[Ani0404]

Hello all. Few members mentioned that 15% of annual take home salary can be kept aside for EMI + fuel + maintenance. Suppose if a person earns about 45000/- per month after all deduction then 15% of annual salary would be about 81000/-. Dividing this per month results is 6750/-. Isn't it very low to include all expenses?

[vinit.merchant]

Originally Posted by Acharya

I have slightly different view on this equation of 'what car @ what salary. IMO, what car you can afford is actually linked to your net worth, not just your salary.
Moreover, 7-10 percent of net worth is the maximum limit.

Just for clarity :- net worth = all asset - all liability, for an individual.

This calculation, if I may add, is unreasonable. Most of a persons net worth value comes from non cash capital fixed assets like real estate.
Now in place like Mumbai, where a person stays in his home which might be valued atleast a couple of crores, if not more, but earning a modest salary cannot go ahead and buy and afford a 20L car.

IMO, real estate and gold should be left out if this type of calculation is being used.

Originally Posted by Ani0404

Hello all. Few members mentioned that 15% of annual take home salary can be kept aside for EMI + fuel + maintenance. Suppose if a person earns about 45000/- per month after all deduction then 15% of annual salary would be about 81000/-. Dividing this per month results is 6750/-. Isn't it very low to include all expenses?

This is what a person can reasonably afford. Anything more, and the person would actually find the car stressful to maintain.
Talking from experience :-)

[jetsetgo08]

Originally Posted by m3_07

Many If's & But's
if the organisation offers car lease as a benefit, this isn't a no brainer.

My organization does offer a car lease but for a much higher salary bracket.
Is there any other way to apply for car lease?

Originally Posted by Hatari

But if you're a family man, and a smart one at that, 15% should be the yardstick.

Well, I am not yet a family man but I might become one soon, and hence I do not want to carry any EMI bags.

That was a great deal on the verna. I had been hunting for a good used car since a long time but they are seldom available at a good price.

Originally Posted by AutoSphere

Not more than 1/3 of your annual take-home on the car-loan for a max tenure of 5 years

I will have to derive a right balance of the down-payment and EMI in that case. Will work on the calculations.

Originally Posted by Acharya

Just for clarity :- net worth = all asset - all liability, for an individual.

I am afraid I don't hold any asset, that would mean 'NO' to loan and 'YES' to full cash down. No offense, but it doesn't sound practical, at least in my case.

Thanks all for the prudent suggestions, will update on further developments.

[Acharya]

My friend, if someone owns a home worth few crores (with loans paid off), he can very well afford a 20 lakh car.

Originally Posted by vinit.merchant

Now in place like Mumbai, where a person stays in his home which might be valued atleast a couple of crores, if not more, but earning a modest salary cannot go ahead and buy and afford a 20L car.

Isn't it the right time to build assets, than spend big chunk on a car at this point? You will surely thank me at some stage in your life, if you follow this advise

Originally Posted by jetsetgo08

I am afraid I don't hold any asset, that would mean 'NO' to loan and 'YES' to full cash down. No offense, but it doesn't sound practical, at least in my case.

[avisidhu]

Originally Posted by Acharya

My friend, if someone owns a home worth few crores (with loans paid off), he can very well afford a 20 lakh car.

This is one of those things which may sound true in theory but not in practice. Purchase of any good would (and should) mostly depend on earning and not on immovable assets like real estate. And in most cases the house you live in is such a preposition that you cant even consider it an asset that would yield you something in return.

[AutoSphere]

Originally Posted by jetsetgo08

My organization does offer a car lease but for a much higher salary bracket.
Is there any other way to apply for car lease?
.
.

I will have to derive a right balance of the down-payment and EMI in that case. Will work on the calculations.

Absolutely right, since I am referring only to the loan amount. Which means based on the down-payment, you may have some choice in the price range of the car.

[jetsetgo08]

Originally Posted by Acharya

Isn't it the right time to build assets, than spend big chunk on a car at this point? You will surely thank me at some stage in your life, if you follow this advise

1000% correct. I agree to what you said. I am trying my level best to achieve the fine balance of savings and splurging on luxury(car), but I usually find myself failing to control the urge.

It is a debatable topic that will question my existence on Team-Bhp.

[reignofchaos]

Originally Posted by Acharya

My friend, if someone owns a home worth few crores (with loans paid off), he can very well afford a 20 lakh car.

Appreciation of land and property especially in bangalore has been astronomical of late. Independent houses that were bought and constructed for <20 lacs command a value of 2 cr in the resale market. However do you think an average joe's income has increased in the same way?

Property is not a part of liquid assets - finding a buyer for a multi crore house to liquidate it is not easy. The process can take many months - been there, done that. So even if a person owns a property worth a few crores due to appreciation, he/she may not have the liquid cash to buy a high end car.

Banks hand out loans based on your credit rating which is based on your ability to return back the money you owe. It has nothing to do with how much inherited/ancestral/acquired property you might be sitting on. It totally depends on your cashflow and to some extent how much liquid cash you have in hand.

[nd4$pd]

Here is what I do. And I realize this is not for everyone.
I have never bought a car on loan. Every single one of my cars/bikes (excluding the one my dad gave me) has been bought fully. I have saved up to buy them after my other obligations. I don't believe it is financially prudent (for me) to take a loan on a depreciating asset.
I realize I can perhaps afford to own better cars than I do now if I avail a bank loan but it's just not for me. Again, this is just my opinion.

[Acharya]

Think of it this way bro - someone who could afford 20 lakh property in 2000-2002 (since 10 times appreciation in Bangalore has taken at least 15 years, if not more, in real estate) and continues to do well, he should be able to afford car of 20 lakhs. Unless, he had no continuous means of earning and bought the property by fluke.

Moreover, not to be rigid about my own idea, I think my theory works for people who remain with stable income and grow economically over period of time. Certainly not for people who have no cash flow and probably have big assets from ancestral property. In that case, even 'what car @ what income' would also not apply

Originally Posted by reignofchaos

Appreciation of land and property especially in bangalore has been astronomical of late. Independent houses that were bought and constructed for <20 lacs command a value of 2 cr in the resale market. However do you think an average joe's income has increased in the same way?

[avira_tk]

Originally Posted by reignofchaos

Appreciation of land and property especially in bangalore has been astronomical of late. ..
Property is not a part of liquid assets - finding a buyer for a multi crore house to liquidate it is not easy. ...

Banks hand out loans based on your credit rating which is based on your ability to return back the money you owe...

I think he is referring to people who have paid up their loans on their houses, maybe some who were able to repay it years in advance, the cash flow and affordability will be very different. It also depends on priorities, people with paid for houses may be spending more on experiences rather than possessions. A lot of people with high incomes and ordinary cars seem to holiday quite regularly.

[vinit.merchant]

Originally Posted by Acharya

My friend, if someone owns a home worth few crores (with loans paid off), he can very well afford a 20 lakh car.

Not necessarily true. A lot of people inherit the property. Additionally, it is something which cannot be counted because it gives nothing monetary in return. We are talking about self occupied property. It may have crores of market value, but just like gold/ornaments, one doesn't even think of selling it. At most, it would be replaced, but not sold off.

Originally Posted by jetsetgo08

1000% correct. I agree to what you said. I am trying my level best to achieve the fine balance of savings and splurging on luxury(car), but I usually find myself failing to control the urge.

It is a debatable topic that will question my existence on Team-Bhp.

The best way to know how much worth of a car you can afford is a simple calculator.
After paying off all your monthly obligations (housing loan EMI, personal loan EMI, SIP's etc) and after meeting all your routine monthly expenses, whatever is left, divide that by 2 and voila, you have the amount of EMI you can afford every month. (why 2? since the other half you will still need for fuel , maintenance and the vacations)

Originally Posted by Acharya

Moreover, not to be rigid about my own idea, I think my theory works for people who remain with stable income and grow economically over period of time. Certainly not for people who have no cash flow and probably have big assets from ancestral property. In that case, even 'what car @ what income' would also not apply

You idea works well for those who have invested in multiple properties and are earning rental income out of that. For them, they can add the value of all, except the self occupied, properties.
Another area where your calculation would work perfectly is when there is no car loan involved in the buying procedure. In that case, the person can reasonable assume the yardstick that the new car should not be more than 10% of the current net worth.

For all those considering to buy a car on a car loan, my suggestion is to use a simple calculation based on monthly surplus as listed above instead of going by the net worth et all.

[avisidhu]

Originally Posted by reignofchaos

Appreciation of land and property especially in bangalore has been astronomical of late. Independent houses that were bought and constructed for <20 lacs command a value of 2 cr in the resale market. However do you think an average joe's income has increased in the same way?

Property is not a part of liquid assets - finding a buyer for a multi crore house to liquidate it is not easy. The process can take many months - been there, done that. So even if a person owns a property worth a few crores due to appreciation, he/she may not have the liquid cash to buy a high end car....

Absolutely. Besides, under normal circumstances why would you even sell off the property anyway? It's a supposedly multi crore asset just lying around. For all practical purposes it's value add is almost zero for most people, the only saving grace being you're saving on rent. Know of cases where people (especially elderly folks) are living in homes worth 10-15Cr, and you wouldn't believe that looking at their living conditions.

[mijnoirhammer67]

Many people would have savings and pocket money coming in from the family. So it all would depend form person to person. However, if someone was only looking at their salary things could get tricky.

Lets say, the person takes home 100rs per year. About 50-60rs would go in rent and food for himself and his family. If he doesn't have a family to speak of, then I'm sure he'd spend the money on himself on whatever pleases him. Gadgets and accessories.
So of the 40 left, lets go with 5-10 going to doctors and medical bills. So 30 left, out of which he'd wanna save maybe 10 maybe 20. That leaves only 10 to 20rs left, IF you are a shrewd spender i.e. not blowing money away. You can count the EMI in the 50 and 60 rs part, and if you don't count the EMI there then the EMI would come out of your remainder 10-20rs that you have left.

So it depends from person to person. My own advice would be, whether you drive a Ferrari or the santro, always have a CHUTE. That means, enough stash for a rainy day when everything falls apart. And if that means having to ride the bus or walking everyday, then walk by all means. After your rainy day stash is on point, then perhaps go for the car. Heck, buy 3 cars.

[hybridpetrol]

Originally Posted by AutoSphere

I have another rule-of-thumb:
Not more than 1/3 of your annual take-home on the car-loan for a max tenure of 5 years, and,
Not more than 5 times your annual take-home on the housing loan - simply because real-estate appreciates, tenure is much longer and hopefully salary also goes up.

Taking your example, a guy with 10L Annual take home salary can buy a home with 50L Home loan, and he can afford to pay an yearly EMI of 3.5L for car loan, right?
Now, a little bit calc - 50L Home loan, means roughly 45K Home loan EMI, and 3.5L annual EMI for car means around 30K a month EMI on car loan.

Now 10L Annual take home means, 80K monthly salary roughly!!
A person with 80K cannot afford 45K Home loan EMI first, even if banks come forward to give such a big loan! With 35K left, he cannot spend any more on EMIs.

Or did you mean something else? Please clarify.

My view is this:
The total outgo in the form of EMIs of all nature should be kept less than 30% of total income (or 40% max), for a peaceful life. This includes any car loan, personal loan, gold loan, home loan, credit card loan and any other forms of amount that you owe to the bank or anybody else. It is better to keep the credit cards clean, rather than swipe it at will.
Using debit cards for transactions, instead of credit cards will bring us back to reality for impulse purchases.

P.S - Speaking from experience, it is rather difficult way to lead life with a lot of creditors waiting to deduct EMIs from our accounts, leaving little to lead life, and save.