How Much to Spend on a Car as a New Grad
Will be starting FT in a couple months in a MCOL city (Dallas, Charlotte, Atlanta) where I will need a car, though I don’t currently own one. What are some car spending guidelines some of you adhered to when buying your first car out of college? For reference, I’ll be working in private banking/AM with a $100k base salary, which is what I’m using to budget, and I don’t have any other debt. Some cars I’ve been considering are around $30-32k, but not sure if this is too much to spend.
A personal car as a "use item" (and not a hobby) is a business case just like any other product you may purchase.
Consider all key items before buying:
- insurance costs
- parking
- mpg, inspection/maintenance, depreciation, wear/tear, car washes ..
ultimately you will end up with a dollar amount per mile, then cost per month, quarter and year. Some brands/car models are stolen very often, some almost never. If you live and park in safe neighborhoods this isn't a problem though.
If you drive significant miles and can get behind the concept of something that's still relatively new, consider an EV. I don't drive enough miles to pay for a battery, but I wish I could.
Some car brands/models have very high depreciation, these are the ones where you have to be careful.
Lastly, think how long you want to keep the car. If you are about to get married and have kids in less time than selling this car, be aware of this.
wow man if this wasnt AI, you sure are robotic. Benchmark is purchase price less than 50% of your salary. id say target lower ur good
What exactly was robotic about a reasonable response? I have been around cars for two decades now and this was my input?
Thanks for the detailed response. I’m budgeting about $300 between gas and insurance a month based on my research. Under a 4 year term, a $30k car is about $600/month. Is $900/mo for car expenses too high for my income of $8.5k? I know I can afford it, but is it a reasonable use of money?
Is that including depreciation or without?
1K per month is roughly what most people end up paying in this vehicle segment. This assumes that you have free parking at home and at work.
30-32k is reasonable if you're in a low to mid cost of living area and you don't have too much student loan debt. I'd look at a 2018-2022 X3, new Civic (shockingly good car), new Model 3 leases are pretty affordable as well.
Nice recs. Have been considering 2021-22 3 Series and new Accords as well.
3 series is civic size- I think the civic handles better than the accord, that's why I recommend it. Civic touring should be at the lower end of your price range. I like the civic because it is less flashy, more compact/better handling, but I drive a 2018 X3, love it, feels "premium", and no issues over 1.5 years of ownership. Maintenance is a bit expensive, but if you can DIY it, I think a used BMW could make a lot of sense.
I’d just get a decent Camry if you are not into cars. It’ll be reliable, affordable and comfortable
Can spend like $25-30k and won’t have to worry about much at all and have a great car.
I second this suggestion. Toyota does a good job. I bought my 2019 Corolla used when it had 35k miles on it. Now it’s almost up to 100k miles and have had no issues. I pay for the toyotacare thing, but haven’t had to do any major repairs.
It’s kind of useless in the snow/any ice, but I don’t really need to go anywhere during that weather. Looking to get a used 4Runner in the coming years to deal with that.
Look at the used market, the prices have collapsed since their big run up in covid.
If you are trying to avoid depreciation avoid EVs at all costs. Do not lease an EV, it will be the worst decision you will ever make.
Also, I would aim for a purchase price of less than 1/4th of one year of base salary for purchase price. Why? Because private banking at the end of the day is essentially a sales game. You have no idea if you are well suited to that yet. You don't want to take on a car payment with a 100K salary and then in a year find out you hate this and want to go into corp finance and get a 80K base.
New cars are easier to finance but inflation has hit cars far harder than other areas of the economy so the base price on new cars has gone through the roof. The increase in reposessions and people getting tight on finnaces in the past 12 months has put a glut of inventory on the market for used vehicles. So that is where I would start. The big depreciation hit will have already passed, if you get a car that is say 3 - 4 years old it will have most if not all of the technology you want anyway. Plus you can stretch your dollar a bit further there and get a higher end model.
As for financing, ask the bank you work for as well as a couple local credit unions. I would avoid the dealership financing at all costs in the used market, it doesn't hurt to look at their terms but most of them are dogshit.
Get a Camry
The quality differences between cars these days are so small, I think its healthy to first admit that if you're getting anything nicer than a basic Honda then you're doing it for appearances/status.
Once that confession is out of the way and we've admitted we're spending a bit extra to look good, the next question is: what's a better look, a low-tier luxury car (like a low/mid Lexus or 3 series that everyone else has) or something with some character? Pretty easy choice.
So what is something with character. Easy for me to say because I'm a Jeep guy, so I'd much rather have an older Wrangler with big wheels and some interesting mods than some try-hard "entry level" luxury car.
For other people that will vary. My only point is, either spend extra on something actually cool, or don't spend extra.
Not knocking nice cars, I'm all for driving an M6 or 911 when $100k is chump change to me. I just think a lot of money gets wasted on these aspirational low-end luxury purchases that don't impress the way the customer had hoped to impress (same goes for watches as it does for cars BTW).
Do you care about cars?
Will coworkers/clients/etc. see your car enough to judge you because of it?
If the answer is no to both, then get the cheapest car that you feel is reliable and comfortable for you. People are giving you maximums, but my accountant/lawyer always says 'a car is a depreciating asset.' While making six-figures, he owned two $1000 cars: The summer one had A/C and the winter one had working heat. Remember, Warren Buffett drives a ten year old Cadillac that he bought second-hand with hail damage.
If you answered yes to either question, the solution gets more complicated. Dr. Rahma would probably prefer a $8k TJ Wrangler with the AMC straight-six and a five-speed to a S-class Mercedes for example. He's a car (well, Jeep) guy.
If you need to impress people then that '98 Civic that'll go another 700k miles with nothing more than regular oil changes won't cut it, and you'll need to figure out what's appropriate.
Good luck, and as we say in the car community: "YMMV" (Your Mileage May Vary)
Bit of a niche recommendation, but: Tacomas with the old 6 cylinder engine will hold value now that the new ones are 4 cylinders. Bonus points if you get a manual.
Odds are we'll never get another mass production small truck with a 6 cyl + manual ever again, but you can still buy them used with low miles right now. Handy enough for the city, not a "truck guy" truck, looks cool, reasonably quick, safe, cheap to run.
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