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Old 23rd April 2010, 15:46   #31
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Quote:
Originally Posted by shankar.balan View Post
One of my friends who is a Finance whiz told me this.

Car Cost = 50% of your annual salary.
Home Purchase should be = 3 times your annual salary.

The Car EMI should be capped at about 10% of your monthly carry home cash component.

Car loan tenure (ideal and sensible) is 3 years. because the car comes to a break even value at this time in terms of what one has paid up on downpayment and interest on the loan at that point, when compared with the residual value of the car at that point.

The Home EMI should be capped at about 30% of your monthly carry home cash component.

+/- 5-7% variance will be manageable.

This way, one will have sufficient left over to run the show, pay the bills, save for the future and splurge a bit.

In a double income family, of course, things will be a bit easier all round, with enough money left over for holidays and other desirables.

When all is said and done, a car is a depreciating item of machinery and a home is a long term investment and makes even more sense to own / buy now if one has kids to inherit it.

But the trouble is that with today's slant on consumerism, people really stretch way beyond the affordability levels by taking into account their future prospects - shades of "Great Expectations" - however, the future unfortunately is always a bit uncertain and hence cannot be taken for granted. Therefore, better to cut the coat according to the cloth available.
Excellent post. I would agree with most of the points written, particularly the ones highlighted in bold
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Old 23rd April 2010, 16:01   #32
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Me too thinks CTC is a wrong start parameter, it should be:
net-in-hand minus mandatory expenses.

mandatory expenses mean ANNIVERSARY & BDAY GIFT FOR THE WIFE, rent, loan emi, food, utility/phones, vacations, insurance, entertainment, etc. I include entertainment since like a car its a lifestyle thing, I wouldnt upgrade to a sedan if it wouldnt leave me enough to enjoy my single malt

Now with the remaining, its upto oneself to allocate 30% or 60%; here is where the passion of driving/automobile will determine the spend. Applying this passion to the CTC/in-hand number without accounting for mandatory expenses is not advisable.


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Originally Posted by AirWind View Post

Purely seaking of someone who cannot buy a car thru company lease scheme.
AirWind,
though the co lease plan sounds extremely tempting, saves a chunk of money, it has big strings attached. If you quit the firm, you need to foreclose and this amount is not just the principal outstanding, it is the NPV of all remaining emi's with some discounting factor. And there's stuff about end of tenure value which you'll have to pay apart from these emi's. And in these times can you commit for 3/4/5 years ?
so...you aren't missing much
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Old 23rd April 2010, 16:04   #33
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Originally Posted by shankar.balan View Post
One of my friends who is a Finance whiz told me this.
Shankar - I'll etch this in my heart; I feel this is a good piece of advice.
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Old 23rd April 2010, 16:08   #34
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Quote:
Originally Posted by shankar.balan View Post
One of my friends who is a Finance whiz told me this.

Car Cost = 50% of your annual salary.
Home Purchase should be = 3 times your annual salary.

The Car EMI should be capped at about 10% of your monthly carry home cash component.

Car loan tenure (ideal and sensible) is 3 years. because the car comes to a break even value at this time in terms of what one has paid up on downpayment and interest on the loan at that point, when compared with the residual value of the car at that point.

The Home EMI should be capped at about 30% of your monthly carry home cash component.

+/- 5-7% variance will be manageable.

This way, one will have sufficient left over to run the show, pay the bills, save for the future and splurge a bit.

In a double income family, of course, things will be a bit easier all round, with enough money left over for holidays and other desirables.

When all is said and done, a car is a depreciating item of machinery and a home is a long term investment and makes even more sense to own / buy now if one has kids to inherit it.

But the trouble is that with today's slant on consumerism, people really stretch way beyond the affordability levels by taking into account their future prospects - shades of "Great Expectations" - however, the future unfortunately is always a bit uncertain and hence cannot be taken for granted. Therefore, better to cut the coat according to the cloth available.
Cool, then i am happy to know that i am a finance whiz too, cause this is EXACTLY what i have learnt and suggested to so many of my friends
Another golden rule- if you want to be really safe, should not finance more than 75% of house, as JUST in case one needs to get out in an emergency, 25% lower than acquisition cost, one can liquidate the house and bail out( worst case scenario)
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Old 23rd April 2010, 16:17   #35
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Quote:
Originally Posted by shankar.balan View Post
One of my friends who is a Finance whiz told me this.

Car Cost = 50% of your annual salary.
Home Purchase should be = 3 times your annual salary.

The Car EMI should be capped at about 10% of your monthly carry home cash component.
car cost should be around 50% of annual salary. When I decided to book a car, I made sure that car EMI does not exceed 12% of my monthly salary. Also I am trying to see that I make atleast 25% down payment and finish off the loan in 3 years. Car is a luxury not a necessity so priority towards it should be less (petrolheads make exception )
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Old 23rd April 2010, 16:17   #36
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Hmm, no thumb rules at all. First, figure out what your income is for. If, say, you're planning to fund a future venture/early retirement/whatever from it, the whole thing is seen as not just considered income, but some of it as marked for your "future self" as well.

Then, there are critical goals, sacred goals, and discretionary ones. The car is likely to be closer to the last bucket.
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Old 23rd April 2010, 16:27   #37
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There are several thumb rules that need to be considered:

1. Cost of car should be 50-75% of your annual income.

2. Select a car which you can buy without loan. You may still take a loan, but you should always be in a position to pre-close your loan any day.

3. Pay at least 25% of the car price as downpayment and hence take loan for not more than 75% of the total on road car price (including accessories).

4. Ensure that car loan EMI plus fuel and maintenance expenses are 15-20% of your monthly take home salary.

5. In case you have more liabilities (sick family member, existing loans, single earner supporting large family), purchase a car in a lower segment as compared to what you would normally purchase if you didn't have those liabilities.

6. Never buy a bigger car assuming that your salary would increase in the future. Buy a car based on current income only.

7. Even if you are buying a second hand car, make sure that you are still not violating rule 1 above (considering market price of brand new car). It may sound tempting to buy a used sedan at the price of a new hatch, but remember that a bigger car would also have higher fuel, spares and service costs (especially because it is a used car)

8. It makes sense to buy a car which has good resale value.

Rohan
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Old 23rd April 2010, 16:36   #38
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By reading all of this, I am becoming more and more literate and less of a petrolhead. I am planning to close all my loans this year end, then go in for home loan and then may be a car. I am happy with my family zen currently.

If at all, we have to buy, I'll go in for the EECO then!
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Old 23rd April 2010, 16:43   #39
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The income percentage calculations for buying car and home does not make sense across income levels. If I have a take home salary of 2 lacs per month, why should I restrict my home loan EMI to 30% and car loan to 10% ? I still will have 1.2 lacs at my disposal every month. I can easily live on about 25k per month average and save/invest another 50k and still have about 40k remaining. Why not buy a C class with 60k EMI ?. However things are different at lower income levels.

Important note: These calculations are purely hypothetical. .
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Old 23rd April 2010, 16:49   #40
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Quote:
Originally Posted by sgiitk View Post
The old US rule was - I should be able to buy it in 6 months.
My close relative comes back after 3 months of sailing with 9L INR and buys a Linea

Here I am not being able to buy such a car with all my savings for the year!

Last edited by clevermax : 23rd April 2010 at 16:50.
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Old 23rd April 2010, 17:05   #41
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Originally Posted by clevermax View Post
My close relative comes back after 3 months of sailing with 9L INR and buys a Linea

Here I am not being able to buy such a car with all my savings for the year!

And that car is finally yours, see the difference(atleast for a week)


Pramod
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Old 23rd April 2010, 17:06   #42
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Quote:
Originally Posted by vasoo View Post
The income percentage calculations for buying car and home does not make sense across income levels. If I have a take home salary of 2 lacs per month, why should I restrict my home loan EMI to 30% and car loan to 10% ? I still will have 1.2 lacs at my disposal every month. I can easily live on about 25k per month average and save/invest another 50k and still have about 40k remaining. Why not buy a C class with 60k EMI ?. However things are different at lower income levels.

Important note: These calculations are purely hypothetical. .
Thumb rules are thumb rules irrespective of salary levels. You can either buy a C Class or you can get something that's not so expensive (like a Cruze) and save or invest the rest. I don't know much about expensive German cars but I would imagine they would cost something like 50K per service. You okay with that? I personally wouldn't go anywhere near a C Class even with a take home of 2 lacs per month.

EDIT: You may find this thread interesting. But before you jump for joy, read post #27.

http://www.team-bhp.com/forum/luxury...-bmw-530d.html (Which car for someone with an income of Rs 2lacs per month EDIT: Decided on BMW 530D)

Last edited by Gilead : 23rd April 2010 at 17:18.
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Old 23rd April 2010, 17:10   #43
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based on most people's inputs here, i should start thinking of my house/responsibilities etc before i dream of buying a fancy car :(
Not that this is a bad thing, but sometimes we want that extra bit and buy a cool car without thinking too much about responsibilities. The following thread by VLOCT is inspirational. http://www.team-bhp.com/forum/long-t...911-story.html

I strongly feel that buying a car depends on individual's mindset. If an individual is passionate about a car that is not priced within the "comfortable limit" as posted by most bhpians, he tries to stretch that extra bit to makes sure he has it (if he is really passionate about it)

But I too strongly feel that one should not overstretch.

Last edited by himavanth_m : 23rd April 2010 at 17:11. Reason: Included the link for VLOCT Thread
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Old 23rd April 2010, 17:13   #44
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Originally Posted by pramodkumar View Post
And that car is finally yours, see the difference(atleast for a week)
Pramod
'Finally' and 'for a week' doesn't go together
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Old 23rd April 2010, 17:19   #45
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Quote:
Originally Posted by amtak View Post
By reading all of this, I am becoming more and more literate and less of a petrolhead. I am planning to close all my loans this year end, then go in for home loan and then may be a car. I am happy with my family zen currently.
Wise decision
Quote:
Originally Posted by amtak View Post
If at all, we have to buy, I'll go in for the EECO then!
Well, choose it, if you like. But remember, if you wait patiently, the best will come to you.
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