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Old 28th March 2013, 03:59   #226
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Default Re: What Car @ What Salary ?

Quote:
Originally Posted by oxyzen View Post
Will that not always be zero?
Salary = Expenses + Savings


I follow a simple rule.
6 months saving. (If you plan to keep the car for 5 yrs)
9 months savings (If you plan to keep the car for 10 yrs) - Recommended
Then add the amount obtained by selling your old car.

So, If I save 50K a months, I will spend 50X9 + 100(Resale of existing car) = 550K and then use it for 10 yrs.
No sir, it won't always be zero. Income=Expenses+Savings+Disposable Income.

Many financial analyst convey that you should know what percentage of your income or absolute value if you will, are you going to save and then do all your calculations. For example say A has a salary of 1lakh, he has decided he will save 10% of his salary (10k) come what may. His monthly expenditure amounts to say 50k. So his disposable income becomes 1lakh-(50k+10k)=40k.
No this disposable income of 40k can be used for any purpose - adding to the savings, family trip, buying a car, funding his education etc.
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Old 28th March 2013, 04:15   #227
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Default Re: What Car @ What Salary ?

In my opinion, you should not buy any car that has a price more than your annual salary. Also, given the high interest rates on cars which depreciate like stink, it makes no sense also to take loans for 6-7 years. You might end up paying a lot more than the selling price of the car as interest.
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Old 28th March 2013, 09:05   #228
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Default Re: What Car @ What Salary ?

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Originally Posted by apachelongbow View Post
For all who are advocating 20/30/40% of net take home salary as EMI, please consider the following implications.
For every 10Rs earned your EMI is eating away Rs 4 leaving you with just Rs 6 for
a) Every day expenses
b) Luxury items (dinners, parties, movies, clubbing, travelling, fuel etc etc)
c) Savings for future
d) Eventualities (loss of job, money for training, education, health reasons, parents etc)

Instead had you saved 40% of your net take home and then spent 40% of remaining in EMI you would have
a) Saved 40% i.e Rs 4 out of Rs 10
b) EMI of 40%Rs 6= Rs2.4. i.e. only 24% of your net take home
c) Leave 36% of your income for daily expenses and luxury/frivolous spending.
How cool is that?

Remember, in India we have no social security, education, health benefit nets. If you lose your job god be with you, for the society or the govt doesnt care if you live or not.
Totally agree with you, and the above calculation is when you have not considered any existing loan.

Quote:
Originally Posted by abeerbagul View Post
I guess the first car people buy can have EMI which is a larger percentage of monthly salary.
As your income increases, the EMI for car as a percentage of monthly salary should decrease.
When the point comes to upgrade to a new car, you should ideally be in a position to buy it cash down.
If you cant buy your second car in cash, consider two options:
1. Use the current car for 3 more years.
2. Buy the same car in pre owned category.
I would go one step further and say that first car should also not be on loan. If one can't afford a new car from savings, one should look at a pre-owned car. Speaking purely financially, loan on anything that does not appreciate in value is not worth it.

Quote:
Originally Posted by vineethvazhayil View Post
In my opinion, you should not buy any car that has a price more than your annual salary. Also, given the high interest rates on cars which depreciate like stink, it makes no sense also to take loans for 6-7 years. You might end up paying a lot more than the selling price of the car as interest.
IMHO even a car worth your annual salary is extremely high cost.
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Old 28th March 2013, 09:54   #229
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Default Re: What Car @ What Salary ?

Interesting points of view in this thread.

When I bought my first car, it cost much less than my annual salary. I paid ~60% of the OTR cost from my savings leaving an EMI which was a small single-digit percentage of my monthly take home. That tallies with what has been suggested in this thread. I also pre-closed the car loan in exactly one year (net interest paid = ~16K, if I remember correctly).

But none of this was planned and any fiscal prudence in the above is a direct result of me buying my first car 10 years after I started working.

I will keep the views in this thread in mind when I buy my next car
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Old 28th March 2013, 10:09   #230
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Default Re: What Car @ What Salary ?

In my opinion, unless one has the cash to afford a car, postponing the decision to buy is the right choice.

I'm not saying one should always buy cash down, but even if you're taking a loan, make sure you have enough cash for the car, put 50% as downpayment take a loan on the rest. That way, you'll have enough savings for any eventuality and a small enough EMI that you can afford easily.

In terms of annual salary, my thumb rule is not to buy a car that costs more than 50% of my annual salary. I did break that rule with my first car but then I had enough cash to buy it outright. I still decided to take a small loan and paid 50% in cash. I'm also still using the car after more than 6 years, even though I can afford a more expensive car now, but then there is another thread somewhere that talks about using a car to the max
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Old 28th March 2013, 10:34   #231
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Default Re: What Car @ What Salary ?

I thought for 2 years before buying a car, finally in 2009 made up my mind to have a car. I initially booked a Swift Ldi (OTR, 5.49L) by paying 25k as initial deposit. My idea was to go for 4Lakh loan, believe me I could not sleep properly for 3 days because EMI expected was around 22.5% of my take home plus fuel expenses, then came down to Ritz (OTR, 4.95L) still carried the same feeling, finally settled down to Spark LPG (good discounts, feel-comfortable 3 lakh loan and free maintenance for 3 years). After nearly 4 years I feel this decision was right, got married in 2010 and with good support from my wife now feel have made good investments for future and have a secure feeling. I sold my Spark for 2.4 lakhs in 2011 and picked up a used Accent for 2.8 lakhs, now even though I can afford a big car my heart says stick to Accent till it can run to the last destination. The car prices are certainly very high and its not a wise decision to take loans and buy a car anything above INR 5 lakhs, secure the basic necessities and then think of buying a car.

Last edited by deehunk : 28th March 2013 at 10:35.
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Old 28th March 2013, 11:26   #232
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Default Re: What Car @ What Salary ?

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Originally Posted by vineethvazhayil View Post
In my opinion, you should not buy any car that has a price more than your annual salary. Also, given the high interest rates on cars which depreciate like stink, it makes no sense also to take loans for 6-7 years. You might end up paying a lot more than the selling price of the car as interest.
I don't think there's any issue buying on loan but I feel pegging to one year's salary as an across the board generalisation is a bit high. As your salary increases allocating an entire year's salary to just a car does not make sense.

I'll try to present this in a very different manner. Look at it this way. Suppose the average professional has 35 years of active income earning work life in him. Assume he holds each car for 5 years. I'm just taking general averages. It means even if he buys only one car for his family at any given point, by your above formula 7 years of income (graded evenly across his working tenure) would have gone in funding vehicles. That's 7 years out of 35 or in other words 20% of his life long income in automobiles. To my mind, I'll be surprised if anyone (regardless of their remuneration levels, whether lower, middle or top management) will find this level of investment in automobiles prudent. I'm talking about the general junta, not the exceptions who are complete auto buffs - there can be no standard formula for the latter anyway.
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Old 28th March 2013, 14:18   #233
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Default Re: What Car @ What Salary ?

Most of the youths including me go for a 1:1 comparison on CAR:Salary proportion .

But with the current price hikes in groceries and basic home needs, a person with 10L annual salary and with family should now stick to a <5L car unless capital fund is available by some means. And use it for at least 5 years. Its time to realize its not an investment and rather its a magnet attracting unexpected expenses.

A 5L worth car comes with an average Annual recurring cost of ~20K in the form for Insurance and Service. Plus the fuel & toll expenses which is likely to shock us again.

In routes with very good public transport commute options available; try to avail them rather than driving alone. 2-3 people on board, yes it makes sense to drive. Feel light on pocket while preserving nature.

Whats your thought?
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Old 28th March 2013, 14:28   #234
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Default Re: What Car @ What Salary ?

To give a twist to the thought process of what car @ what salary

1) What when the person say gives up the job midway with half the EMI's left? This could be either because he/she was laid off or because of health reasons or simply a sabbatical or a desire to change the line of work or even to start a business?

SHOULD THE SAVINGS IN HAND AND THE AGE OF THE PERSON ALSO NOT BE MAJOR FACTOR TO BE CONSIDERED?

2) A guy with a job / salary has the option of a loan at a reasonable rate of interest on a new vehicle but if he/she is buying preowned then the rate of interest on loans is absurd, so the value of a preowned vehicle that a person can consider would be lesser and even better situation would be if it is paid out from the cash on hand rather than through a loan.

Have debated the standard views earlier on the thread, am just raising a few tagential points that too must be considered.

Like What Savings? rather than What Salary?
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Old 28th March 2013, 14:48   #235
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Default Re: What Car @ What Salary ?

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Originally Posted by ACM View Post
To give a twist to the thought process of what car @ what salary

1) What when the person say gives up the job midway with half the EMI's left? This could be either because he/she was laid off or because of health reasons or simply a sabbatical or a desire to change the line of work or even to start a business?

SHOULD THE SAVINGS IN HAND AND THE AGE OF THE PERSON ALSO NOT BE MAJOR FACTOR TO BE CONSIDERED?

2) A guy with a job / salary has the option of a loan at a reasonable rate of interest on a new vehicle but if he/she is buying preowned then the rate of interest on loans is absurd, so the value of a preowned vehicle that a person can consider would be lesser and even better situation would be if it is paid out from the cash on hand rather than through a loan.

Have debated the standard views earlier on the thread, am just raising a few tagential points that too must be considered.

Like What Savings? rather than What Salary?
Very true ACM.

Being a great fan of "Pre-worshipped" cars, I felt I did save some serious bucks in most of my cars. And had almost the same fun (obviously the fresh paint smell feel is different!).
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Old 28th March 2013, 17:08   #236
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Quote:
Originally Posted by Axe77 View Post

I don't think there's any issue buying on loan but I feel pegging to one year's salary as an across the board generalisation is a bit high. As your salary increases allocating an entire year's salary to just a car does not make sense.

I'll try to present this in a very different manner. Look at it this way. Suppose the average professional has 35 years of active income earning work life in him. Assume he holds each car for 5 years. I'm just taking general averages. It means even if he buys only one car for his family at any given point, by your above formula 7 years of income (graded evenly across his working tenure) would have gone in funding vehicles. That's 7 years out of 35 or in other words 20% of his life long income in automobiles. To my mind, I'll be surprised if anyone (regardless of their remuneration levels, whether lower, middle or top management) will find this level of investment in automobiles prudent. I'm talking about the general junta, not the exceptions who are complete auto buffs - there can be no standard formula for the latter anyway.
Very pertinent point.my personal comfort zone is travel expenses (car and fuel) 10 % of income over a 10 year period.
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Old 28th March 2013, 23:10   #237
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Default Re: What Car @ What Salary ?

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Originally Posted by Axe77 View Post
I don't think there's any issue buying on loan but I feel pegging to one year's salary as an across the board generalisation is a bit high. As your salary increases allocating an entire year's salary to just a car does not make sense.
I agree. I was just saying that should be the real upper limit of upper limits. Personally I would stick to something much cheaper. Perhaps 60-70% at the most. Some people might find thinking and calculating a ton of factors more difficult . Hence suggested a flat figure based on annual salary - which is an easier point of reference for anyone.

I have always gone and got used cars and evaded some depreciation in the process. It is far easier to get used cars in the states than in India.
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Old 29th March 2013, 09:45   #238
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I agree with most of them in this thread . One point what I like to add is that frequent sale or purchase of car will swallow away a huge amount during resale . So it's preferable to have any car at least for 5-7 years .
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Old 29th March 2013, 09:53   #239
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Default Re: What Car @ What Salary ?

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Originally Posted by vineethvazhayil View Post
I agree. I was just saying that should be the real upper limit of upper limits. Personally I would stick to something much cheaper. Perhaps 60-70% at the most. Some people might find thinking and calculating a ton of factors more difficult . Hence suggested a flat figure based on annual salary - which is an easier point of reference for anyone.
I would tend to agree with you here. Lets take an example. A gross income of Rs 10lac per annum (say middle level employee in any firm). If we calculate net income, his monthly take home would be about 60-65k per month.
If he uses 40% of his takehome as car EMI (upper limit) that means he has an EMI paying capacity of Rs 24k/month for the car, which translates to a loan amount of approx 10lacs. So if he stretches and pays a 4 lac downpayment, he can buy at the max a car worth 12-14lacs on road, which is a C segment sedan like a Rapid.

Now people who want a bigger car can rightly argue that the above person is correct in allocating 40% of current takehome in car EMI because its imperative his salary will rise YOY, and EMI remains fixed.

The more financially prudent will argue on a lesser % of take home as EMI stating that he needs to allocate for future expenses against savings and jobs cannot be taken for granted.

In either case, 1 year gross income seems a good indicator on the maximum amount of loan one can avail for a car. However if you have other EMi (like home loan) running, please discount that amount from your annual gross and then see how much loan can you avail of.
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Old 29th March 2013, 11:28   #240
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Default Re: What Car @ What Salary ?

Down payment for me, depends on the cash in hand/what part of your savings you are willing to let go for a new car.
The loan amount depends on the salary.Its best to be kept below 15 % of your monthly take home salary.
eg-suppose a person has xx lacs savings and he is willing to spend say 5 lacs as downpayment,so his ideal budget for the car will be 5lacs +the amount which gives the loan EMI as below 15% of his monthly salary.say its 5 lacs.So total budget 10 lacs on road.
Now say, he is an enthusiast..his dream car falls about 3-4 lacs above budget,way to go is to think about sale of his old car or delay the buy for a few months and increase thr down payment rather than goin for a higher EMI.
just my 2 cents..
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