[Chethan B G]

Originally Posted by scopriobharath

hi GTO - please share what is 10% rule means.

As per my understanding: 10% of the net asset value at any given point of time, is the maximum amount ideally one can invest on any deprecating asset.

Please correct me if I am wrong.

[drsingh]

Originally Posted by Chethan B G

As per my understanding: 10% of the net asset value at any given point of time, is the maximum amount ideally one can invest on any deprecating asset.

Please correct me if I am wrong.

By and large it means 10 % of your net income.

I take it a step further and include all transportation costs at under 10%. Not including any recreational driving /vacation driving etc.

[vikash49]

Originally Posted by GTO

I don't agree with your post. Even food depreciates, so do clothes, watches & nice holidays. That doesn't stop us from fine dining, dressing up or touring, does it?

As long as it's within your budget (read = sensible planning), there is nothing wrong in getting a nice car that you'll get so much pleasure out of!

But the key is the % of income you spend on your car. 10% or less is the golden rule.

+1 to that.

Personally, I like to keep it close to the amount I earn in a month.

But then, this 'golden rule' cannot be applied to small income groups that earn under 1L per month. And there are many who fall within this income group but still own and drive around in cars that cost 25-50% of their annual income

[chandra1]

A few months back I spent all my savings and bought a Suzuki Baleno and I have never regretted it for a moment. And mind that I started earning just 2 years back and have parents and college going brothers to support. The satisfaction and happiness I get from my car is worth more than the money I invested in it. No land plot or financial investment would have given me that happiness.

Financial security... really? Life is short. Spend the money on things that give you and your closed one happiness. Don't earn and live for tomorrow. You will never be able to make tomorrow secure enough to start enjoying life.

[Su-47]

Originally Posted by Chethan B G

As per my understanding: 10% of the net asset value at any given point of time, is the maximum amount ideally one can invest on any deprecating asset.

Please correct me if I am wrong.

From an accounting perspective a car is indeed a depreciating asset, but, it is easier to see it as an expense and hence determined as a ratio or your income and not NAV.

Allow me to illustrate with two ridiculous examples: Imagine a person, who got into the workforce 3-4 years back, makes 1L per month (in hand) and has a saving of 10L. If we go by the NAV logic, he can't afford much of a car. On the other hand, a colleague of this person (same salary) who received an inheritance of 5 Cr., can afford a 50L car. That doesn't make sense either, as the 5Cr NAV doesn't allow him to continue to own a 50L on an ongoing basis.

It becomes simpler if you look at owning the car as an expense, and apportion a percentage of your income towards it. For example, if you apportion 15% towards a car (10% towards EMI, 5% towards insurance, fuel, maintenance), the same person making 1L per month can afford a car costing 5L (12.5% interest, 6 years). Unfortunately, this isn't an answer many people like. I've personally known people who make this level of money, and think it is below their dignity to own a Swift.

Ask yourself, when you plan a vacation, does the “getting there in your car” part contribute a great deal to the pleasure you derive from the vacation. Or, does it make you more attractive to the opposite sex? If it does, you could apportion some of your pleasure and entertainment budget towards owning the car. . Then there is the sense of pride associated with car-ownership, much like home-ownership. So, I doubt if a Zoomcar can be a perfect replacement for your own car.

On the other hand, if you are a rationalist, and the car is merely used as a means of transport in a congested city like Bangalore, you could choose one as if it were a home appliance: Comfortable to drive (good low end torque and/or autobox, nice airconditioning), efficient.

[Mithrandir]

Dear DMD if you really love driving, if being on the road in your favorite ride makes you feel on cloud 9, then just go for it. What use is the money if it doesn't bring you the happiness you seek?. When spending on luxury (anything which depreciates in value once you buy it), I have a thumb rule of my own: You can spend an amount almost equal to your one year's net income. Try keeping it around that figure. When I was buying my car, I set my maximum budget at Rs. 7 lakh which was my annual income at that time. Hope this helps.

I read about an over draft Auto loan facility by SBI in this forum. Do take a look at that. I don't know whether the scheme still exists or not. If it still exists then I think it can be a very good option to buy a car and also maintain liquidity for unforeseen expenses.

By the way (I know its none of my business, so pardon me if I am offending you), I am bit surprised to see you are saving in chit funds. I implore you to tread carefully. I would prefer a good mutual fund/SIP or direct investment in equities over chit funds (even if it is run by the government)

[Nissan1180]

While I agree with everyone (yes, those who support the inclination and those who are against it), I have a feeling that your family alone can decide on the course of action.
If I were in your situation, I'd buy a used XUV500 that is bigger, has much more road presence than the S Cross and makes more vehicles give way on the highway. I'd invest the remaining 50% of the cash on an appreciating asset and retire from this decision making process happy at having created value for the family. I think getting a new car is a part of creating value for the family. Maybe intangible value, but it is definitely value. Yes, it is a depreciating asset, but aren't our smartphones depreciating assets? Yet, we invest $1000 in an iPhone. The only reason is that we like the convenience it offers and we like the fact that we're using something that is cutting edge and a better phone does not exist (at least till date).
Similar is the case with a car. Buy something that is very contemporary and yet has enough examples at a good price band in the second hand car market.

[tanwaranil]

Originally Posted by Ace F355

Well I just emptied my bank account on buying a used car, a pre-worshipped Fortuner (interesting story, would put on ownership thread soon). So you would know what I would suggest!

How much did you pay for it ? What year ? how many KMs done ?

[Turbanator]

To me Human Body is the biggest depreciating asset, I remember doing so many things in my old shape Maruti 800 - 20 years back that I can't even think in any of BMW's with me. Similarly can't forgot the stunts I used to do on my Dad's Vijay Super scooter which I can't replicate on Harley's / Triumph now.

So there is certainly an age element to what we all do at what time.

Coming to thread , I will suggest to keep the money in some Deposit or other investments and instead take a new car on Loan based on EMI he can afford easily , forgot the losses due to interest as saving a large amount is more difficult then paying EMI and by going via EMI route it will be kind of forced saving even though on a depreciating asset & it will have a residual at end of loan tenure.

[shibujp]

Originally Posted by DMD

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.

Personally, I am never comfortable with putting liquid cash into buying a car. The only liquid cash I put into a car purchase is the resale price that I get on my old car. I prefer getting a loan and paying off the EMIs to finance the rest. Some rules that I personally try to follow :
1. 10% rule when it comes to EMI and car expenses.
2. The loan amount should always be lower than the resale value of the car. This way anytime I am in a crunch situation, I sell the car and be done with it.

Between thanks for posting this question. It opened up a lot of useful perspectives that everyone can learn from while making their own car purchases.

Drive on,
Shibu.

[kotirajendra]

@DMD,by all means go for the car - the car that meets your needs.

I personally made a list of must haves and nice to have that I wanted in my car. In that list, you should also have how much recurring costs that you are comfortable with and the amount of time you would like to own the car. After that shortlist the "minimum car" that meets your needs. For me value for money is paramount and even if I have the cash I wouldn't throw it at something that doesn't meet that definition - a fool and his money are soon parted . Pls- not calling anyone here a fool.

Recurring costs on expensive car can take the toll-
a. Higher insurance.
b. Higher costs due to road love.
c. Cost of spare parts
d. Premium car washes to keep the paint showroom like.
e. Higher cost of tyres
f. Mileage (sometimes)

Paying in cash should always be preferred than taking a loan. No point in paying someone else for a depreciating asset - unless you are confident of making more than the interest that you are paying (in which case you wouldn't even be asking this question).

Good Luck !!!

[streetfighter]

My 2 cents...
Since you are earning well, technically good professionally, feeling stable and confident about yourself, I don't see a reason why you are withholding yourself to make a high-value purchase which will make you happy ! The heart and mind will almost always be in opposite direction, but it is always better to follow the heart atleast thats the way I've lived.
You are already a good earner and a good saver, keep continuing that way. Do have adequate life and health insurance (cover all family members including parents) and keep a healthy bank balance at all time.
Bank loan or not is a personal choice, I don't see any benefit of bank loan in this case (I mean you do not get tax exemption as you get for a home loan).
But... go for it... buy some toys for yourself too !!

[vamsi2390]

Hi DMD,

Thanks for this thread. This did open up a lot of perspectives on the car buying process.
Im sort of in a similar situation where in I returned from an onsite assignment and have had some liquid cash which was invested into a FD. I am being tempted to make a splurge and get a Baleno/Figo. Though the amount in question is half of yours (8.5), it is still actually a lot for me(assuming Baleno alpha 1.2/figo titanium tdci).

For now, as I'm looking at a relocation/travel and i have postponed any such decision and would continue in investing.

But at the end of the day, when i would want to get the car, it still seems to be rather a different view on whether one should go for an EMI or get it with cash. I think I would go with cash down as i would not want to be paying any interest on a depreciating asset to put it in simple terms.

[Jakku]

Originally Posted by DMD

Hey Guys,


...

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

...
Regards,

I am not a financial guru and my personal finances are not good due to mismanagement, so take my advice with not a pinch, but a bucket of salt. Having said that, I told the same to a friend of mine and he felt it to be good and adopted it. Now he is appreciative of my opinion.

This is what my friend's dilemma was and what I asked him to do.

My friend wanted to buy a Hyundai i20 Active, he can afford the EMIs and the down payment for it. Now, he told me the same. I am a die hard enemy of Hyundai ASS from my own experience and never recommends the same to anyone as I own a Hyundai Accent Executive (this is purely my opinion, no offence meant to fellow Hyundai owners and believe me, I love my Accent). I like Tata cars (only cars) but again a die hard enemy of their ASS. My friend in this picture is a die hard enemy of Tata, but a die hard fan of Hyundai.

I asked him what is the down payment he is asked to shell out. With that amout, he can do an outright cash purchase of Tata Nano and his current usage can be very well taken care by a Nano. I put this in front of him. He is going to buy a Hyundai with Rs.X as down payment and Rs.Y as EMI for next 60 months. I asked him to buy Nano with Rs. X as outright cash purchase (which other wise would have been just the down payment) and then start a SIP in a good MF for Rs.Y for 60 months which otherwise would have been his EMI. After a personal brainstorming, then with his family and other friends, he accepted this proposal. Now about 2 years down the lane, he is happy with Nano (that is really important) and my advice of SIPs. He already made his down payment and encashed that and converted to an FD and most probably would make the entire amount to buy another car with outright cash by the end of 60 months.

Here your case is different, you have cash in hand and wanted to buy a car. Now, I like S-Cross, but if you have Rs.17.5 L at your disposal, I would suggest you thoroughly study the options available for that money and decide the car. Before you decide the car to buy, make up your mind on how long you are going to keep the car. If it is going to be 7 or more years, in my opinion, you shouldn't consider resale value as a criteria. Instead, check out personally on all the cars you shortlist in that budget and get connected to the car and then buy it.

Now, from financials perspective, I would suggest this.
Go to multiple banks and get quotation for your purchase and then find who is the best financier to finance your purchase and finalise on that. Instead of opting for loan, buy it outright for cash. Now, you check with your financial adviser for the right MF to invest in or if you do not have one, check in multiple sites like moneycontrol.com, ndtvprofit.com etc. and chose the right one. Now start a SIP for the EMI otherwise you would be shelling out monthly. Here you save on the interest part, no liability what-so-ever, etc. If you end up in deep financial crisis for any un-foreseen reason, this purchase & EMI will never be a burden. If you chose the right MF, you will recover the down payment otherwise you would have paid in less than 12-18 months and the who amount you invested well before 60 months.

Here you have to be aware of 2 things ---
1) you are exhausting your liquid cash for a "liability" (I understand in financial terms car is not considered as an asset). So, any unforeseen emergencies should have some other means to be met. From your explanation about yourself I understand that can be offset even if other investments are not so liquid.
2) MF are subject to market risks. It is vulnerable. So, you are taking a calculated risk in this approach. In other terms, you should always keep a tab on your investments.

Just my 2 cents, I again warn you that I am not a financial expert or even novice, but this is the way I look at it. I have actually started a SIP for buying my next car. What I did was went to the market to enquire about the car (I shortlisted Fiat Linea Emotion) and took all the financial quote and started a SIP equivalent to the amount of EMI. Now, I had my existing car as my down payment, so I didn't do any bulk investment (equivalent to the down payment). Now at 8th month of investment, I have an amount equivalent to ~10% of the car cost. So, this is something workable, I am sure.

There are a lot of financial gurus in this forum who can actually clear a lot of misconceptions and a lot of stupidities in my approach and help you better.

Off topic :- if I were you, I would wait for Nexon & Hexa to get released, then decide.

[RajBajwa]

WOW! This thread caught my attention and I would like to contribute to it. The original question was asked more than 20 days back and there have been several replies on it. I don't want to add to the conundrum.

@DMD you have received a plethora of suggestions and I don't have anything to add. I am already too late. My only 2 cents here. Ask for advise and listen to 100 people but finally you take the final decision based on your gut feeling. Only you know all the finer aspects of your financial commitments, life goals, priorities and what risks you can take.

This thread has struck a chord with most of us. Many of us team members have been in a similar predicament at some point of time in life. I am guessing that the average or the median age of the forum members here is close to your age.

This is now a discussion forum for asking the age old question -

What car can I afford to buy?

I think this has been discussed before but let me share my personal view on this generic topic.

I have learnt this late but I feel that in India the priority is to buy a house after you start working. If we start our working or professional careers by early 20s I think for most of it becomes feasible only by our late 20s or early 30s just to save enough quantum for the down payment and be able to afford the EMIs. However the benefits of owning your own house will be realized late in our lives when we are nearing retirement or beyond. It is good to buy your own place even if you are going to inherit some large property. It gives a feeling of achievement. @DMD you already have got the check box marked for this priority.

By our 30s we are getting settled in our careers and if we have saved good money then the temptation creeps in to buy a nicer car.

My logic here is that although all of us very passionate about cars we shouldn't forget that they are ultimately things or objects. Things break over time either accidentally or through regular wear and tear.

I don't want to deplete all my financial resources on a car no matter how crazy I am about it. There's more to life than a car. There are many simpler pleasures in life. You should have enough money so that you can live without having to worry about money. This again is not necessarily a large princely sum.

What I mean here is that If I walk into an ice cream shop I do not want to think about the price of ice cream but just enjoy the flavour of the month or whatever silly sundaes they make with all the extra toppings.

The financial analysts and pundits will give all the gyan about how a car loan is good as you can invest your money where it generates better returns.
If you are a salaried working professional, you don't have the time for that. Pay upfront or keep a loan of not more than 1.5 years so that you can enjoy the car for a good portion of its life without having to think how soon will you pay off the loan.

I would never buy something which is bigger than me. A simple thumb rule. I wouldn't want to buy a car which costs more than my annual income. I consider affordability not by the amount of money which I have in my bank account but how much will it pinch me if something were to happen to the object.

I may have a few lacs to buy a nice expensive Swiss watch. However I wouldn't buy the watch at a price where it would almost give me a heart attack if I were to lose the watch or someone were to steal it.

Similarly for a car, although I may have XXX rupees as liquid cash but what I can afford is that after buying the car I have a cushion of money for any unexpected emergencies or just to splurge on some other indulgences.

Similar to the Swiss watch analogy if a tree were to fall on my parked car I should be able to smile and say. It's just a thing and I'll fix it and not hold my head down and say that I am doomed (Yeah Yeah Insurance will take care of it but still I hope you get the point I am trying to make).

I like Pre-owned cars as you are able to buy a much nicer car with better specs at a fraction of the original sticker price. Also driving a Pre-owned car gives me a lesser degree of pride about it and hence I feel it keeps me grounded and humble. Its my way of not giving in to one of the 7 deadly sins which the good book talks about.

The new car smell is a myth. It's just the smell of plastic which meddles with the brains of us car enthusiasts.

Keep the car clean and well maintained. Fix any dents if you get them and always wax the car. It is a good workout and every time you park your car and walk away from it you tend to look back one more time to admire the gleaming beauty. These moments are Priceless!!!