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Old 31st March 2016, 15:34   #1
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Default 17.5 lakhs liquid cash: Save or spend on new car?

Hey Guys,


I am not sure if this question of mine even qualifies to be posted in this forum. If it doesn't kindly discard. I am actually faced with a BIG question on whether or not to buy a car which costs a premium. While this is a sheer financial question, I would like to have some perspective thrown in by other members.

A bit of a background:
----------------------

I am 32 years old and employed in an IT firm. My take home (Indian salary) is just above 60K a month. (I had a long term onsite opportunity in Zurich because of which I was able to build my own house in Bangalore) Currently I am in Europe for yet another onsite deputation where I can "SAVE" 70k a month. I also have a son who will turn 3 years in a few months and my wife is a home maker.

I also managed to buy a decent residential plot in my home town (if I would sell it in 2 years, I would get a return of 20lacs and upwards approx)

I also have another form of savings in a govt. run chit fund (extremely safe). I would soon join a new chit fund savings next month where I need to pay 7500INR monthly. If I am lucky enough in the 1st 40 months lucky draw, I would get 7.5 lacs, which I intend to use exclusively for my son's schooling. I had previously been lucky and had received 7.5 lacs last year, which I have
used completely to invest in the plot I purchased.

If I return to India next year or so I would have the above mentioned Indian
salary (may be a bit more considering yearly hikes etc), and a child who'd be ready to go to school.

Apart from this my parents has few other assets, ( I would prefer not to disclose any further details of it. I am just mentioning it to put things into a better perspective. I also have a younger brother who works and earns good enough. In fact better than me)

Actual Question:
------------------

I have exactly 17.5L in my account at this point. I think I could save between 5L -8L in addition or so before I go back to India early next year.

I love driving and and has been longing to own a really good car since a long long time. I joined this forum with the intention of buying a Tata Safari Storme and I have been keeping a close eye on various discussions about it. But I think I have fixed what car I am going to buy considering all pros and cons. And it shall be a Maruti Suzuki S Cross 1.6 Alpha

But my family says its an absurd idea and not at all wise (financially) to use up 16lacs out of my only liquid cash and buy a car. However my counter point is, since I have had the opportunity to have the basic needs (a house, savings for my son's education and a job which looks secure at the moment) met, it should be okay to make my dream (dreaming since 2009) come true after all.

I'd be really grateful for an honest advice, like I said to put things in perspective.

I might be stupid , but really, is there a financial criteria one has to qualify to own a car of certain premium value. Thing is, if I ask my friends, they tell me to go for it, but the family advises against it. Hence this preposterous post/question.

Regards,
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Old 31st March 2016, 15:50   #2
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Quote:
Originally Posted by DMD View Post

I might be stupid , but really, is there a financial criteria one has to qualify to own a car of certain premium value. Thing is, if I ask my friends, they tell me to go for it, but the family advises against it. Hence this preposterous post/question.

Regards,
The thing is, its your Dream. Not your friend's. Not your family's. Your's
So you have to decide what is more important to you? That nice car, or additional security in the bank account.
I think it eventually comes down to what you eventually want to do. I can't tell you, nor can anybody else.
Financially speaking, routing half your savings for a car is not really financial prudence. Emotionally speaking, you live once. So decide!
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Old 31st March 2016, 16:07   #3
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Go for it. You only live once. Choice of S-Cross is

You have invested quite well so far. I think is now the time to diversify your investments, and do some financial planning & juggling. You can convince your family if you have a nicely diversified portfolio of investments. And this can very easily accommodate family demands and your S-Cross.

Remember that a car is not an "asset" for an individual. It is something that you buy, enjoy, and value for the utility it adds to your life. Rather like a gadget. The fact that it can be sold for some money at the end of its usefulness to you is just a bonus.

Last edited by KiloAlpha : 31st March 2016 at 16:08. Reason: phrasing
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Old 31st March 2016, 16:16   #4
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Quote:
Originally Posted by DMD View Post

Actual Question:
------------------

I have exactly 17.5L in my account at this point. I think I could save between 5L -8L in addition or so before I go back to India early next year.

Regards,
What you can do is get a car loan. You already have 17 lakhs as a backup.
As you earn and save more just prepay the loan.

I am against buying depreciating assets on loan (car/electronics etc.), but in your case since you are "just" 32 and do have the 17 lakhs backup and a very good chance to save more.

I would say go for it.

OT: Don't look at onsite opportunity to "save" like crazy. Enjoy your stay, spend money wherever needed. Live like you are earning and living in EU, don't ever try to convert every price into INR, you will ruin your life.

Last edited by GTO : 1st April 2016 at 13:02. Reason: Typo
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Old 31st March 2016, 16:20   #5
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From my point of view, the liquid cash in your account is an opportunity for investment. You should easily get a 7 year loan as your creditworthiness is excellent.

If you can invest your own money for the long term without any immediate need, you should. Be it /stocks/mutual funds/corporate bonds/real estate/business.


There's no reason to not take a bank loan if you're eligible and can pay the emi.

The EMI affordability is my benchmark for financial prudence.

Look up the EMI for the 7 year loan. And if it's less than 15‰ of your monthly income, it should be very comfortable. The cash in your account can be used as a down payment for a real estate property too and take a 25 year housing loan.
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Old 31st March 2016, 16:25   #6
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Quote:
Originally Posted by KiloAlpha View Post
Go for it. You only live once. Choice of S-Cross is

You have invested quite well so far. I think is now the time to diversify your investments, and do some financial planning & juggling. You can convince your family if you have a nicely diversified portfolio of investments. And this can very easily accommodate family demands and your S-Cross.

Remember that a car is not an "asset" for an individual. It is something that you buy, enjoy, and value for the utility it adds to your life. Rather like a gadget. The fact that it can be sold for some money at the end of its usefulness to you is just a bonus.
I would agree with KiloAlpha. You have kinda secured the future of your family. Obviously, more is always welcome. Maybe if you dont buy the S Cross now, you may be able to afford a Merc or BMW in the future (sooner than if you buy the S Cross now).

However, life is not all about having money in the bank anticipating that rainy day. You have enough for that (by the looks of it).

Just go for it and indulge yourself.

At the end of your life, you wont care how much money you have saved but how many memories you created along the way.
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Old 31st March 2016, 16:26   #7
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Don't use the entire corpus for a new car.

Weigh the options of using a % for down payment, and the remainder invested in some instrument that will fund the EMI ( either fully or partly ).

This will be a win win situation.

cheers!
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Old 31st March 2016, 16:28   #8
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Well here is a slightly different perspective.
Say someone in similar earning position but wants to buy a house and a car will easily end up spending most of the 60K salary on EMIs.
If you hadn't gone "onsite" and saved money, you might have been in this situation today.

But You are WAY better position today than that situation.
You have a house and you have savings, and you do not need to become a slave to EMIs. I would say go ahead with the decision to purchase vehicle from the liquid savings.

If you wish to "invest" the liquid savings then financially of course car always makes zero sense since it is a depreciating asset.
But this would've been true even if you were sitting on crores worth of cash. So according to me, this is not something to even ponder about.

What about keeping the liquid money and using a car loan? Hah!
Unless you plan to invest money in some get rich quick scheme that promises >20-25% secured returns year on year, taking a car loan is ALWAYS a loss making proposition.

Last edited by alpha1 : 31st March 2016 at 16:31.
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Old 31st March 2016, 16:29   #9
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Hi

this is purely my opinion and I have learned this, the hard way. My reply may be contrary to what a car enthusiast would say but we all must be aware of the uncertain world in which we live in and what do we value the most considering all the uncertainties around us.

Use your money to create appreciating assets and then with your disposable income splurge on depreciating assets. Car is a depreciating asset, whatever be the argument for the car. It is clear that its worth is not gonna stay the same from the second you buy the car and rolls out of the showroom.



Also What I see when one is married and has kid(s) that liabilities never goto zero but rather tend to increase slow and steady and it is wise to constantly counter the increase with good earnings (active and passive income).

And today's craving may be gone tomorrow once satisfied and then a new craving starts. Man's wishes are endless as we all know.

Make your money grow: With your savings, check where you can invest and make it grow or reduce/remove your already existing liabilities.

Inflation: What you buy with 100 bucks today buys less tomorrow. Hence your savings should at the least grow to counter the prevailing inflation.

Fulfill your wish with extra disposable income. Part of the interest of any finance scheme anyways helps you deflect the erosion of money value by inflation.

If you still want to go ahead, then, by all means, try to find other ways of financing the purchase like company leasing and EMI payment etc for your vehicle purchase to avoid spending your complete savings on a single asset.

All said and done, as members' replies above me states, it is your dream and it is your decision whether you wish to fulfill the dream now or sooner or later and how. Make a wise decision.

best wishes and best regards
Rajesh
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Old 31st March 2016, 16:35   #10
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Arrow re: 17.5 lakhs liquid cash: Save or spend on new car?

Hi DMD!

First of all, welcome to T-Bhp!

I myself have been through similar stages in life. Therefore, I can very well relate to your query.

I never thought in my life that I would spend exorbitant amount on a premium car. I believed that we as a middle class family have a lot better reasons to spend our hard earned money, than spending it on a premium car which only takes us from point A to point B, may-be in a better way. Spending 20L on a car when one can buy a site for that money, is a crime! I thought.

BUT, our dreams / aspirations in life are also important!! Life is short and we only live once!!!

You are just 32 and lucky enough to have settled in life. That is, you already have a own house, a secure job, emergency funds in the form of an investment (site), financially independent parents (?), just one kid who is 3 year old and above all, a supporting family. Also, most important thing is "You do not have any loans / liabilities". Please correct me if I am wrong?

You still have a minimum of 25 years left in your career. IMHO, this is the best period to live your dreams. Later, as children grow, our responsibilities increase and it becomes harder!

OT: Since you are cautious about things, I would suggest you to stick with companies like Toyota / Maruti... etc, so that you will not have unexpected expenses. This is one aspect to be considered while choosing a premium car with a stretched budget.

All the very best! Have fun!!

Last edited by Aditya : 3rd April 2016 at 08:50. Reason: Typo
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Old 31st March 2016, 16:35   #11
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

I can relate your situation to mine. I'm in the same situation but nowhere close to your financial background. My kid is also nearing 3 years and already started going to play school.

But I was fighting with family to get my dream car Fiat Punto Evo from last year, my dream still couldn't find way to become real from 2004. I'm sure on getting it this year.

I second the opinion of tsk1979. This is your situation and you only can decide what is important. According to me I can still buy a home and settle after 10 years, but I can't live the moments passing now. My primary argument at home is "let me live now, i will settle down whenever possible"

Best of luck for your SCross.

Last edited by GTO : 2nd April 2016 at 08:27. Reason: Typos
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Old 31st March 2016, 16:38   #12
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Quote:
Originally Posted by DMD View Post
I love driving and and has been longing to own a really good car since a long long time.

Regards,
Well, it is your money, so it should be your decision on how to spend it. But I like people who listen to their family when faced with decisions of their own interests.

I can give you my example. Sometime back I was in a similar dilemma. I had just sold an apartment and the returns were healthy. I invested some of the proceeds on another asset, invested some money in capital gains tax bonds (to avoid CG tax :-)) and was still left with a decent amount. I wanted to buy a really good car and had zeroed in on Elantra.
As in your case, family didn't like the idea of investing a large sum on a premium car.

But, then I convinced family that if I have to invest in a really great car, it can be only now. Who knows if I will get an opportunity in the coming years.
Family understood and I (we) got the car. Ever since, me and my family have enjoyed the car for its comfort, ease of driving, looks and all else. We have been on several memorable road trips too. Looking at the photographs of the trips and the wonderful memories, it seems like a really good decision then.

I always spend on expensive items of my liking only when I am in a financially strong position.
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Old 31st March 2016, 16:41   #13
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

I have a lot of advice to offer

You and many responsible working men like us deserve some level of indulgence. This is a law of physics, don't try to defy it.

Here is what you can do:
Buy some cheap commuter car in India.
Drive a nice car while in Europe at least on weekends if a car doesn't suit work commute.
Rent a nice car on Zoomcar every tine you want to have a good drive.

If the above won't do it, then you can pull the trigger and get yourself that special car but take car loan so your liquid cash is not exhausted and you also feel the pinch every month to appreciate your decision.

So yes, you can't empty your bank account on a new car.
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Old 31st March 2016, 16:43   #14
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Quote:
Originally Posted by DMD View Post
If I return to India next year or so I would have the above mentioned Indian
salary (may be a bit more considering yearly hikes etc), and a child who'd be ready to go to school.
Well, i would say it is early to decide. Since you are planning to come to India next year, you can decide at that time, because a lot of things can change in a year (your finance condition, newer cars, your family condition...)
Unless you want to buy a car in India now and have your brother or family use it, you can put-off this thinking process..

Quote:
Originally Posted by DMD View Post

But my family says its an absurd idea and not at all wise (financially) to use up 16lacs out of my only liquid cash and buy a car. However my counter point is, since I have had the opportunity to have the basic needs (a house, savings for my son's education and a job which looks secure at the moment) met, it should be okay to make my dream (dreaming since 2009) come true after all.

I'd be really grateful for an honest advice, like I said to put things in perspective....

,
All of us here in Tbhp love driving and are passionate about our cars.
This is a matter of decision of heart vs brain. It is up to you to decide.

I had the same dillema 3.5 years back and more or less in the same financial state except no 17.5 lakh backup and no kid for dependency.
But realized my dream and bought my Scorpio. Enjoying it every moment since.
Now, working on creating the 17.5 lakh security ..
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Old 31st March 2016, 17:38   #15
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Default re: 17.5 lakhs liquid cash: Save or spend on new car?

Well. I beg to differ here with the general opinion that one should not buy the car on loan. Inflation works here also and the "value" of your last EMI is much lesser than your first EMI. Lets take an example. Suppose you take a car loan of Rs. 10 Lakhs with RoI of 9.25%. The rate of inflation is approximately 10% (considering the average of last 5 years cost inflation index). The rate of savings in the bank account is 4%. If you take these values in an excel sheet and do the calculation for 7 years tenure, you are paying Rs. 13,62,164 as the total payout, however its "value" is only Rs. 9,74,262. And I have not yet considered the savings interest that you will get. Thats a bonus.

So go for your dream car without any hesitation. And take a loan for that
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