[SoumenD]

Quite insightful points there.

Personally I never followed any rules till 3-4 years back, but gained some wisdom going through various threads right here on TeamBhp which proved folks here are not just out and out car/bike enthusiasts ,but quite sensible as well.

2 such threads wherein I read almost all posts from are :

Thread 1 (Are most of us living on the edge? Let's talk about income, expenses & savings)
Thread 2 (What Car @ What Salary ?)

[FrodoOfTheShire]

Originally Posted by am1m

All in all, great to hear things like this in these YOLO (you only live once so splurge on credit) times!

I am old fashioned that way, that I absolutely hate today's ubiquitous super easy availability of loans and credit cards. Its almost become a second nature to many people to take loan or swipe that credit card without second thought. It can be beneficial if used wisely. I use my credit card only if there's any discount to be availed through online shopping and promptly pay it back before month end. But I've colleagues and friends who are nose deep in debt with multiple loans(car, housing, personal) and credit cards (outstanding bills running into tens of thousands to more than a lakh)! Some of them take new loans to pay off older loans and credit card bills. The amount of financial and mental juggling required to balance all these is just beyond me!

[GTO]

Thanks for starting this thread, Bluehead! As someone who is very financially conservative (but quite a spendthrift too...on the right things ), I agree with many of your points. We have several related threads on the topic, but this one can stay independent as it's a good refresher of some golden rules + has turned into a fantastic discussion.

Wanted to just chip in and say, you MUST consider the pre-owned route if you have even a little knowledge about cars. That'll straight away save you a whopping 50%. As an example, I bought a 3-year old Civic with ~7000 km and a year of extended warranty left, for 8.10 lakhs (price of new at the time was 16 lakhs).

Originally Posted by Bluehead

Car affordability = 50% of Gross annual income

I'd personally never be comfortable spending 50% of my gross on a car. My current comfort level is 10% or less. However, back in the early days of my career, I might have gone to 25%. But never, ever half my gross.

Just to clarify = what I mean is to not spend more than 10% of your income on a car (including EMIs, insurance etc).

This rule states that to be financially prudent one needs to use a new car for at least 10 years. Car is one thing which depreciates quickly. The value of a car falls minimum 15% the moment it hits the road and is out of the showroom.

. Especially with today's cars that are so good. And if not 10 years, own it for at least 8 - 9 years.

Keep, swap or upgrade? (ARTICLE: YOUR 5 year old car : Keep, Upgrade or Swap?)

Or do a lateral upgrade (ARTICLE: The Beauty of Lateral Upgrades (Getting MORE CAR for LESS $$$)).

[jetsetgo08]

Just another pointer, I think the rate of increase in car prices need to be factored in, (for the past 2-3 years) for a D-segment or luxury SUV, the rate of increase has outdone the rate at which wealth typically appreciates.

[Lobogris]

Originally Posted by SmartCat

Depends on what kind of financial responsibilities one has.

- People who have crossed 50+ need to be even more conservative since higher education expenses for kids, their wedding expenses and personal retirement will be looming ahead.

Why should a person over 50 worry about wedding expenses or education expenses for their kids? The only worry should be personal retirement. If money is tight, the kids can get married at court or hold a small ceremony paid for by the kids themselves. It is silly to spend money on a wedding after working hard and saving for years. Education for kids till school is obviously the responsibility of the parents. After that the kids can avail an education loan an work a little to help pay for their education. Why should the older parents sacrifice their comfort, fun and retirement? Of course if one is financially well off, one can pay for the kids education but not at the cost of having to scrape for years and forego your own comforts. In addition, the kids need to learn the value of money by earning it themselves.

[amoghchaphalkar]

I follow these rules:

1. Never buy a vehicle (car/scooter/bike) on loan. It has to be in full cash. (Fill it, Shut it, Forget it)
2. Budget = Max 20% of my liquid savings

For e.g. : If I have 1 crore worth of liquid savings - my car budget will be max 20 lacs. (Pre-owned or new)

Additionally: for routine upkeep and maintenance (including detailing) budget for 5-6% of the car value. For the above 20 lac car example - I will keep aside 1 lac a year. You will not necessarily use it, but always helps to budget it that way.

[2000rpm]

Originally Posted by GTO

but this one can stay independent as it's a good refresher of some golden rules + has turned into a fantastic discussion.

Also GTO, the industry has matured a lot. I think the first question today while buying a car is, DO YOU NEED A CAR?

I am sure the answer for a lot of us in Mumbai + Bangalore will be no.

Sold my car recently and realized, I dont really need the car. I take cabs to office (to and fro), Prefer taking a cab to malls (to avoid the multi level parking and walk back to relevant point), hired a REVV for a recent Lonavala camping trip. Since this was a lil bit of offroading, got the Ecosport, My friends City scrapped in multiple places.

With such a usage my outgoing expenses is
~ 400 to 800 per day (depending on the mercy of surge pricing)
20 working days a month = 8000 to 16000 per month
5 trips to malls per month = 200 x 10 = 2000 per month

One Outstation Rental per quarter = ~5000 = ~1700 per month

Monthly expense range = 11700 to 19700.

Benefits
I dont need to drive, hence can catch up on friends + office + Networking calls
Much more energy saving for myself by avoiding Mumbai driving
No time wastage at petrol pumps, tyre pressure points
No Insurance renewal headache
Different car for different usage
Can rent out parking to people which can fetch about 2000 to 3000 k per month (havent done that so far, as I will buy a back-up car)

Disadvantages
Cant pick up the car and run for office, takes 10 mins everyday to coordinate pickup
Cant make sudden outstation plans without planning ahead
Dont enjoy the luxury of a City or a civic in a Wagon R (most common Uber or Ola)
Cant do road trips, I fly to any destination where there is a direct flight (which is not a disadvantage for me, I prefer it that way)

[ajmat]

Originally Posted by Lobogris

Why should a person over 50 worry about wedding expenses or education expenses for their kids? The only worry should be personal retirement. If money is tight, the kids can get married at court or hold a small ceremony paid for by the kids themselves. It is silly to spend money on a wedding after working hard and saving for years. Education for kids till school is obviously the responsibility of the parents. After that the kids can avail an education loan an work a little to help pay for their education. Why should the older parents sacrifice their comfort, fun and retirement? Of course if one is financially well off, one can pay for the kids education but not at the cost of having to scrape for years and forego your own comforts. In addition, the kids need to learn the value of money by earning it themselves.

Am in this space! Its very easy to say all that!

Marriage - while I don't really care for extravagance, I would prefer to make the day special for my child and also those who have played a significant part in her life! A dingy court is not really my desired memory.

Education - A good education for my child means less mental stress for me as I get older. Am paying big money for a reputed institution as opposed to saving and settling for the mundane. The biggest gift to my child will be for her to start with strength on a firm foundation without the weight of debt.

My child knows the sacrifices we make and values money more that I do as a result.

Back to cars!

I usually buy my cars cash down outright. Either new cars with good resale or preowned. My thumbrule is

Simple solid reliable cars - pre-owned
German cars - buy new but maintain and keep for a long time unless you have the comfort of a warranty for a used car.

I broke all rules buying the Honda Vtec - must have spent 40% of my gross at the time, soon after my house renovation but I enjoyed every minute of that car!

[V.Narayan]

Originally Posted by Hayek

And recognise that in a slowing world economy and with increasing trade barriers, the income trajectory of people in their twenties could be much more like of those who started their careers in the 1970s than those who started their careers in the late 1990s or early 2000s

One of the most sensible statements on this entire thread. Folks who have worked for less than 20 years have only seen, by and large, Campa Cola times. Those of us who started earlier or run businesses have experienced ups and downs and do not usually assume assurance of income and increments.

If you have to take a loan for a consumer good then might as well do it for a valuable painting by a renowned artist. At least it will appreciate in 10 years.

The advisors who tell you the loan is at x% and your principal saved will earn you X+% in a mutual fund are talking of theory. Though I fancy myself as a prudent investor with at least one scar from the Harshad Mehta days I at least have never ever been able to time investments so perfectly given all the other pressures on the same pool of cash. May be these advisors have better discipline.

If you want to live one notch above your pay grade invest that extra horsepower into the house you buy.

[theMandarin]

This debate seems to be tilting in one direction so allow me to weigh-in in an attempt to make it perfectly balanced, as all things should be. (#Thanos )

There are two schools of thought at extreme ends on the scale, one is to ensure that rationality takes precedence while deciding on the purchase decision for a depreciating asset and the other is what we can call the YOLO (You Live Only Once) methodology and the decision-making pattern it promotes. I firmly believe there is a middle ground on this scale which is being financially prudent.

The responses on this thread give the impression (I might be wrong) that the OPs are mainly self-employed or well settled in their respective jobs. The premise that we should not spend more than 10% of our liquid savings on the car purchase or only 10% of our gross annual salary is logically sound and will ensure we don’t find ourselves in any adverse situation that is tough to get out of. But how many of the citizens of India who are making a purchase decision each month, would satisfy this criteria while deciding on thier budget? Its’ safe to assume that it would be <50% but It would be wrong to say that the remaining 50% are wrong in their approach.

I would prefer to reverse engineer this problem. As an example, after meeting all of my expenses/investment/contingency-fund obligations, I can spare 10K each month. This would make me eligible for a 4 Lakh loan over a 4-year period. I would pitch in another 2 Lakh to this and buy a new/pre-owned car depending on my preference and risk-appetite. So, after I spend 6 Lakh on a car purchase, I have exceeded the 10% criteria by a fair margin, but I think I am still being financially prudent.

The future is definitely uncertain in terms of our earning potential but the same is also true for the time we have to comfortably spend what we have earned. BMW’s marketing pitch “Don’t postpone joy” comes to mind here. This does not mean I would go and buy a 3 series on lease after discounting all other liabilities but I would like to own one before my back starts to hurt even if I have to stretch myself.

I’ll be happy to be corrected.

[yd_gli]

Ah! The classic "how much to spend on a car" argument.



I would imagine that a car for almost all members on this forum falls into the hobby/enthusiast category and not the Point A to Point B necessity of modern life category. Hence, the rules as good as they are a little unrealistic in my opinion as has been voiced by several other posts.

For an automobile enthusiast like me, keeping a new car for 10 years is not an option. I would rather compromise on other aspects of life (vacations abroad, expensive restaurants, alcohol etc) to ensure that I can feed my love of automobiles. Point being, not following the above rules is probably OK if you can compromise on other aspects of your daily expenditure. I see too many people not buying a car they like due to preconceived notions such as cars being a bad investment or the apparent stigma of changing cars often. Not all value can be perceived in monetary terms.


This is true for all facets of life where passion/enthusiasm is involved (sports/music/art/travel etc). There are no real hard rules for obtaining something that makes your life happier or better. You just need to balance it out with something else. If everyone operated with strict rules, then we'd be boring robots. Like the guitar player in my band often says "its not about how many guitars I have, its about which one to get next"!

[anandharamanp]

I had followed the 50:50 rule during my last 2 purchases - Santro and the relatively recent Vento TDI. With Santro costing me 4 L OTR in 2008, i invested 2 L upfront and for Vento costing 13L OTR, i invested 6.5 L so that i cut down on the interest portion to a certain extent and don't have a heavy EMI burden. The balance 50% is a loan.

Hope i will follow the same in future too

[blackwasp]

Originally Posted by Bluehead

I have complied few financial thumb rules that may help you in making financially prudent automobile purchase decisions

Thanks for sharing these. Let me share some of my experiences. While I'm all about 'owning' a car, I find unique ways to enable the purchase. Rather than just call it a dream, working towards it with changing other aspects in life is my way to go.

1. Abarth Punto - picked up as we weren't sure such a golden chance would come along later. Totally happy with the car: 3 years on 60k kms done.

2. WagonR CNG (for Uber) - Picked up in Oct 2016 with a Rs. 1.45L downpayment. Happy to report that loan was closed just last week. Car has done 1.15L km on the odo and plan to keep it till Oct 2019 for sure. Maybe then convert it to a white plate and use for city runabouts (CNG being cheaper than petrol).

3. M800 - Picked up used in Feb 2019 for cheaper than the cost of a current-gen flagship smartphone . Got a freeflow and aux lights to it and its a hoot to drive.

For me, the cars have always come first and I look for ways to either reduce my cost (eg. Uber WagonR which has been earning money for itself) or buying used (M800). Despite all the finances or the thumb rules, at the end of the day you really need to think hard and ask yourself "Will you regret not picking up this car?" IF the answer to that question is yes, you need to figure out a way to make the purchase happen. It could take a month or a year or even more to save up / cut costs elsewhere, but if that's what will make you happy, go for it.

[SRM]

The two thumb rules that I prudently follow are:

1. Buy a car only in cash (don't like paying interest on a depreciating asset). It helpe me buy something that I can really afford and if I don't have enough for the car I want, then I work towards saving for it and then buy it after some time.

2. Look to keep my car for 5-7 years and hence always prefer the top version of the car I buy so that it remains fresh with features even after few years. If I can't afford the top version of the car I want, either I go to a lower segment or again save that extra bit and return after few months to buy the car I want.

[5kmiles]

Originally Posted by 2000rpm

Disadvantages
Cant pick up the car and run for office, takes 10 mins everyday to coordinate pickup
Cant make sudden outstation plans without planning ahead
Dont enjoy the luxury of a City or a civic in a Wagon R (most common Uber or Ola)
Cant do road trips, I fly to any destination where there is a direct flight (which is not a disadvantage for me, I prefer it that way)

Biggest negative of using cabs as regular ride:
Non existing brakes
Worn our tyres
Barely existing suspension
Poorly maintained leading to other risks
Overworked, ill mannered, unpredictable, and poorly trained drivers. bad ones outnumber the good ones.
Unpredictability of service due to random cancellations

I don't and won't ever use cabs as regular rides. I take cab 2-3 times a month at max.

On the topic of buying car:
In 20s, car worth 50% of ctc
In 30s, car worth 25% of ctc
In 40s, car worth 10% of ctc

In 50s, drive the one bought in 40s.