Cars & Motorbikes Cars-what percentage of your net worth?

Based upon the majority of survey respondents (65%+) & the 2% or less rule of thumb, I should have a net worth well over 5M to own my meagre wheels..... but if I did, that would generate at least 200k /yr passive income..... even after subtracting 1M for pers use like PPOR, cars etc...

I must be living well beyond my means.... LOL... net worth & cashflow (passive) have a huge correlation deviation between individuals.

What do I mean by that? Well.... if someone has an annual passive income of 10, 15 or even 20% of their networth, then these comparisons become very misleading. So putting effort into improving passive cashflow / networth ratio may be just as valuable as improving networth itself.... something to ponder

 

People who like cars will buy cars, same as those who like bikes will buy bikes or people who like shoes will buy shoes or people who like stamps will buy stamps.

I have 3 cars myself (Golf GTI, BMW 540i, Pajero) I could tightass it all and just drive a Hyundai Getz, but I like cars and enjoy driving them. Always have always will.

 

Yes cash flow is needed to repay such a car but I don't really care about passive income use at this point.
Outright purchase:
It is the opportunity cost of buying a car vs funding a deposit for another purchase.
Hire purchase:
That $300-$400pm for 5 years could fund quite a neg geared property.

In both scenarios, if you used the funds in property and bought well you may achieve a 50% rise in asset value (equating to 400%++ uplift in your initial deposit invested), whereas majority of cars depreciate like a brick.

Slightly left field now, I see all of these people who have no investments, home loan for a beautiful house and land package, but then MUST have a certain SUV for the wife (RAV4 etc) because it's "safe" for the baby, the $1,500 pram etc etc.

Cars are just consumer items.
I can't justify how a lot of people buy a new car every 3-4 years worth $40k, to sell it for $12k, to buy a new one at new $40k indexed values..
best case that is a depreciation loss of $7kpa plus outgoings (sure 2 years fee service).

Cars seem like an upfront once off spend, but it's not the case, they are a lifestyle factor and like credit card usage humans are creatures of habit, so will continue to purchase in that manner (unless extraordinar circumstances arise).
We must have the latest "thing".
Reverse camera, self parking, electric, HUD windscreen display, turbo. It's a perpetual cycle of never having something good enough.
Middle class poverty mentality.
Like grant cardone says "the middle class are the richest poor people".
Most of it is ego, not in the sense of a puffed out chest, but in the true meaning of the word.
We justify our desires as needs.
Back to the point.
So the car purchase if viewed over a 10-15 year period straighlined/averaged is something like $7k+ pa off your after tax income (unless its work related).

So forget the Foxtel, internet, mobile, dentist, subscriptions.. cars are one of the biggest out of pocket subscriptions in our lives..

Sure some older cars are lemons and will cost a heap to repair and maintain but like property investment you need to research which cars have what propblems and which have relatively modest repair costs.

Do I subscribe to my own philosophy? At this point yes. I'm happy to share what I drive..
I sold my $25k Holden SS ute (@datto i am too a bogan at heart), to buy an "inbetween car".
I have been "in between" for 3 years now haha..
It is a Nissan XTrail.
Could I have bought a new car? Sure. My income is near on 6 figures, my fiancé the same, our PPR mortgage is cheaper than rent, our portfolio neutral to positive. I could go and finance a 50-60-70-80-90-100k car to enjoy. I can't see the logic in it, or more importantly don't want to be a slave to another material possession. Yes you need to enjoy yourself, but we justify too many enjoyments in our lives at what cost? Sure I would like a new/newer car. I constantly fight the urge, sometimes find myself looking on car sales and then later on justifying the price to myself..


It is the middle class that fuels this economy, tv shows are designed for us, public holidays for us, shopping centre sales for us. All of it is designed to keep you working as hard as possible to make that sweet spot average wage and to spend most of it on consumer crap, of which you convinced yourself you actually needed! "Take off the tinfoil hat" - I know.
It's not a bunch of puppets pulling out strings, it's more like an ant colony where everyone knows their place.

Do I have my vices? Sure, wine collection, PS4, holidays, restaurants, Nike shoes, fancy suits etc.

I also have a desire for a 69 camaro or a Hq monaro coupe. Yes they are material spends, yes I have justified the spend in my own head as something that means something to me, matches my value system etc. either of those will by my reward for delaying self gratification now, for when I achieve my goal in the medium term.
Plus they are generally not items that depreciate but appreciate.
The only thing that deteriorates (besides the fuel gauge) is your relationship with the wifey if she doesn't share your passion for cars haha.. a
It is a material spend, it is not necessary, however I will have done something to free myself from 9-5 work, built a legacy or something so hopefully my kids have a good starting point in life and I can enjoy my later years without worrying about the pension.

I know my post is disjointed and I have rambled on, but I hope I have raised a few good points.

Mindset doesn't = deprivation or living like a monk. Far from it.
It is just a form of self discipline like not drinking soda or going to the gym 5 days a week..

 

Agree 100%..... the question is though, when (if ever) is the transition from self discipline to self gratification. Most can't or won't ever do it.

As you said, it's a mind set & after many years of discipline it is hard to let go & enjoy life. It is also hard to know when enough is enough..... ie. The crying poor middle-class of Sydney in their 1-2M PPOR that don't realize that could be enough to retire on somewhere else....

Some of us live within our means & don't dare have monthly payments for cars (unless for business use). We use cash. We own our things. The surprising thing is how little capital that this can be achieved with iff everything is structured accordingly. That is, not living in expensive PPOR, having a high cashflow to asset base & living within one's means.

Do some sums on an asset base of 1M. What % return would be needed to enjoy a comfortable life and replace the J.O.B.? Now think about all those ppl crying poor in their 1M+ PPORs.... get my drift?

Our ability to exit the rat race is based upon our choices & many investors can't even get their head around the premise of my previous post.... it's not just about net worth/ asset value. Improving % return is time well spent.

 

This was quite a good exercise for me. Mine's 2.7% & 10 years old with 150K on the clock. I've been thinking of buying a new one for a couple of years because it's too big for what we need & expensive from a fuel perspective. But it's cheap from a maintenance perspective so every time I do the numbers it just does not add up to change over. I've also thought about leasing but that just hammers your ability to borrow. So I'll carry on with my kind of crappy car, enjoy that I don't need to put a basket & bag on the roof when we go camping & that I can safely keep the dog away from the kid.

 

I have a close friend who loves cars in exactly this same situation. Big mortgage,no investments, spending over 400 bucks a month on a flash car while worrying about filling up more than 50 bucks worth of petrol in his tank...Told him that's really not smart and his answer was that he simply just can't drive an older car. Just can't do it!
Keeping up with the Joneses can be very expensive but at the same time i acknowledge that cars are not just transport items for some, they are more about enjoyment too but balance should be key. By the best car you can afford!

 

That's an awesome point! I agree, you will become the old man driving around with 20 sets of house keys in an old car wearing pauper clothes with a 20m net worth..

I desire those material items too like most. I love anything with an engine in it haha, Really considered buying a 4 year old Range Rover sport this year, love collecting expensive wine and weekends away, knocking off the top 10 restaurants in their respective category. Would love a new tv and surround sound. So on and so forth.
For me, it's about constant reviewing of my goals, tracking them, reading them every couple of days.
The diligence and self control to stick to the task at hand, not succumbing to material desires every time I feel the impulse to buy "the new xxxx".
In short, mindset for me is about self control, not an automatic way of thinking. Because a frugle way of life I honestly believe is not enriching either. I'd rather focus on making more money than saving more. Keep spending under control but focus on earning. Then you should have the best of both worlds..

Re your point on crying poor, have a look at the domain article about the PPR couple who were outbidded on a Ryde property by $200k (sold for 1.5m). They were in their 20's, him being a concrete labourer and a 1.3m PPR as their first home.. plus it was a run down house.
p&i repayments on that are $5k per month on current rates. That's outrageous..

 

Amazing that there are so many people even on PC who don't understand this simple fact. Psychological projection much?

I like cars, which is why I spend more than average on them. I know people who spend even more on boats, but do I rant about how they're wasting their money? No, because it's their decision, their lifestyle, their money, their goals.

I do not accuse them of keeping up with the Joneses, I do not accuse them of being financially irresponsible, and I do not talk to others about how their balance is out of whack. Their balance is their balance, is different to mine, yours and everyone else here.

It doesn't matter what your passion is; you go out and set your goals around your passion and work towards them, and accomplish them.

Some of the people I pity the most are those who are so poor that all they have is money.

 

@chylld, If a friend of mine is struggling financially but chooses to spend 500 dollars monthly on a car while whinging about how hard things are, it is my responsibility as a friend to tell him that it's stupid and it is financially irresponsible to do that.
No one is denying that for some cars are more than just transport and as you mention we all have our passions and vices but again, as a friend, i believe that it is my responsibility and duty to step in and get my friends to think twice about their choices. I expect the same of my friends too.

 

I disagree that it is your responsibility. If anything, it is your responsibility to tell him how he can more responsibly afford x. Not you are stupid and shouldn't have x.

Assuming x is someone's passion and not a harmful activity, no one would want to be friends with someone who tells them they're stupid for wanting x.

If your friend has shown you his balance sheet, then you should look at how he can better structure his assets and cashflows to make x less of a burden (assuming you are a licensed financial planner, as you have declared that it is your responsibility to advise others on their financial health.)

And if your friend hasn't shown you his balance sheet, then how do you know he is really struggling? Some people might consider anything less than $10k left over at the end of every month "struggling".

 

You are misinterpreting what i'm saying. I said in my first post, buy the best of what you can afford and that's what i told my friend to do.

I need to be a licensed financial planner to tell my friend that he is clearly over spending on something (in this case a car) that he's can't afford?!!! Right.

To each their own

 

So after telling your friend to buy the best car that he can afford, he went and bought a car that was more than he could afford? Did you tell him how to assess whether a car is affordable for him, seeing as it was your responsibility as his friend?

Is telling him that he was stupid and financially irresponsible helpful in any way? How can he use this new knowledge to better his financial position?

And once again, have you seen his balance sheet to check if he is actually struggling?

 

He is struggling because he told me so and yes we spoke of this many times.Same way we spoke of him buying his first property at a suburb that he can afford and not where he ideally wants to live but can't afford.Same way he told me it would be stupid off me to even think about buying a classic car as an investment...

He already knew he couldn't afford the car and still bought it so there was nothing more that i could add to his knowledge.

Being politically correct around your friends/people you care about is wrong. When someone does something stupid, call it out and let them know they are in the wrong so they will hopefully learn from their mistakes. Again , i expect that from others.

BTW,This applies not just for cars, for holidays, for houses and everything else. Re-read greyhosts post above.

 

I have an original condition 1977 Statesman DeVille. It has all mod cons, like shag pile carpet, AM radio, electric windows and even air conditioning. It's like driving a loungeroom.

It produces more carbon emissions than China. It has a 5L V8 engine, which I think is a 308 for rev heads. She gets around 250k's to a tank around town and more like 700 on the freeway.

 

And handles like a balloon full of porridge

 

A few months ago we were at a fraction of one percent, then wife went and got a BMW X5 M50d and traded in the old Tarago.
So I went and bought myself a Christmas present on Christmas Eve, very impulsive buy - 5.0L V8 Lexus RC F.
Cars are close to the 2% net level now, but so happy every time I drive this thing.
Not so sure about the saying - Money can't buy happiness...

Image by Ace in the Hole posted 8th Jan, 2017 at 1:39 PM

 

Nice one @Ace in the Hole gotta love a V8 exhaust note. My 540i isnt as fast as the Golf GTI but the noise it makes is so much nicer. I love cars always have always will.

One of my dogs tried to use the front of it as a ladder to get to something on the roof... cant be angry at her she doesnt know what she did wrong... Insurance is covering it

 

Love the x5. Congrats on the Lexus, money can easily buy happiness. Did you get the Lexus In blue? Love blue and black wheels.

 

It'll buff out. Love the v8 note, never owned one as yet. One day. Favourite exhaust note is the c63 v8, not the new turbo, previous model.

 

Getting front end resprayed it wont buff out

I took a C63 AMG for a test drive a few months ago. Fantastic engine noise, shame the interior was a plastic rattle box at about Corolla level of finish.