first big purchase - mid 20s

Post by james3547 »

I would wait a bit longer. It will teach you discipline and having a larger taxable account when very young gives you tremendous options.

I am 33 and did what your thinking of. I bought a 35k car when I was 25 and about 2 months out of grad school. It has not really hampered my finances but I wish I would of kept my old car another several years.

I just sold that car and bought a more expensive car in 2020. It is amazingly cathartic to pay cash for a car and not have to be scraping every last dollar you have to make it happen.

Getting the car is reasonable. You have a solid net worth at your age and life is more than money. Just decide what's more important.

Of course I was told this same information and still bought the car when I was 25. Just telling you my experience.
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calmaniac
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Re: Considering first big purchase - mid 20s

Post by calmaniac »

OutOfCollegeInvestor wrote: Fri Jan 21, 2022 6:07 am And if I’m already maxing out retirement, is the opportunity cost significant?
Yes, the opportunity cost is significant. You don't want to only be saving in pre-tax retirement accounts, but rather to have some "tax diversification" in pre-tax, taxable ''brokerage", and Roth accounts. If you end up saving only in pre-tax retirement accounts you will likely get hit with a tsunami of required minimum distributions (and taxes) 50 years from now (bizarre to think that far ahead).

If your save ≥15%, invest with a Bogleheads approach, and avoid the most of the American Consumer Dream, buying a Tesla at 25 will be OK. The above comments give you a good sense of the plusses and minuses, such that after reading them you will come to a good decision that makes sense for you.
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TomatoTomahto
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Re: Considering first big purchase - mid 20s

Post by TomatoTomahto »

This might be an off the wall response, but I didn’t do the math on affordability. I’m not anti-car and have advised my son who is only slightly older than you that buying a Model Y might not be a bad idea.

The following is what made me think:
Been working for 2 years now out of college and I’ve always wanted a nicer car. I understand it isn’t an investment, but my birthday is soon and this has been my dream car since I was 17 so I was thinking of getting it.
If you’re still thinking a birthday is a big deal and merits a “reward,” you’re too emotionally young for anything other than a utilitarian vehicle.
I get the FI part but not the RE part of FIRE.
TSR
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Re: Considering first big purchase - mid 20s

Post by TSR »

I think one downside that you don't mention -- and that others have not yet mentioned -- is the uncertainty associated with being in your mid-20s. You're making what I'll call a "10-year commitment" to a fairly expensive car at a time when you really have no way of knowing what your life will bring in the next 10 years. You may think you know what life will look like in 2 years, but I'm here to tell you that you're at an age when things haven't really settled into place yet. Will you get burned out on your job faster than you thought you would? Will you decide to go to grad school? Will you get married to someone who is struggling through grad school to invest in his/her future and you want to help? Will you get married to someone who is not working at all or is deeply in debt? All of these things can make you feel pretty silly for having a $50,000 car that you financed. (For context, I bought a house right out of law school when I thought I'd love to work at a big law firm for the rest of my life, and that turned out to be a huge financial albatross around my neck for years.)

Balance all of the above with the fact that you have to live your life and enjoy yourself, and you might actually need a new car (see below). You can "afford" this car if you really want it. And, as some people have already said, we've all made financial mistakes.

If I were you (and I am clearly not), I'd take a good look at the car I'm currently driving and see how well it is holding up. If I truly needed a new car (that is, my current one is more than, say, 10 years old and is starting to show signs of getting to be more expensive to maintain than not), then I'd probably let myself buy this car. In fact, why don't you go ahead and give us more information about what you're currently driving. Then people can better decide whether to support you or rip into you. ;)
oilrig
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Re: Considering first big purchase - mid 20s

Post by oilrig »

Heres what I would do. I would keep saving/investing, build up that net worth, THEN buy the car when you turn 30. Not sure its a smart financial decision buying that car right now in your mid 20's.
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Re: Considering first big purchase - mid 20s

Post by jharkin »

"oh thats not true, this forumm is full of car people"

... and then like clockwork came the flood of responses that its a" bad decision", "cars are just utility", "you will regret it". Just like I expected.

Here are the facts, today he is at 100k and he says that he already saves:
* max 401k - 19500
* max roth - 6000
* ESPP, stock grants and cash savings - 20000
Total: 45,500 (and probably more as he didn't mention matching contributions).

Thats already 45% gross savings rate folks! And if he gets a promotion that bumps him to 140k, even after taxes are accounted he is probably going to have another 20k to add to that.

The OP is not being immature, undersaving, or spending tomorrows money today. He is living FAR below his means and saving more than 99% of Americans and probably is on track to have enough to retire by 40~45 already.

And a Model 3 is not exactly an extravagant car in today world where a Toyota Camry can cost 40k, and lots of median 60k households are buying those and financing with long term loans.

Let the kid live a little!!!!!!!
bg5
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Re: Considering first big purchase - mid 20s

Post by bg5 »

Im 41 and I wasted alot of time an money in my 20's.

You are doing great for yourself so job well done and I wish you nothing but the best in the future.

If it were me I would not buy the car and I think you will regret it at some point in the next 5 years.

I personally would keep my down and put as much into retirement as possible.

With that being said you still need to enjoy your money...I just think spending 50K is a bit much.

Dont do it.....save your money and splurge on something like that later in life
Investor1287
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Re: Considering first big purchase - mid 20s

Post by Investor1287 »

What a thorny topic! There are clearly two very different schools of thought.

I would personally not do this, but it sounds like you like cars a lot as well! There's something to be said about a shift to EV and having skin in this game, etc.

Couple of additional comments:
  • If you are making $100k+ and only saving $500/month, that personally does not feel like a lot. You may want to think about your spending outside of a potential new car; it's unclear if you currently have a car payment that would go away
  • I would also put some $ down, maybe $5k or $10k (at a minimum, cover closing costs); as another poster said, you don't want to be underwater on a car
  • I would also not take out a 6-7 year loan; if I did, I would want to really understand the resale value of the particular car I was buying; not sure how much we know about Tesla's at this point
Good luck! If you're making $140k by ~25-26, you should be fine either way and buying a $50k car is not the definition of lighting money on fire. You should have plenty of time to re-evaluate goals if you ever need/want to.
Admiral
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Re: Considering first big purchase - mid 20s

Post by Admiral »

jharkin wrote: Fri Jan 21, 2022 8:40 am "oh thats not true, this forumm is full of car people"

... and then like clockwork came the flood of responses that its a" bad decision", "cars are just utility", "you will regret it". Just like I expected.

Here are the facts, today he is at 100k and he says that he already saves:
* max 401k - 19500
* max roth - 6000
* ESPP, stock grants and cash savings - 20000
Total: 45,500 (and probably more as he didn't mention matching contributions).

Thats already 45% gross savings rate folks! And if he gets a promotion that bumps him to 140k, even after taxes are accounted he is probably going to have another 20k to add to that.

The OP is not being immature, undersaving, or spending tomorrows money today. He is living FAR below his means and saving more than 99% of Americans and probably is on track to have enough to retire by 40~45 already.

Let the kid live a little!!!!!!!
This is a board dedicated to saving and investing wisely for the future. It's not Car & Driver. In fact, I see responses on both sides that seem wise. Not sure why you're bashing. Many good responses that seem to suggest saving a bit more in taxable. Not a lot will be lost for the OP by waiting a few years to buy a $50k Tesla. In fact, range and reliability might be a lot better!
Doc7
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Re: Considering first big purchase - mid 20s

Post by Doc7 »

If you are saving 25% or more of your income for retirement I think buying this car and pay it off in under 3 years you are good to go!
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langelgjm
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Re: Considering first big purchase - mid 20s

Post by langelgjm »

calmaniac wrote: Fri Jan 21, 2022 8:24 am If your save ≥15%, invest with a Bogleheads approach, and avoid the most of the American Consumer Dream, buying a Tesla at 25 will be OK.
jharkin wrote: Fri Jan 21, 2022 8:40 am Let the kid live a little!!!!!!!
100% agree. If everyone on this board saved as much and spent as little as some of us do, our early retirement plans would never work! :twisted:
"Simplicity is the master key to financial success." - John Bogle | "If I am what I have and if what I have is lost, who then am I?" - Erich Fromm
onourway
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Re: Considering first big purchase - mid 20s

Post by onourway »

jharkin wrote: Fri Jan 21, 2022 8:40 am Let the kid live a little!!!!!!!
He's doing well but has no savings to pay for this other than a modest sum as an emergency fund, appears to want to finance it for 6-7 years, and is doing it as a 'treat' for their own birthday.

There are lots of red flags here that us older car enthusiasts can recognize. Why are we here if not to give exactly this kind of advice?
nhs76
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Re: Considering first big purchase - mid 20s

Post by nhs76 »

Not trying to dissuade the OP, whose course is more or less set. For others, I heard great words of advice in my 20s from an older cousin: "If you can separate your transportation from your ego, you'll save a ton of money."
Casper
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Re: Considering first big purchase - mid 20s

Post by Casper »

I would never pay $780 a month for a car, especially in my mid 20s. I guess you can "afford" it, but the rationalization is a little concerning and I'd try to remain self-aware about any tendency to justify big purchases (not saying you have that tendency, just to watch out for it).

It's your birthday soon? So what? It'll be your birthday next year too, what then? It's a made up reason. You've wanted this car since you were 17...ok, I wanted a lot of things when I was a teenager, doesn't mean it was a good idea. You're getting a raise and promotion soon? How about you actually get the raise, save more money so you can make a decent down payment, and then think about it? The only downside you see is opportunity cost, really?

You've already justified the purchase to yourself and are going to do it, but you asked for opinions so there you go. You're hardly the only 20-something who gets a decent paying job and decides to blow a bunch of money on a car. You could stop maxing out the ESPP for a bit in order to save more as well, unless you get a big discount on that.
vxdx
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Re: Considering first big purchase - mid 20s

Post by vxdx »

I would try to project out your current savings rate into the future with modest assumptions for investment growth and inflation and try to think what you would need to retire and when. I realize this is not easy or accurate in your 20s, but that would show what the impact of buying a car versus investing that money could be. Sure this money could be worth a million at 65, but maybe that million won’t be important for you on top of what you’re already saving. Then you can see if this decision would materially impact your future plans, or if you’re already saving “enough”.

The bigger concern is the lifestyle creep. If you buy this car now, what will be the upgrade car you want at 30? You probably won’t be as happy dropping back to 10 year old Toyota…

Anecdotally, I know a few people who bought expensive cars in their 20s and their priorities changed and they regretted it. I don’t know anyone in their 30s or 40s who currently regrets not getting a car they wanted in their 20s, though some of them are comfortably driving their dream cars now.
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Watty
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Re: Considering first big purchase - mid 20s

Post by Watty »

A few points;

1) Someone already mentioned that you needed to be sure that you have a good place to charge it. This is not just important with your current apartment but also your next apartment, or if you get into a relationship and move in with someone.

3) Be sure to price out the car insurance and compare that to what a more modest car would cost to insure. As I recall that they are extremely difficult to fix after a fender bender and the cost of insurance is a lot higher. In your mid 20s car insurance is already likely very high so combined that could be a huge chunk of money especially if you have a less than perfect driving record. You also need high insurance limits and an umbrella policy since you have a good income. Also consider if you will feel comfortable with parking an expensive car outside if you live in a marginal area or do things like go out to places that are not in the best part of town like a nightclub.

4) Be sure to use the "out the door price". I took a quick look and I suspect that you may not be including things like destinations charges, dealer fees, sales tax, car registration, etc. Depending to your state a $51K car could have an out the door price that is getting closer to $60K.

5) The good news is that if you posted about buying a sensible $30K car then you would likely get lots approval and suggestions and lots of comments about what to buy and if you should pay cash or a get a loan. If you buy a $60K car then that really only a $30K splurge on on it for the additional cost, and possibly higher car insurance. If it is a mistake then it might not be as huge a mistake as it might seem.
OutOfCollegeInvestor wrote: Fri Jan 21, 2022 4:20 am Was planning on financing with 1.90% interest at $780 a month, $0 down. No point in putting a down payment when interest rates are so low and I would rather invest the down payment in VTWAX.

Wanted to know your thoughts. Downsides I see are the opportunity cost, like saving for a house. However I don’t want to move and median home price in my area is $900,000. Besides that I already budget in vacation.
You can also get margin loans for investing and not matter how you look at it borrowing money so you can invest increases your risk and while I cannot time the market there seems to be a lot of risk that there will be a bear stock market in the near future. That is not anything dire since normal bear markets are normal(doh!). but investing the money and earning more is not guaranteed and you are not old enough to remember a significant bear market that goes on for a long time.

You also need to be realistic about how much you might earn. For a $50K loan the average balance will be $25K so if you are able to invest the money and earn and extra 1% AFTER taxes then that is only $250. That is not significant.

I would suggest making a large down payment then paying it off quickly then once it is paid off then keep saving a few hundred dollars each month in a car fund to be able to pay cash for your next car.
Last edited by Watty on Fri Jan 21, 2022 9:47 am, edited 3 times in total.
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Watty
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Re: Considering first big purchase - mid 20s

Post by Watty »

OutOfCollegeInvestor wrote: Fri Jan 21, 2022 4:20 am I like EVs because you can’t get instant torque with ICE cars.
One more thought. If you will be driving it 95% of the time in stop and go city or commuter traffic then this may not be a big factor.
jebmke
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Re: Considering first big purchase - mid 20s

Post by jebmke »

Admiral wrote: Fri Jan 21, 2022 8:44 am This is a board dedicated to saving and investing wisely for the future. It's not Car & Driver. In fact, I see responses on both sides that seem wise.
Almost always true and should be expected on "permission" threads.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
campy2010
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Re: Considering first big purchase - mid 20s

Post by campy2010 »

That's a no from me, dawg.

Money invested at your age is so valuable, but I am also not a car person.
mr_brightside
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Re: Considering first big purchase - mid 20s

Post by mr_brightside »

horrible idea



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AnnetteLouisan
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Re: Considering first big purchase - mid 20s

Post by AnnetteLouisan »

I overspent in my 20s and 30s (foreign trips, dining, clothes) but by my 40s I no longer needed to and had wonderful memories to keep me content. I’m not into cars but if you are, why not. Have fun and reward yourself for your hard work and frugality. You can drive old cars in your 50s. Also I mean you can always sell it if you get tired of it. It has residual value. Also if you don’t make mistakes now you’ll miss out on the learning experience.

On the other hand I’m kind of rooked now, and would have far more if I hadn’t overspent back then, but catching up with finances in your 50s is far better than trying to catch up on fun IMHO.
Last edited by AnnetteLouisan on Fri Jan 21, 2022 11:13 am, edited 1 time in total.
jibantik
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Re: Considering first big purchase - mid 20s

Post by jibantik »

Buy a cheaper car, say 15k, so you save 35k. 35k compounded over your investment lifetime (40 yrs) at 6% is $360,000.13.

If you'd rather have a tesla now then 360k in the future, then go for it I guess.
domoi
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Re: Considering first big purchase - mid 20s

Post by domoi »

Did not read the entire thread, so apologize if these have already been mentioned.

What caught my attention is that you want a "nicer" car. What are you driving now? Trade in value? What made you choose that car to begin with and what made you change your mind? Do you have an exit plan if you change your mind again over the course of the next 7-10 years of owing Tesla?

Did you price in the insurance costs for the new Tesla?

Do you have enough liability coverage, including protecting your future income?

How stable is your job? I am sure you will be employed in case of economy downturn, but will you maintain the same high income?

All that said, I think you will buy the car no matter what advice you receive. Good luck, I hope it works out for you
JEC
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Re: Considering first big purchase - mid 20s

Post by JEC »

TomatoTomahto wrote: Fri Jan 21, 2022 8:29 am If you’re still thinking a birthday is a big deal and merits a “reward,” you’re too emotionally young for anything other than a utilitarian vehicle.
+1
dboeger1
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Re: Considering first big purchase - mid 20s

Post by dboeger1 »

I'm firmly in the "no" camp, but then again, buying a new car out of college is one of the most common financial sins, even among Bogleheads (myself included), and it won't necessarily keep you from being financially successful in the long run if you develop good habits. My first car out of college was an old $2k junker that lasted for 2 years before it started costing more in time and money to repair than it was worth, so then I bought a brand new Chevy Volt. It was something like $40k list, but with the high incentives at the time, it ended up being something like $28k, which was competitive with your typical Civics and Corollas. Was it an optimal financial decision? No. Did it completely derail my finances? No. I had the cash for it, but still financed it at 0% and invested the money in the meantime.

Personally, I think the Tesla is a little overkill for your age. Have you heard of the hedonic treadmill? The idea is that humans will quickly adapt to new standards of living and revert to a neutral level of happiness. By buying the Tesla early in your career, you're setting yourself up to be completely disappointed by affordable cars in the future, and it's going to cost an arm and a leg to ever be impressed with a new car again. Not only are cheaper cars more sensible financially speaking, but when you buy the equivalent of the Tesla 10+ years from now, it's going to feel that much sweeter because you waited for it and lived with the cheaper car in the meantime. For all practical purposes, a brand new Civic/Corolla/other affordable sedan is an excellent, wonderful car for a young professional.

Edit: Forgot to mention this, but I think it's relevant for maintaining perspective. I bought the Volt despite not owning a house and not being able to charge the car at my apartment because I figured I would drive the car long enough that I would eventually own a home and be able to charge it there. I would occasionally charge the car at certain free charging stations in mall parking lots and whatnot, but those were extremely limited and highly contested (even local dealerships would abuse the system and charge unsold cars there). 99% of my driving was on gas, despite being a hybrid car. After 4 years, we moved to a new apartment right next to a pretty dangerous intersection, and just 1 week after we moved there, another driver ran a red light and completely totaled our Volt. We used the insurance money to buy a Mazda 3 because my wife negotiated a really good deal on it at the time. 2 years after the accident, we finally bought our first home, and one of the first things my wife said was, "Hey, we have a garage, we can charge the car now!" After I stood confused for a good several seconds, she realized her mistake and sighed. The point is, there are a lot of practical considerations when it comes to buying a car, not the least of which is the risk of getting in an accident. Any satisfaction of being part of some EV revolution quickly goes out the window as soon as your car gets totaled. So much for environmentalism. Cars are first and foremost and utilitarian purchase. It's great that you want an EV, but there are plenty of ways to live a modern life and reduce environmental impact that don't cost tens of thousands of dollars and are far less likely to be destroyed in an instant.
Last edited by dboeger1 on Fri Jan 21, 2022 1:39 pm, edited 1 time in total.
Kensai
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Re: Considering first big purchase - mid 20s

Post by Kensai »

I felt the need to reply to this as I've seen many young juggle the same question (Many employees making quite a bit less, driving way more expensive vehicles than I would ever think about - to each their own)

You are doing better than I did financially - especially at that age.

You are young - you will recover either way and happiness is a factor.

I would not purchase this, but I'm not you that decision falls on your shoulders - Thoughts below.

I do HIGHLY suggest at minimum you consider a down payment of 20%+ Buying a liability - and being underwater as you roll off the lot is not SWAN material in my opinion (Regardless of make/model)

Your 720$ payment @ 1.9% does beat the market until it doesn't. The stock market climb is an escalator - the drop is an elevator, plan accordingly.

You are just out of college, not tenured - although that doesn't completely make you the first cut by any means- it is something to keep in mind.

Myself? I would go buy a lightly used Civic / similar (2/4 door 4 cylinder) for ~15K or whatever they run at nowadays depending on your mechanical ability. You are young enough that any and every dollar saved/invested will be more appreciated in 10-20 years than the car you buy today.

DC
Kaizen Soze
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Re: Considering first big purchase - mid 20s

Post by Kaizen Soze »

OutOfCollegeInvestor wrote: Fri Jan 21, 2022 5:32 am
JoeRetire wrote: Fri Jan 21, 2022 5:24 am $780/month for a car is a lot more than I'd ever want to pay. But it's your money, your dream, and your birthday.

I assume you have no debt at all? That's good. You haven't indicated our income.

You don't want to move now. Perhaps some day you will want to own a home. Perhaps not.
Right no debt. Graduated on a full ride scholarship from University of Florida (go gators!). Make a tad over $100,000. Hopefully I will get a raise soon with a promotion that should put me closer to $140,000.
Congrats on making over $100k 2yrs. out of college!!! And a bigger congrats on maxing out 401k and Roth IRA. That's gonna add up quickly.

I'm a car guy myself but am pretty firmly in the 'no' category on this one. You're young and don't know where life will take you over the next couple years. Stay nimble and avoid expensive toys for now. Especially if it means taking on debt.

What's the status of your current car? If it's in good mechanical condition, then keep driving it for a few years. Your future self will thank you.
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OutOfCollegeInvestor
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Re: Considering first big purchase - mid 20s

Post by OutOfCollegeInvestor »

Jack FFR1846 wrote: Fri Jan 21, 2022 6:42 am Where will you charge it. I would think someone in their 20's who doesn't see a house in the near future is in an apartment. If so, are there adequate chargers set up in the parking area? Or are you thinking that running 300 feet of extension cord is a good solution? At work....are there chargers or is the building like my work office park where notices have gone out that nobody is allowed to run extension cords to electric cars?

Other than that, a model 3 isn't any more expensive than an average car.

There are plenty of car guys on this forum. If you look out for them, you'll find Lamborghinis, Porsches and Lotus in here. I consider myself an enthusiast with track and show backgrounds and on the lookout for a cool car in the near future.
My apartment has 2 chargers. Anyone can use it but you must leave after you’re done charging. So there are always spots. There are also L2 chargers nearby and a supercharger isn’t too far.
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OutOfCollegeInvestor
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Re: Considering first big purchase - mid 20s

Post by OutOfCollegeInvestor »

calmaniac wrote: Fri Jan 21, 2022 8:24 am
OutOfCollegeInvestor wrote: Fri Jan 21, 2022 6:07 am And if I’m already maxing out retirement, is the opportunity cost significant?
Yes, the opportunity cost is significant. You don't want to only be saving in pre-tax retirement accounts, but rather to have some "tax diversification" in pre-tax, taxable ''brokerage", and Roth accounts. If you end up saving only in pre-tax retirement accounts you will likely get hit with a tsunami of required minimum distributions (and taxes) 50 years from now (bizarre to think that far ahead).

If your save ≥15%, invest with a Bogleheads approach, and avoid the most of the American Consumer Dream, buying a Tesla at 25 will be OK. The above comments give you a good sense of the plusses and minuses, such that after reading them you will come to a good decision that makes sense for you.
Isn’t Roth IRA post tax? Cause I’m maxing that out and put 100% of the money into VTWAX. Currently maxing out for me is I’m putting in 23% of my income into retirement (401K and Roth IRA). Brokerage is just for non-retirement investing.
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OutOfCollegeInvestor
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Re: Considering first big purchase - mid 20s

Post by OutOfCollegeInvestor »

TSR wrote: Fri Jan 21, 2022 8:38 am I think one downside that you don't mention -- and that others have not yet mentioned -- is the uncertainty associated with being in your mid-20s. You're making what I'll call a "10-year commitment" to a fairly expensive car at a time when you really have no way of knowing what your life will bring in the next 10 years. You may think you know what life will look like in 2 years, but I'm here to tell you that you're at an age when things haven't really settled into place yet. Will you get burned out on your job faster than you thought you would? Will you decide to go to grad school? Will you get married to someone who is struggling through grad school to invest in his/her future and you want to help? Will you get married to someone who is not working at all or is deeply in debt? All of these things can make you feel pretty silly for having a $50,000 car that you financed. (For context, I bought a house right out of law school when I thought I'd love to work at a big law firm for the rest of my life, and that turned out to be a huge financial albatross around my neck for years.)

Balance all of the above with the fact that you have to live your life and enjoy yourself, and you might actually need a new car (see below). You can "afford" this car if you really want it. And, as some people have already said, we've all made financial mistakes.

If I were you (and I am clearly not), I'd take a good look at the car I'm currently driving and see how well it is holding up. If I truly needed a new car (that is, my current one is more than, say, 10 years old and is starting to show signs of getting to be more expensive to maintain than not), then I'd probably let myself buy this car. In fact, why don't you go ahead and give us more information about what you're currently driving. Then people can better decide whether to support you or rip into you. ;)
Currently drive a 2008 Chevy Malibu LS with 150,000 miles.
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