Another "Should I have bought this car?" kind of thread

[hightower]

34, married, no kids, dual income combined made 320k this year, but will probably be making more like 230-250k from now on (getting a new job).  I have 104k in student loan debt at 2.6% fixed (488/month for like 20+ years) and a 296k mortgage (around 2000/month with taxes and insurance).  No other debt.  We almost maxed out all of our retirement accounts this year (fell short on her 401K only because I paid off a lot of student loans).  Next year we are definitely budgeting to max out his/her 401ks and backdoor ROTHs.

We live in the city and for the last 5+ years we've been able to get away with just one car since i lived close enough to the hospital to ride a bike, walk, or take a bus.  Our current car is a 2008 Honda Element.  Paid it off a long time ago and still driving it.  We plan on continuing to drive it for another 3-4 years (unless something really expensive breaks on it).

Anyway, since I'm getting a new job outside of the city this year we need a second car.  I got really excited about this a couple of months ago and ordered a new BMW i3 (an all electric vehicle).  The price is $47,195, but I get a $7,500 tax credit on my 2017 taxes, so real cost to me is $39,695.  Plan on financing it with a 3 year loan at 0.74% through a credit union.  We started running an AirBNB room a few months ago at our home and the income from that should be able to cover the cost of the car payment most months.

Now that I've ordered it and started thinking about having another monthly payment for the next 3 years, I'm starting to question if it was an okay move.  I mean, obviously the best thing would be to pay cash, but I don't have that kind of cash sitting around and I wanted a car that would last the long haul for me (at least 10-12 years ideally).  My main justification for it was that the airbnb income would cover it, but obviously I could be investing that extra income instead.  But, we do really need a second car and I do really like the idea of a good, well made car that should last me a long time and at the same time is environmentally friendly and cheaper to "fuel."  What do you guys think?  Is it really that big of a deal if I pay it off in 3 years at 0.74% and drive it for at least a decade?  I wasn't a regular reader of this site back when I ordered it, so now I'm really beating myself up about it.

[conniebird]

My opinion (and that of many auto guys) - BMWs are to lease, NOT buy. It will not last 10 years without major expensive repairs. It's just the reality of BMWs, and prolly worse for the electric kind. Sorry.

[conniebird]

Also, one can justify any purchase however they want. But I doubt anyone here will say your purchase was a "good idea". I think you posted to hear that, no? Otherwise you would not have posted.

[jhwkr542]

I don't think it's a huge mistake to buy a second car, even at that price. Financing it was probably a mistake but it'll just be a mistake to learn from. I wouldn't do anything to correct it at this point. You have the income to afford it, especially with just the two of you.

I think the one criticism you'll get from most of us around here is your willingness to accept debt. While the maxing out retirement accounts is a good step, most of us would strongly encourage tackling that student debt. At your income, you could save for a few months and buy that car in cash and save yourself the finance charges and interest. Same with student loans, pay them off and don't be burdened by them. While some would say you could leverage the student loans and car payment in a taxable, it doesn't sound like you're doing it.

[DarrVao777]

hightower wrote:

34, married, no kids, dual income combined made 320k this year, but will probably be making more like 230-250k from now on (getting a new job).  I have 104k in student loan debt at 2.6% fixed (488/month for like 20+ years) and a 296k mortgage (around 2000/month with taxes and insurance).  No other debt.  We almost maxed out all of our retirement accounts this year (fell short on her 401K only because I paid off a lot of student loans).  Next year we are definitely budgeting to max out his/her 401ks and backdoor ROTHs.

We live in the city and for the last 5+ years we’ve been able to get away with just one car since i lived close enough to the hospital to ride a bike, walk, or take a bus.  Our current car is a 2008 Honda Element.  Paid it off a long time ago and still driving it.  We plan on continuing to drive it for another 3-4 years (unless something really expensive breaks on it).

Anyway, since I’m getting a new job outside of the city this year we need a second car.  I got really excited about this a couple of months ago and ordered a new BMW i3 (an all electric vehicle).  The price is $47,195, but I get a $7,500 tax credit on my 2017 taxes, so real cost to me is $39,695.  Plan on financing it with a 3 year loan at 0.74% through a credit union.  We started running an AirBNB room a few months ago at our home and the income from that should be able to cover the cost of the car payment most months.

Now that I’ve ordered it and started thinking about having another monthly payment for the next 3 years, I’m starting to question if it was an okay move.  I mean, obviously the best thing would be to pay cash, but I don’t have that kind of cash sitting around and I wanted a car that would last the long haul for me (at least 10-12 years ideally).  My main justification for it was that the airbnb income would cover it, but obviously I could be investing that extra income instead.  But, we do really need a second car and I do really like the idea of a good, well made car that should last me a long time and at the same time is environmentally friendly and cheaper to “fuel.”  What do you guys think?  Is it really that big of a deal if I pay it off in 3 years at 0.74% and drive it for at least a decade?  I wasn’t a regular reader of this site back when I ordered it, so now I’m really beating myself up about it.

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Having owned and leased BMWs, I would have to agree with @conniebird. I've found them to be awesome cars with less-than-awesome reliability. I personally wouldn't own one outside of the warranty period which is why I also prefer leasing BMWs. BMW tends to offer significantly better leasing rates than other luxury car manufacturers (I don't think you get the tax credit though for leasing an electric vehicle).

I've always found it an interesting phenomenon: the answer of whether it's a wise decision depends on the forum you frequent. If you visit any of the BMW enthusiast forums, I'm sure the answer would be, "YOLO. Go for it." I'm sure you make more than the average poster on those forums, I'm sure your financial position is probably better than the average poster on those forums, you have a reasonable 2nd car, you are getting a tax credit, you are getting a great financing rate, and it sounds like you have passive income that will cover the cost of the car.

On a personal finance forum? While I don't think it's the worst financial decision in the world, I'm sure most people here would advocate eliminating your student loans, eliminating the mortgage, building up to a net worth of $1M, before deciding to loosen the pursestrings and purchase the car in cash.

But if that's the worst financial decision you end up making, I wouldn't beat yourself up over it. Seems like you should still be on pace for all your financial goals and now you have a rad new car to drive

[DMFA]

Should you have? Nah. Is it going to harm tremendously much that you did? Nah.

Good ol' Bavarian Money Wasters!

[conniebird]

FWIW, I make the same income as you (well more with dual income) and would never think I could afford the car you just bought. I also live in the city, but not exactly sure which city you referring to, but as a new yorker the city to me only means NYC. I have student loans and future spouse has mortgage we are working on.

[Antares]

I bought a 4 year old BMW from the dealership, which offered a warranty that extended to 6 years. It ran great until just after the end of the warranty, when all kinds of repairs became necessary. While comfortable, a BMW, I learned, is not a car that I would ever own again outside the warranty period. Repairs are enormously expensive, and often things that ought to be fixable are only replaceable. The final dagger occurred when I hit a pothole which was invisible at night. The impact jarred the aim of my headlights, so they no longer illuminated the road at the proper angle. When I went to get them adjusted, I was informed that no adjustment was possible; the headlights were a sealed unit, and could only be replaced. $1600. I found out what BMW stands for: Break My Wallet.

I did get good trade-in value for it, and no longer drive a luxury vehicle.

 

i hope you have a better experience.

[conniebird]

https://www.whitecoatinvestor.com/stupid-debts-and-their-doctors/

[The White Coat Investor]

I wouldn't borrow money to buy a car, whether that car or another one. Of course, I also wouldn't still have that little student loan. (I think. You don't actually mention how far out of training you are or your net worth so I guess if you're less than 5 years out of training that might not be true.)

You guys have done so well- good income, lived with one paid-off car for years, very reasonable mortgage, relatively small student loan. It seems a huge disconnect with that for you to buy a car on credit, much less a $47K car. It doesn't fit. Is it going to sink you? Probably not, especially at that interest rate. So do what you want. You don't have to have another monthly payment for three years. You can pay it off next month. And if you can't pay it off next month, maybe you ought to really think about whether that's a car you can afford. Technically, by definition when you buy a car on credit it is a car you can't afford. We didn't buy our first new car until we were multi-millionaires.

You may find this post useful in your decision: https://www.whitecoatinvestor.com/should-you-drive-a-nice-car-a-procon/

 

[DMFA]

I read that pro-con through Medscape. The other guy's points are rubbish. I was like, who is this kid? I mean, maybe there are some good reasons, but they glaringly overlook that a brand new car is neither necessary nor worth the cost, especially plus interest (unless you think completely unnecessary luxuries are "worth it").

To be completely honest, I might do something fairly similar myself, but I won't be deluding myself into thinking it was a good financial idea.

[wideopenspaces]

I'll just concur with everyone else that has said not to buy a BMW due to expensive repairs. When I was in high school for some unfathomable reason my parents got me an 8 yo BMW. That sucker always needed repairs and they never cost less than $800. The upside was that having that car cured me of any desire I might have had for a luxury vehicle. I will never own one.
Also agree that this won't make or break you, but we have a similar income, no student loan debt and similar mortgage and money in the bank to buy that car in cash, but wouldn't feel like that was a wise use of our funds. But I'm not a car person either.

[Hatton]

I guess you have a good reason to take a job that is paying 70-90k less.  Many of us would love a job that we could walk to.  It seems the new job led to this whole deal about the car loan as well.

[hightower]

I should also mention that I didn't start reading this website (or bogleheads) until a fews weeks ago.  It has really changed my way of thinking with regards to personal finances and money.  I ordered the car literally a couple of weeks before I found started reading this site.

Since you asked, I'm 5 years out of residency.  I didn't know much about personal finances back then and definitely wasn't in the right frame of mind for being wise with my money.  Right after residency we bought an old house in a popular downtown neighborhood that needed a full restoration.  So, we poured a lot of time and money into it over the last 4-5 years.  Its now complete and fortunately the value is rising (worth probably 500-600k, we have ~300k mortgage).  If I knew then what I know now, I would have saved and paid off student loans aggressively instead.  I just started paying of my loans last year around this time.  Even though I've made great progress (went from 260 to 104k and got rid of all the high interest rates), it would have been much wiser to do it from the start.  I would probably have a lot more in savings as well.  But, I can't change what's already done.  I'm just thankful that I've learned so much now (thanks to WCI and the bogleheads).

Oh and as far as taking a lesser paying job further from home, it has a lot to do with being miserable in my last position.  The group I'm leaving has some serious problems and the hospital is getting too busy for its own good.  We are constantly short staffed which leads to being forced to manage 20+ hospitalized patients a day for long stretches, 12 hour long days, and doing crazy admitting shifts where we get hammered with admissions.  It really was starting to feel unsafe for patient care.  Plus, the irregular schedule of a hospitalist was getting very old (I'm tired of working so many weekends, having my days off not line up with my wife's, etc).  SO, I'm trying out a new outpatient position with a much lighter patient load and a regular M-F schedule.  If its as pleasant as I think it will be, it will be worth the drop in pay.  Plus, I'll be able to moonlight for another hospital whenever I feel like it to boost my income if I feel the need.  Who knows though, if I'm not super happy there, I could always go back to being a hospitalist later (hospitalists are in very high demand in Ohio).

Anyway, I agree its probably not the smartest financial move to buy an expensive car right now.  If I hadn't already ordered it (with a 1000 deposit), I'd probably consider backing out of the deal. I mean, I could probably beg and plead with the salesman and get out of it with my deposit back, but I would feel like a real jerk doing that to them after wasting so much of their time.  But, I see now that by forcing yourself to pay cash for big purchases you're likely to spend less than you would if you buy on credit.  I totally get that now.

 

[Hatton]

I congratulate you for getting a good handle on your personal life and finances.  I think in the big picture of your financial life the car purchase will not matter.  Everyone who posts here has made some sort of purchase that they later regret.  I also think it makes a lot of sense to change jobs even if it is for less money if you are happier.  You will be much less likely to burn out if your work conditions are tolerable.