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I recently graduated in December and have been working for the past 5 months. Since then I have saved 13,000. Now here is my conundrum, I am getting married in 6 months ($10,000), we are currently looking for a house and to top it off my car just died this week causing me to look for another. So my question how do I deal with looking for a car? I can buy a cheap car and hope it lasts and buy a new one in 2 years or I can put a 6,000 down payment on something close to 14,000 and drive it longer. I have no idea what to do. (Edit: I make 50000 a year)

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Car

If you can afford $6000, there is no reason not to buy a car outright for $6000. It won't be new or luxury, but it should easily get you to and from work, which would seem the biggest issue. At that price, you are paying enough to get something decent and not so much as to be really out of pocket if it fails.

Consider this. You pay $14,000 for a used car and get a wimpy warranty. You're out $6000 immediately and paying another $8000 plus interest over time. If there is a major problem that is not covered by warranty, you might put another $3000 into it in a year or two. You can't really avoid this, as you'll still owe money on the car. So you might be forced to pay $17,000 for three years of car usage. That's almost $6000 a year.

If you buy a $6000 car instead and have a $3000 problem in a year, you can junk the car. You'll have paid the same $6000 for a year of car of usage. And a lot of the time you'll get more out of it. Even if you pay the $3000 and get another year out of it, you still only paid $4500 per year rather than $4667 per year that you would pay for three years of a $14,000 car with no repairs.

I've paid as little as $1500 for a car and gotten multiple years out of it. There's no guarantee with a more expensive car. Perhaps you'll get a year warranty with a $14,000 car, but that won't cover wear items like brakes. You basically will have coverage of the drivetrain (engine, transmission, axles) and some other things. The warranty also won't last the full time that you want to own the car.

Also remember that payments will eat into your savings. Currently you are saving about $2500 a month. So you expect to save another $15,000 before the wedding. Car payments would tend to come out of that amount. Insurance will also be more expensive, as the lender will insist on comprehensive and collision.

$13,000 + $15,000 = $28,000 savings. You will have $28,000 - $6000 = $22,000 saved by the time of the wedding. After the wedding, you'll have $22,000 - $10,000 = $12,000.

House

You have $12,000 to spend on a house downpayment after the wedding and car. If you pay 20% down, that's a $60,000 house even if we ignore fees (sometimes the seller can pay them).

I would expect the rent on a $60,000 house to be around $600 a month. You might find yourself better off if you rent for a year and then look to buy. Assuming $2500 free money a month, after $700 rent you might have $1750 (adding another $50 for insurance). That would be another $21,000 in savings. $33,000 is a much better downpayment than $12,000.

If you make $50,000 a year, I wouldn't suggest paying more than $20,000 of that for housing costs. So even if you can get a mortgage with less than 20% down, you should still be careful not to overleverage yourself. And remember that mortgages with less than 20% down will usually charge you an extra monthly fee as private mortgage insurance (PMI).

Make sure that you count all the payments. This means not just principal and interest but taxes as well. Also remember to budget for things that you may not be paying now, e.g. utilities and groceries. Make sure that you're withholding enough taxes.

Wedding

$10,000 seems reasonably cheap for a wedding. You could get it down more by just doing a justice of the peace wedding with no ceremony, but if that's not what you want, don't do it. You are almost certainly going to buy other cars. Most people buy more than one house (particularly if your first house costs only $60,000). This could be your only wedding. Budgeting enough to cover the important guests makes sense.

I would say that the biggest worry is that this may not be enough. Don't expect fancy extras at that price.

  • Re "...no reason not to buy a car outright for $6000", yes, there is. Buy a car outright for $3000 (or less!) and have $3000 left :-) – jamesqf May 4 '18 at 18:08
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The first thing you need to do when budgeting out big expenses is to find 1) what can and can't wait, and 2) what will provide the most utility.

Presumably, your wedding is non-negotiable, therefore you really have $3,000 of your $13,000 savings available to use. Just a note here that weddings are rarely under budget or even on budget, so make sure your have some "wiggle room" when it comes time to pay for that.

Buying a house (with your current available savings of $3,000) is probably not going to be in your best interest. With such a small down payment you will struggle to find financing and would most likely end up paying a much higher interest rate on your mortgage, or signing on for a mortgage longer than you may want. Because renting is presumably an option, buying a house should not be the highest priority.

I'm assuming that you use your vehicle every day to drive to work and that transit or biking would take too long or be too much hassle. Therefore it would seem that a vehicle has a very high utility and should be prioritized. In general, it is better to buy a car that is reliable and will last at least a few years, and will have some resale value when you get rid of it. Therefore, it is not in your best interest to buy a beater and have to repair it constantly for the next year or two before it dies.

I can put a 6,000 down payment on something close to 14,000 and drive it longer

Not sure where that $6,000 number is from but assuming you have $3,000:

I would recommend buying a nice vehicle, leveraging your down payment to find something reliable and comfortable for your uses. With $3,000 you might be looking in the $6,000 to $12,000 range, which would give you a decent, reliable vehicle.

I hope this helps answer your question.

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How much of the wedding are you covering? Half or all? If half you have 9k to buy a car if all only 3k. You can probably save some money in the 6 months prior to the wedding so, that is also included in the amount you can spend on a car. At this point in your life you have no business getting a car loan.

It is a bad idea to buy now even if your 13k was dedicated for a down payment. Start your career and get a feel for where you would both like to live. Rent for a year or two. In that time you can save an emergency fund and a down payment. Only then will you be in a position to buy a home. (Assuming that you do not have other consumer debt or student loans.)

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