"Affordability" and a new car

[SecondCor521]

Hi all.

I'm driving a 1993 Lexus GS300. It's a nice car, paid off, reliable, inexpensive to insure and maintain. But it's getting long in the tooth - the paint clear coat is failing, there are various would-be-challenging-to-fix cosmetic defects on the exterior and interior, and being 30+ years old finding mechanics and parts is increasing in difficulty although still possible currently.

Because I don't want to be in a position where I am in a rush to buy a new car, I am low-key looking around for a replacement.

Setting aside all the other factors, there is the key question of how much I could spend / want to spend on this car.

For those of you who have been retired for a while and are financially comfortable, how did you approach the question of budget? Percentage of NW? Percentage of taxable? Just spent whatever?

Thanks!

 

[scrinch]

Just spent whatever, but I had to have the perception that the car provided good value. I just can't completely say f... it I'll spend whatever I want. So I got a small PHEV Kia Niro that has suited me very well for the past 4 years.

BTW my DW is driving a '99 GS430 and we're starting to think about it like you are about your GS300.

 

[Car-Guy]

I'm probably not the best person to ask/comment on your question even though I've been retired over a decade now.. I buy a new car every year or so. My only criteria is I buy what I want/like, whenever I want/like.

 

[Jerry1]

Given that you are obviously a person who will keep a car a long time, I would not be too concerned with the budget. Reliability would be in the top of the list along with getting something I’d want. Then my budget would focus on getting the best deal (or at least a good deal) versus trying to decide on a total numerical budget.

 

[mystang52]

OP: A car is not an investment; you buy a car for a purpose. If you can afford it, then the answer is "spend whatever" in accord with what features you want, type of car, etc.

 

[rk911]

We've been a 2-car couple since the mid 1970s. We always bought new but took turns buying every 5-7 years. We started paying cash around 1990 using $ we socked away every month. Our budget was what we had saved and we always bought the car what we wanted. That hasn't changed. I just bought a '23 Jeep Wrangler Sport JL and didn't dicker about the price. The cost is a miniscule % of our NW.

OP....buy what you want. Life is too short to do otherwise.

 

[Al18]

My car needs to be safe and reliable. I want my car to keep me alive if I was in an accident. Never been a big spender, but I buy new and usually keep it a decade.

 

[harley]

We're new car buyers and keepers. Our new car is a 2018 VW Beetle. We also have a 2016 Honda minivan that we also consider new. I'm giving my grandson my 2004 Highlander. All bought new. Based on this behavior, I don't pay too much attention to cost. Comfort and reliability are far more important. Style and fun comes into play some for DW (thus the Beetle).

 

[EastWest Gal]

I would not base the price of a car on percentage of NW. In 2009 I bought a new Prius, on the idea that I would save about $4000 in gas over the life of the vehicle. It did its job. We do not live in a city, so have to drive everywhere, and it was my commuter vehicle. Last year we purchased another Prius, as we had driven the old one over 240K miles and multiple problems showed up. This one gets 50+ mpg and has many new safety features.

Get what you want and works for you. A car is a tool, not an investment.

 

[SecondCor521]

I'm looking for reasonable rules of thumb for how much car one can afford if one is FIRE and financially comfortable.

When FIRE, the notion of a percentage of income doesn't make sense. I'll pay cash, so the idea of a car payment that is an "affordable" portion of income also doesn't make sense.

I understand the comments that a car is not an investment; I didn't mean to imply that it was. Of course it's a purchase. But it does move some amount of net worth from a productive investment to a depreciating asset with maintenance expenses.

Since I haven't done a sinking fund for a car and most of my FIRE stash is in IRAs instead of taxable, any car purchase seems like "a lot". The comments here have helped me remember though that really that expense will be spread out over a decade or two, and looked at that way it's more palatable.

Maybe if I ask the question this way: If I asked you if you could afford car X, what would you look at to decide yes/no/maybe? Car X could be a Honda, a Porsche, or a Maclaren. Would you look at your checking account balance and if there's enough there then it's yes? Would you look at how much you spend on everything else and if Car X is half of that amount then it's yes? If your WR% with the car purchase stays below 2x your long term WR% target it's a yes?

 

[SecondCor521]

I hope y'all don't think me obnoxious for these kinds of threads, but the process of initially posting, reading all the responses, writing a follow-up clarification post, and then thinking about it helps me sort it out in my mind. I read every single comment and post and think about them, and they really help me sort things out. Thank you all.

I think I am going to look at it from an ongoing expense point of view - the initial purchase can be converted into an ongoing expense in terms of the loss of dollars from the FIRE stash and the opportunity cost of the income on those removed dollars. Then ongoing expenses are the usual things - depreciation, gas, insurance, repairs, maintenance.

I'm currently at about a 1% WR for my entire lifestyle. A car isn't that important to me but I may want to splurge some because I can. As a total SWAG, a car that "ongoing expense" wise put me at 1.5% WR would be comfortable in the sense that my WR% would still be very low, but out of whack in the sense that raising my annual budget by 50% for a car seems non-reflective of my values.

I think I can probably use maybe ongoing expenses of maybe 0.25% WR as a ballpark figure. Now I have to go figure out what that means in terms of dollars or cars - could be a Honda, could be a Maclaren (but probably not)!

 

[SecondCor521]

I think I can probably use maybe ongoing expenses of maybe 0.25% WR as a ballpark figure. Now I have to go figure out what that means in terms of dollars or cars - could be a Honda, could be a Maclaren (but probably not)!

Quick check says more than a Honda, less than a Maclaren.

 

[target2019]

How will you drive this car? How often?

 

[tulak]

I buy cars that are not flashy and serve my needs. The last car was a minivan, which worked great with a family. I drove that car for 17 years (bought new) and only sold it because it was leaking water into the driver’s side and I couldn’t figure out how.

I ended up buying a new Subaru Forester. I wanted something smaller that handles well in snow. That car is almost 7 years old.

I tend to buy mid-range cars and budget around $3k/year, which is about $30k for a car I’ll drive for 10 years. I might need to increase that next time, since prices have gone up, but I don’t see myself spending more than 40k, unless I decide to splurge (which I might).

Based on your numbers, you can easily buy a nicer car. I’d recommend test driving a bunch of different cars and see what you like the best.

Oh, and I did finance the Subaru, even though I can pay cash. It was 0%, so why not? I’m a sucker for free money.

 

[marko]

We've been leasing luxury cars (Mercedes for me, BMW for DW) for over 30 years. As such the monthly expense is already baked into the budget except for the small increases as prices have gone up. That is, there's no "new expense" per se as the monthly expense has always been part of our COL.

For us, we just like the cars overall plus the added safety features that a new car brings. Collision Avoidance has saved my butt a few times!

 

[Dtail]

We've been leasing luxury cars (Mercedes for me, BMW for DW) for over 30 years. As such the monthly expense is already baked into the budget except for the small increases as prices have gone up. That is, there's no "new expense" per se as the monthly expense has always been part of our COL.

For us, we just like the cars overall plus the added safety features that a new car brings. Collision Avoidance has saved my butt a few times!

The back up camera and wide angle collision avoidance have been great features for us.

 

[marko]

The back up camera and wide angle collision avoidance have been great features for us.

Yes. I can’t twist myself around like I used to!

 

[Exchme]

There's been significant safety improvements in cars since the early 1990's - anti-lock brakes, better air bags, side air bags, tire pressure monitoring, improved crash testing, back-up camera, collision avoidance systems and more. So think of it as an investment in safety.

 

[latexman]

If I asked you if you could afford car X, what would you look at to decide yes/no/maybe?

I have a model of my retirement saved to use on FIRECalc and Fidelity's website. To make these type of decisions, I modify my base case to reflect the cost of the new car, higher insurance, higher operating cost, etc. and run the case. Then, compare to the base case, and make a decision.

 

[Midpack]

Since you seem to want a rule of thumb - spend the same amount inflation adjusted as your last car? WR or NW wouldn’t have anything to do with it unless you want to push your limit, we don’t value cars like that.

We keep new cars about 7 years on average (longest was 11 years), and we’ve spent about the same amount on new cars for the last 30-ish years inflation adjusted, even though we could afford almost any car within reason. I bought a Tesla in Nov 2023 that listed for $49,990, right in line with our past new car $ outlay. Having a nice car used to be important to me so we’ve owned BMW, Audi, Volvo in the past, but I’m not willing to pay their premiums anymore - purchase price or especially maintenance. DW is driving a ‘19 Honda Accord Hybrid Touring (loaded). YMMV

 

[latexman]

I drive "the poor man's Lexus". A Toyota Camry. As I get older, and it gets harder to get into and out of the Camry (low to ground), I'll probably switch to a RAV4, or a Honda CRV.

 

[Jerry1]

I'm currently at about a 1% WR for my entire lifestyle. A car isn't that important to me but I may want to splurge some because I can. As a total SWAG, a car that "ongoing expense" wise put me at 1.5% WR would be comfortable in the sense that my WR% would still be very low, but out of whack in the sense that raising my annual budget by 50% for a car seems non-reflective of my values.

I think I can probably use maybe ongoing expenses of maybe 0.25% WR as a ballpark figure. Now I have to go figure out what that means in terms of dollars or cars - could be a Honda, could be a Maclaren (but probably not)!

Your WR indicates that you can probably buy anything you want. Focus on the other aspects of the vehicle and buy one that suits you in other ways. Coming from the car you currently have, you’re going to be hit with a huge amount of new technology in a vehicle. Personally, I’d start with another Lexus that is similar to what you have and go from there.

 

[Qs Laptop]

There are a lot of variables. However, since you are accustomed to a certain level of luxury and reliability having owned your Lexus, I would suggest not stepping down from that standard. In other words, this isn't a pure numbers decision.

Also, it sounds like whatever car you get you're likely going to have for at least 15 years. So, trying to tie the expense to a withdrawal rate probably isn't a good formula.

I'm with Jerry1--don't step down from the quality you've enjoyed these past years. Get another Lexus.

 

[TheWizard]

I'm eleven years retired and have a few thousand dollars of excess income most months, a negative withdrawal rate.
My 2008 Mustang convertible, purchased new, was getting old so I ordered a new one last July and it arrived late October. $47k roughly.

I also have a 2016 F-150 pickup, purchased new, and it's doing fine right now but I envision replacing it in five years or so, probably at a higher trim level.

I could spend more on vehicles but I'm content with where I am...

 

[deserat]

Do you have any other criteria outside of % of net worth? That would give you a range of costs that would meet that criteria. For example, I am awaiting the delivery of my new car in June, when I move back to the USA. My main criteria was a manual transmission That seriously narrowed down my options. Do you want a 4 WD? Do you need four door or two doors - a hatchback? Do you want ICE, Hybrid or electric or some combination thereof? So, for my manual transmission, American spec (I live in Germany right now and am driving a German spec car), I had a choice of 9 models across different car makers. The cost ranged quite a bit as the high end was some very nice sports cars. I intend to try and keep the car for 7-10 years (or more), so reliability and maintainability costs were also a consideration. Frankly, because I'm buying in 2024, and my main consideration being a manual transmission, my choices dwindled very much for new cars....2023 was a better year for that decision, however, the costs of a used car were about the same or more (!) than a new one.

I thought about splurging, but just couldn't do it - I will spend my resources on other things I value more. I am finally retiring this late June, so I also wanted to make sure my financial situation was more settled and I was comfortable with the newer income flows and loss of income flows before splurging on anything outside of the roof over my head - so that pushed me towards a more basic car - VW Golf GTI SE.