Buying a brand new luxury car

Question

I read this and this questions - although not all of the answers. My question is fairly similar to the first linked question although I have different circumstances.

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Context

I am a 29-year old Asian immigrant. My family and I moved to Canada in late 2008. Even though we've been here for almost a decade, I consider myself still fairly new since I have been out of the country for 4-5 years. I didn't have a good employment history because I usually worked for 3-6 months to save up and then went back to my country of origin and spent all of my savings in about a year. I'd then come back to Canada and repeat the cycle.

3 years ago I decided to better myself. I found a permanent job and I have been working for the same company since then. I currently earn $61k per year with a net pay of ~$1500 bi-weekly and I currently have $28k in my savings account. I also have some accounts receivable from my brother who borrowed $20k from me in 2017 to do some renovations. They are payable in 2 years so he's halfway through the repayment.

In some Asian cultures, it's common for children to live with their parents until they get married or move out on their own. I'm still living with my parents (though technically my parents and I live with my brother since he owns the house and is paying the mortgage). This is what we do to pool resources and save money.

I don't pay rent but I contribute via payment of utilities and groceries. I pay about $180/month for cable and Internet and $200-$300 for water (quarterly). Grocery costs are around $400-$500 but this cost rotates between me and my parents. Those are my typical expenses except for rare family vacations. Since I don't pay rent, I tend to foot the hotel bill or the restaurant bill if we eat out (as a treat since it's still less than what I'd be paying for if I paid rent).

Question

My primary goal for saving was to move out and buy my own house but lately I've been wanting to get my own car because sometimes I want to take a vacation by myself and explore Canada. Currently, I ask my brother to go with me because he's the only one in my family who drives. Sometimes he can't because of his schedule, sometimes it's about money. I want to be able to avoid having to constantly ask him to drive me when I want to take a vacation.

Initially my eyes were set on a 2018 Hyundai Santa Fe Sport but when I looked at the Audi Q5 I just fell in love with the interior (not so much on the exterior).

Prices are as follows:

Hyundai Santa Fe Sport - $43k
Audi Q5                - $58k

My apologies for the extremely long details. Is it feasible for me to go for the Q5 or should I stick to the Santa Fe Sport and just live within my means?

Unlike the first question I linked to, I am in no rush. I could wait and save up some more. I'm just about to get my learner's permit and I have to stay on it for 9 months before I become fully licensed. My brother told me to only buy a vehicle once I've finished that 9 months of learning.

Additional question: Am I saving up in a fairly okay rate/pace or am I burning my savings way too fast?

Notes

I do have a good credit score. Last time I checked (~2 years ago) it was above 700.

If you need more info, feel free to ask and I'll add them in.

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Update No. 1 (Purpose)

It seems like I forgot to mention that I'm looking to get a car not only for vacation purposes, I currently take public transportation to and from work. It typically takes me 1 hour and 40 minutes each way (3 hours and 20 minutes total) on a good day. If I drive it will only take me 30-40 minutes of driving each way. This will be where the car is going to be used for 90% of the time. Like I said, vacations are a bit rare for me at the moment but that might change when I have my own vehicle.

Update No. 2 (Saving Habits)

It was pointed out earlier that my current rate for saving up is around $777/month which seemed kind of odd to me (but perfectly understandable from the figures I provided) because whenever I get my bi-weekly paychecks I do an automatic $400 transfer to my TFSA so that's a guaranteed $800 per month (guaranteed $1200 on months where I get 3 paychecks). On top of those guaranteed transfers, anything left after all of my expenses gets transferred as well so I was expecting my rate to be at least $1500/month.

98% of the time I don't touch this account, I only put money into it and rarely take money out. The only time I do is when I make some big purchases that are more than what's left of my paycheck after the automatic $400 TFSA contribution. I'll explain this in the next update.

Update No. 3 (Spending Habits)

I'll have to admit I do have some vices that incur additional expenses (typically large amounts). I play a lot of video games and also play music.

Music:

Bass           - $2200
Sax            - $3000
Online Lessons - $160/year

Video Games:

Well this one's very difficult to estimate. I'll just provide what Steam told me the total amount I've put into my account. USD $10,609.94

Yep - I was shocked too. I believe this goes all the way from when I created an account with them back in 2011 so that puts it around $1500/year. And this is just Steam. I have a PS4, and a Nintendo Switch where I also buy video games as well, so I'd say around $2000+/year in total?

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The reason I wanted to point this out is because I was thinking when I purchase a vehicle I'll just stop buying stuff for music and video games. I know I can stop my expenses for music but I may not be able to for video games. I'll try to reduce it to like $500/year though which looks possible to me.

This way I'll just use the savings to pay off the insurance and then help with the maintenance costs.

Answer 1

By having already read multiple "I want to buy an expensive car" questions, and still asking a bunch of people with the resputation of saying, "NO, buy something cheap!!" whether or not you should "(buy) a brand new luxury car" or "just live within (your) means", I think you already know the correct answer:

Live within your means!!

But... you're young, have a long habit of earning and spending, and really really really want that car!!

I understand. Really, I do, since my money used to burn a hole in my pocket. But you know that you can't have everything.

Suck it up, do the mature thing, and buy a $35K (yes, $35K, not $43K much less $58K) car and be that much closer to being able to move out.

After all, the purpose (I hope) of living with your family is being able to save money so as to be able to one day have your own family in your own house, instead of acting like an adolescent for another 15 years.

Answer 2

Other answers cover the financial aspects. I'd like to address something different, the use you plan to make of the car.

You say that your primary reason for buying the car is to use for vacations, exploring Canada and camping. From my experience of doing this, both in Canada and the US, a lot of the places you will eventually want to go will involve a good bit of travel on rough back roads, even dirt ones. If you use a brand-new luxury vehicle vehicle for this, it will become a scratched and beat up luxury vehicle in fairly short order.

You would IMHO be much better off forgetting looks and considering function. Something like a good used Subaru Outback or Toyota 4Runner will be much better suited for what you want to do, and will cost a good deal less.

Answer 3

With either car, buying it will wipe out your savings. With the Hyundai, you will have 15k left to cover, with the Audi 30k. Often, dealerships make 0% APR, 6 year loans available - if you can catch one of those, that would mean 208/mo payment for the first car and 416 for the second. This is 7% and 14% respectively of your monthly paycheck of 3k. It is hardly life destroying. The main issue is that you would have no savings left, and saving would be harder going forward due to the payments on the car loan. But you say you don't pay rent, and spend 780-980 each month, so it sounds like you should still be able to maintain a decent savings rate. Also, the money you'll be getting back from your brother will help (assuming he actually pays it back, family and friends tend to be unpredictable in such things).

If you kept your savings and bought the cars purely on finance, you end up with payments of 597 and 805, or 20% and 27% of your monthly income (again, assuming 0% APR). A bit high, but still much less than your disposable income based on the expenses you've described. You would also not lose your savings.

Given these, I think neither car is unaffordable (we are also assuming your income or expenses won't change in the next several years, since you haven't told us if and how likely they are to change), strictly speaking. If you really want to, there's nothing so wrong with just buying whichever car you want. The standard response such as a situation is "live within your means", but both of these cars appear within your means. The real question is, do you want it badly enough? Will you get enough pleasure out of it to justify the expense? What other things could you buy with 43-58k that would be more satisfying?

However, it's worth keeping a few points in mind:

• Credit score: Once you take out a large car loan, your credit score will likely deteriorate a little. If you keep up with the payments, it should mostly recover within 1-3 years, but if you are planning to apply for any large loans in that time you might want to plan accordingly.
• Depreciation: A new car loses about 20% of its value the moment you buy it (it will also continue to depreciate rapidly thereafter). So this 8.5-11.5k you are paying for that experience of driving the car of the dealership lot. Is this experience really worth ~10k to you? If not, consider getting a used vehicle (you can get even 1-2 year old, <10k mile used vehicles in like-new condition and they will still be much cheaper than new).
• Sticker prices are usually too high: If the prices you cite are MSRPs, keep in mind that the MSRP is largely a fantasy. Dealers will easily go 5-10% below the MSRP with some competent bargaining and timing to take advantage of their endless promotions.
• Cheaper alternatives: Your goals (camping and exploring Canada) can be accomplished for much less. You could find older SUVs in good condition for about 10k. I understand that these two cars have prestige, nice features and you like their feel. But keep in mind that you are paying a premium of several tens of thousands for those things, so make sure you really want to.
• Beginner driver mistakes: Sounds like this will be your first car. Usually, it's a good idea to get a very cheap car, almost at the end of its lifespan (but in drivable condition, of course) for a first car. That way you can figure out what features in a car are matter to you and get some first hand experience and perspective of car ownership before you commit to a very expensive car. You will also likely damage your first car as you get used to driving, so it's better if those learning pains happen with a cheap, beater car than a shiny luxury SUV. When buying your second car, you will be much more knowledgeable about what's a than when buying your first, since your experience will no longer be zero.
• Insurance: In my calculations above, I didn't factor in insurance due to the difficulty of estimating it. However as a new driver you will overpay on insurance because insurers assume new drivers are accident-prone. After a few years, and assuming you don't have many serious accidents, the premium will drop as the insurance companies are able to recognize that you are not a risky driver. But for that introductory period, you are paying more than you should be based on your driving habits, and you are overpaying in proportion to the value of your car. So it's much cheaper and less wasteful to weather that introductory period in a very cheap car, and buy the expensive one once you are able to command more reasonably priced premiums.
• Maintenance: I also didn't include maintenance expenses, because that's also hard to predict. But you can look up statistics on these. I believe Audi is more expensive to maintain because it's a luxury car that customers are expected to take to a mechanic anyways. So it is not designed to be easy to maintain as is the case in some competitors (eg. Honda).

Anyways, to summarize:

• Either car is affordable for you but would be a non-trivial expense.
• When budgeting, don't forget to account for insurance and maintenance.
• Buying new from a dealer is a waste of money and should be avoided unless you really want a new car.
• If you're not terribly attached to these specific models, there's cars that cost a quarter of these that would serve your needs.

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Response to updates: I thjink based on your additions, my estimates above are an under-estimate of what it will cost you to own a car. You should include those in your consideration. Specifically:

• If you use the car to commute, you will be using a decent amount of fuel. You can look at the distance of your daily commute, the fuel efficiency of the car (both seem to be about 25 mpg) and the price of the fuel the car uses. You might consider a more fuel efficient car, like a hybrid, to save on fuel costs. Also, parking at work may be a significant expense if they charge for permits. On the other hand, saving almost 2 hours on your commute everyday seems like pretty nice.
• I notice you say that when you buy a car, you'll just stop playing games and music. Fair enough, but from what you've been spending on it, you must really like music and video games, so I feel like there's a chance you might not be able to. Ultimately, only you can know how easy or hard it would be to make a lifestyle change like this, but I'd at least recommend cutting the expenses first (if that's your plan) and buying the car second, so you don't end up with an expensive car and an expensive hobby that you can't quit. Or just buy a cheaper car.

Answer 4

I'm not going to tell you what to do, but let's look at some numbers.

Your after-tax pay is $1500 per fortnight, or $3250 per month. Your bills cost $880 per month. A one-bedroom apartment in Vancouver cost $2020 per month according to January 2018 figures from dailyhive. This leaves you with $350 per month or about $12 per day for incidentals (movies, eating out, etc).

You can increase this number by getting a larger apartment and finding some housemates: paying half of a $2520, 2 bedroom apartment leaves you with about $37 a day.

That's before getting your car. After you get your car, you'll need to pay for fuel if you want to actually drive it from time to time.

And you still have to add in loan repayments on your car. If you use your whole savings and get the remaining half of the $20k loan back, you still have $20k to pay for your car.

Those are the figures. Work it out and see if it makes sense for you.

Answer 5

Is it feasible for me to go for the Q5 or should I stick to the Santa Fe Sport and just live within my means?

If you've socked away $28,000 in 3 years, that's an average of $777/month in savings, not a perfect figure if your earnings/savings have changed over the years, but it suggests that you spend a significant portion of your monthly income even though you don't have significant housing/transportation costs. Likely not saving as much as you could/should, but still pretty substantial savings rate.

Using this auto loan calculator on a 5-year loan it looks like with a $25,000 down payment you could be paying over $600/month for the car payment alone on that Audi (adjust sliders to suit your provincial sales tax rate). Insurance for a new driver on such an expensive car could easily be $200/month, not to mention fuel or maintenance costs. Exhausting your savings.

I believe that if you really want that new Q5, you can make it happen, maybe even by the time your provisional period is up. The question is, do you really want so much of your hard-earned money tied up in owning a vehicle?

New cars don't typically make much sense financially, but what really matters are your priorities and goals. You need to define your own financial goals and then you should prepare a budget to help you achieve them. Just make sure you get the full picture on vehicle ownership costs (taxes/fees/insurance/maintenance estimate) so that you know what to expect.

Answer 6

This being a financial site, a question like this will almost always yield one of these categories of answers:

1. You can afford either.
2. Get the cheaper one.
3. Can you afford either of them? Why not get something cheaper than both?
4. It sounds like you don't need to purchase a car.

Whether knowingly or not, you should consider the possibility that you asked the question hoping most people would tell you either #1 or #2, which would help you justify making this purchase. I personally think #3 is the correct response. Perhaps a rule of thumb might be to set your maximum car price at 1/3 of your annual income. (There are adjustments to make to this, for example, the interest rate you'll receive if you finance it, new vs used and length of warranty, gas vs electric, etc.) That being said, with your current savings and very few other expenses, you can probably afford the payments on either car even though I personally wouldn't advise spending all of your savings on a car.

As for when to purchase your car, (similar to computers and mobile phones), the longer you can wait to purchase the better. The reason for this is these items depreciate so rapidly that 1 year later you can get a better item for the same price, or the same item for a lower price. It sounds like regardless of the type of car you get, you should consider taking your brother's advice and wait at least until you get your license.

Answer 7

I totally understand the desire for a luxury car. It's one of my weaknesses, too. It is possible to save, live beneath your means, and also get a sweet ride.

Don't get the Sante Fe or the Q5 new. Buy a slightly used Q5. You can get a 2015 for under $30k right now, cheaper and nicer than a new Santa Fe, and still under the original manufacturer warranty! 2014s are well under $25k. They are nice cars and buying from a service like CarMax means it will come detailed, shiny, and look practically new, too. Private party will be even cheaper but then you should treat yourself to a getting it detailed.

It is important to live beneath your means. At the same time, if there are certain luxuries you want along the way, there are often ways to save up and find a solution.

Get the slightly used car. Keep saving, look for job growth and higher income.