Should I buy my first car with all of my savings?

Question

Note: I live in Europe.

Hopefully - In a few months time I will be (age) legal to drive, and after getting my license I'm thinking of getting a BMW E46 after years saving up cash from my full-time job. I will also be starting school in the same year I will hopefully be getting my license, so I would expect that I won't be working full-time anymore. At the moment I'm living with my parents, so I don't really have any expenses.

Theoretically, I have enough money to purchase a cheap 2nd hand BMW at the age of 18, (which is around EUR 10K). My reason to purchase a car such as this is:

1. I would be partially cool (Most 18 year olds have their parents buy them a newer BMW, unfortunately for me I have to work for my money to keep up with spoiled brats)
2. I won't have a crappy piece of junk that I need to take to the mechanic every month that would eventually amount to the cash it would of took me to buy a better car with less problems
3. I enjoy a good drive in a good car.

My questions are;

• Should I buy a decent car now (that costs me my savings) that would hopefully last me a few years..
• Or should I buy a cheap car (EUR 3K) for now, and keep saving to get a better car when I'm older (EUR 20k+)?

The reason I can't answer my own questions, or why I can't make up my mind is because:

• At the moment I don't have any expenses, so I can afford a decent not so expensive car that will hopefully last me years unlike if I'm 25+, and can't afford a new car because of any "house loans/rent/car gas" or "family" expenses that would waste my job earnings because:
• I had to waste most of my past savings on when I started going to school again to buy food, pay rent etc.

Answer 1

Short answer: Absolutely not, unless you're comfortable with putting years of your labor into a depreciating asset that will incur hefty maintenance costs over its remaining life. i.e. consider your 10K gone forever once you buy the car, and then some.

Some comments on your reasons:

1. "Keeping up with spoiled brats" is a losing proposition, and is a mindset counterproductive to financial independence. I'd encourage you to find a way to not care about how the spoiled brats live their lives. It won't be easier when you're older and you see your peers driving fancy cars and living fantasy lifestyles that you are tempted to emulate. Break the impulse to "keep up" and you'll be in a much better place.

2. A used BMW may not be a piece of junk at first, but once you hit 100K miles, everything will suddenly fall apart and need repair. Been there myself. Still have the car after 7 years, only because very few people want to buy a high-mileage German sport sedan with recurring maintenance issues.

3. See #2. It will be a good drive for a while, then it will own you. This is not so bad when you have a decent amount of savings, but when you have nothing, it's very hard to truly enjoy the car while knowing that any problems not covered by warranty will be financially devastating. Are you prepared to ride the bus for 4 weeks while saving enough income from work to replace a bad clutch? I had to do this, and it's not something I brag about.

Answer 2

First and foremost, being "cool" stops being a thing you have to worry about once you graduate from secondary school. Nobody's really going to care what car you drive; the ones that do care aren't worth maintaining personal friendships or relationships with. The notable exception would be a sales job, requiring you to look successful to be successful, and in that case you'll need to either have a nice-looking car or buy one very quickly.

Also, consider what you're buying. An E46 (which for the U.S. crowd was the previous generation of 3-series coupes and sedans) will be, at best, a 6-year-old car, and they made these as long ago as '98 which would make it 15 years old. The standard in the U.S. is to put about 10k miles (which would be about 17k km) per year on it, so you would expect even the newest E46s to have at least 100 000 km on them. At this point, even the best cars start needing increasing amounts of maintenance, and on a BMW that maintenance doesn't come cheap.

Consider why a BMW would be sold. It sounds cliche, but in the U.S. at least there are three "tiers" of used car in the luxury class; there are the one- and two-year-olds, used by the dealer as a loaner or owned by the type of guy who buys a new car every year; they're practically new, for 30-50% off sticker, and a great deal when you find them. There are the 15-year-old (or older) cars which were used up and traded in; the majority of these end up auctioned off and cannibalized for parts with the remaining hulk sold for salvage. Then there are the in-betweens; between three and ten years old, you get a wide variety. This car could have been garaged all its life and driven to and from work and around town before its owner got a raise and decided to splurge, or its previous owner could have driven the wheels off all over the continent for work or travel. It could have a major problem that developed or was discovered after the warranty expired (and there isn't an E46 on the road that's still under warranty) which caused the owner to sell.

Overall, I would wait until you have your first real job to spend real money on a car like this; the one that will actually pay the bills with enough left over for fun. When you're making 35k a year with only your own personal expenses, as long as you manage your debt well and don't get in trouble with credit, you should have no trouble buying a car like this (or even a newer one). If you are going to buy used even then, I recommend you do your homework on required maintenance for the brand and in general, what each milestone will cost you, and (based on mileage) how soon, and I would find a reputable used car dealer (which is stereotypically a contradiction in terms, but there are guys out there who aren't out to completely screw you over).

Answer 3

You should never buy anything that consumes all of your savings. First you should have 6 months living expenses in a liquid account. Second you should be investing for retirement, index funds or ETFs. The longer you have money invested the better off you'll be.

Pragmatically speaking you're better off getting the cheapest car that is reliable. Cars cost money, depreciation and money, every day you own them. However I get the urge to splurge. Get a loan, pay 2x the standard payment amount.

Answer 4

It depends on individual preference. There is no hard and fast rule.

In general the recommendation would be not to spend much unless you have a sufficient money for a rainy day. Even after spending 10 K on a good car, the minute you have more money, you would feed tempted to upgrade before you are 25 yrs. So save and buy a cheaper / decent car and put the money away.

But then someone would also say, if you can't enjoy when you are young, you may never get this opportunity to enjoy when you are old ...

Answer 5

If 10K is all of your savings, I would reserve a portion for an emergency fund for your car and other life situations before spending it all on a car.

Maybe this means you set 3k aside and buy a 7k car.