Budgets and New Cars

[RetirementColdHardTruth]

How do you guys budget for a new car. I just decided to replace my 12 and 15 year old cars due to repair costs and it was time for a change. I used cash for the purchase but wonder how to reflect it in my budget. It is a little unfair on the budget to say I spent 50k in a month. I would like to reflect that amount over the useful live of the cars. I was going to add a line item that showed a cost of 50k / 72 months. As I plan on keeping the cars for 10 plus years is it fair to use a 8 year method of tracking this cost?

What do you do when your budget takes a one time big hit for a depreciating asset?

 

[REWahoo]

Although it is definitely brutal, I've always taken the full hit for whatever money I've spent in the month I actually spent it - including purchasing big-ticket items like cars, kitchen remodels, etc.

 

[MichaelB]

We have a yearly budget for regular, ongoing expenses and a separate fund set aside for big ticket items such as new car, major home repair, and weddings (2 to go) that are likely within the next 5 years or so. When first retired I tried to budget including annualizing these types of expenses, especially auto, but it was too much effort and I didn't see the advantage.

 

[Midpack]

I have a substantial line item in my budget I call accrued expenses (even though I don't actually accrue in the business sense), with subcategories as shown below. It's for unexpected expenses, most if not all with a frequency of more than a year. I've projected expenses for each year out to 2054 including what I expect for

• Appliances (Dishwasher, Washer, Dryer, Fridge, Stove, HVAC),
• Car DH after trade in,
• Car DW after trade in (both cars every 5 years),
• Furniture (Bed, non-appliance furniture),
• Home Remodel/Major Maint (Roof, Paint etc.),
• PC TV Electronics & Travel (Major Vacations).

I've planned them to be staggered as much as possible, but they still flucuate considerably, ranging from $200 to about $25000 in any given year, averaging about $9500 per year.

Like REW, I just take the hit in the year it comes, but I've planned all these "hits" in by accruing for them until the projected end of plan. This year I actually took hits for bathroom remodel, having the house painted & a new bed.

Has to be accounted for somehow, only way I could figure to do so. The way I'm doing it, accrued expenses account for about 20% of my budget, though I expect to spend less than projected. And it doesn't confuse the issue for us as I track variances for each category using Excel pivot tables, so I can still "see" how we're doing on operating expenses apart from the major unusual or accrued expenses.

EDIT: Having read various approaches from later posts, all of them are good and workable, therefore individual choice. As long as these non-regular major expenses are built into the plan somehow, there's no wrong way to account.

 

[rescueme]

I have $500/mo. going toward vehicle replacement in our budget. In periods of when we don't buy a replacement vehicle, the balance just grows.

That's more than enough in our case since we buy infrequently and run our vehicles until the wheels fall off.

FYI, our last trade was an '89 Olds Cutlass Ciera, purchased new and kept 18+ years.

Just how we do it...

 

[Bestwifeever]

Although it is definitely brutal, I've always taken the full hit for whatever money I've spent in the month I actually spent it - including purchasing big-ticket items like cars, kitchen remodels, etc.

Same here.

 

[Texas Proud]

I have $500/mo. going toward vehicle replacement in our budget. In periods of when we don't buy a replacement vehicle, the balance just grows.

That's more than enough in our case since we buy infrequently and run our vehicles until the wheels fall off.

FYI, our last trade was an '89 Olds Cutlass Ciera, purchased new and kept 18+ years.

Just how we do it...

+1, except that this also includes fixing up the current cars, along with tires etc...


Like others, we take the hit when the cash goes out the door... my 'home' category is very negative right now because of the 20% down payment.... but it is getting closer to zero every month....

 

[FIREd]

In my case, I track actual depreciation costs every year and include those in my expenses.

 

[pb4uski]

I capitalize the car as an asset (I use Quicken) and then set up a monthly automatic recurring entry that records a month of depreciation at the end of each month that is reflected as an expense and a reduction in the asset. I occasionally compare the asset balance with the value per Edmunds, et al and true up the monthly depreciation amount as needed.

So my expenses (and my budget) include depreciation as well as fuel, registrations, repairs, etc.

 

[happy2bretired]

I have some CDs put aside that I use for big ticket items. Most of my income tax refund goes into these CDs each year. I use Quicken for my monthly budget, but only for month-to-month, regular expenses. When the time comes to replace my car, roof, AC/furness, etc., I will probably use some of the CD money. I probably will make up a new category such as "Auto: Replacement". The "Auto: Replacement" category will be on my "list" of categories, but, I won't be selecting it for my budget. I can work it either way by just selecting that category or not when tracking my expenses. This is what I did for the wedding this year. I can track it or not... I know I have the $$ set aside and I'm not going to worry about it messing up my "official" yearly budget figures.

 

[plex]

I approximate depreciation, insurance, gas, and repairs. It does a fairly reasonable job of tracking costs and present value without me having to re-figure my calculations every year so they are exact.

In reality, you are purchasing an asset that depreciates, the big hit you are taking the first year is usually heavy depreciation, not the whole cost of the car. If the car is wrecked before it can be sold or fully depreciate, then I take it as a loss for the depreciated amount (of course, you can insure against this).

 

[jerome len]

I accrue money for my next car(s) on a monthly basis. I'm always over accrued in multiple categories and can find money for emergencies. At YE, I'll look at over accruals, which means I have extra money, and use it to make donations to worthy charities.......always in available cash rather than pledges against future income.

All in all, doing it this way I sleep good at nights, knowing I can handle most anything that comes along. Finally, I believe "cash is king", and the accrual method allows me to do this.

 

[Mulligan]

Before I retired, I made sure my monthly budget could afford a car payment of whatever I wanted. I just cant make myself pull cash out of savings to do it. 18 months later my old car of 170,000 miles is still purring along. The only time in my life I have never had a car payment has been the past 4. Im used to a car payment, so when it occurs there is money for it and I will cut the check and just save xxx dollars less each month.

 

[Animorph]

I used to save money each month towards a new car and buy it when I had enough saved. Now that I've been saving and investing long enough I have a simple "Saved" category with enough for car any time. The idea is to withdraw at the 4% rate to fund fun stuff, and buy the occasional car as needed. The full cost is recorded in the month it occurs. Hopefully I have some warning for the big stuff so I can have the cash ready from the portfolio.

 

[easysurfer]

For something like a car, I pay by cash. I have a category in my budget for saving for a major purchase (also, to simplify, have an account open for that purpose). When the time comes, I'll pay for the purchase from the account and not re-record it in my budget.

 

[Andre1969]

In my case, I just have a category called "Automotive", and it would get lumped in there. And yeah, paying cash for a car would make the expenses look pretty scary for that one month!

It happened to me two years ago when someone pulled a hit and run in the parking lot, totaling my car, and I had to go buy another. It was a used Buick, and I only paid about $8100 out the door for it, but the budget still looked pretty bad that month!

In contrast, the car that had gotten totaled, a 2000 Intrepid, had been $2000 down when it was new, and $347/month for 60 months, so for any given month, it never looked that bad. Well, except for when the a/c compressor seized up, to the tune of around $1300.

 

[67walkon]

We still have to replace cars when we retire? Darn.

Assuming I partially retire in 2012 (work part time) and then fully retire in 2013, I've got a 2010 Subaru I hope to keep for about 10 years. My wife probably isn't going to want to keep her 2009 Nissan that long, but we do have some 0 coupon bonds coming due in 2017 that I don't even include in retirement income calculations. It's more than enough to replace the cars.

I think the sinking fund idea is the way to go. Just allocate or put away some amount monthly. If you want a new $50,000 car every 3 or 4 years, put lots away. If you can get by with a $20,000 car every 10 years, don't put so much away.

 

[W2R]

We have a yearly budget for regular, ongoing expenses and a separate fund set aside for big ticket items such as new car, major home repair, and weddings (2 to go) that are likely within the next 5 years or so. When first retired I tried to budget including annualizing these types of expenses, especially auto, but it was too much effort and I didn't see the advantage.

+1, what he said. I make sure that my budget is enough smaller than my income that sufficient money can be set aside for another car (should I ever decide to get one).

I will be in my 70's before I need to get another car, so I am thinking that this will be my last car - - but REWahoo has mentioned in previous threads that I may feel differently about that when I am in my 70's. I just don't want to be one of those old fogies who are a public menace when driving.

 

[Rich_by_the_Bay]

We keep a sizable slush fund off to the side in a MMF (it is not considered as an investment asset for purposes of SWR calculations, AA, etc.) It is for those big but unpredictable expenses as mentioned as well as possible relocation costs some day, cars, major repairs. If we need a car, we'd pay for it with this slush fund and reimburse ourselves from otherwise spendable left-overs from our monthly expense allowance. We set that allowance a bit higher than needed for this reason.

It's our own version of consumption smoothing.

 

[W2R]

We keep a sizable slush fund off to the side in a MMF (it is not considered as an investment asset for purposes of SWR calculations, AA, etc.) It is for those big but unpredictable expenses as mentioned as well as possible relocation costs some day, cars, major repairs. If we need a car, we'd pay for it with this slush fund and reimburse ourselves from otherwise spendable left-overs from our monthly expense allowance. We set that allowance a bit higher than needed for this reason.

It's our own version of consumption smoothing.

Exactly. Like Rich said, I don't include money set aside as part of my portfolio for SWR calculations, AA, etc. If I did, then it wouldn't really be set aside.

 

[Birchwood]

A big ticket item like cars does not belong in my living expense budget.
When I retire next year, I will have 3 vehicles fully paid for with low miles.
(A Ford F150 truck, a Honda Accord Coupe and Nissan Altima), relatively new.
I intend to use them for 8 years(I will be 70 yrs then). I will use them for the intended long road trips in my active part of retirement.
As they become older I wil downsize to two vehicles and prob. will not take long road trips and cheaper smaller cars will work.
If the stock market or other investment goes up, I may be tempted to trade in but it's purely waste of money.
If the market is not doing well I"ll used the cars until the wheel falls off.
There are 3 to rotate around.

 

[scrabbler1]

Although buying my most recent car (a 2007 Corolla) did not depend on whether I was working or ERed, I was glad to have bought it before I stopped working in 2008. This way, I would not have to worry about how I would figure out where to get the money from (i.e. which mutual fund) to pay for it.

I drive very little, maybe 3,000 miles per year, so I expect this car to last me as long as its predecessor (15 years). It would be nice if it can last me until I can take unfettered withdrawals from my IRA which I can access in 2023 (the car will be 16 years old). But if I have to replace it sooner than that, I can tap into one or more of my mutual funds (i.e. "slush funds)") whose investment income I do not depend on to cover my current expenses.

 

[bbbamI]

I have a 25% buffer in my budget. Two years of buff will buy a new car with our trade in. When we buy a new car, I'll enter the expense in the year of purchase.

I had to touch a tad of buff this year...

 

[rayvt]

I bought a new car and financed it through Pentagon Federal CU at their low low rates. Currently 1.99% for 48 months. That's close enough to consider it amortized over the lifetime of the car. And, heck, it's easy to earn more than 1.99% on the money I'd have to withdraw to pay cash for the car.

 

[NW-Bound]

I would just take the hit to the portfolio total, and move on.

Not too different than a bad day in the market, in my view. In fact, you would buy a new car a lot less often than these bad market occurrences, right?