How much should a new graduate with new job put towards a car?
You are currently $30k in debt.  I realize it is tempting to purchase a new car with your new job, but increasing your debt right now is heading in the wrong direction.  Adding a new monthly payment into your budget would be a mistake, in my opinion. Here is what I would suggest.  Since you have $7k in the bank, spend up to $6k on a nice used car.  This will keep $1k in the bank for emergencies, and give you transportation without adding debt and a monthly payment.  Then you can focus on knocking out the student loans.   Won't it be nice when those student loans are gone?  By not going further into debt, you will be much closer to that day.  New cars are a luxury that you aren't in a position to splurge on yet. What are your goals in life?   If one of them is to appear wealthy then buying a high price import is a great place to start.  You certainly have the salary for it (congratulations BTW). If one of your goals is to build wealth, then why not buy a ~5000 to ~6000 car and have a goal to zero out that student loan by the end of the year?  You can still contribute to your 401k, and have a nice life style living on ~60K (sending 30 to the student loan). Edit: I graduated with a CS degree in '96 and have been working in the industry since '93.  When I started, demand was like it is now, rather insane.  It probably won't always be like that and I would prepare for some ups and downs in the industry. One of the things that encouraged me to lead a debt free lifestyle happened in 2008.  My employer cut salaries by 5%...no big deal they said.  Except they also cut support pay, bonuses, and 401K matching.  When the dust cleared my salary was cut 22%, and I was lucky as others were laid off.  If you are in debt a 22% pay cut hurts bad. "As someone who has a very similar debt amount and environment (new grad, nice new paying job, want a car, etc), I'd like to share something with you. Life has unexpected costs. Luckily I didn't buy that new car the first few months out of college like I had planned to; I'm glad that I didn't because, as a fledgling ""adult"", despite having lived on my own while in college while working part-to-full time there are some things you just don't realize until it either happens or it happens to someone else. Here are some of those things: I could go on but I won't. $95K is good money and I would definitely recommend spending it a bit to enjoy yourself. But I would honestly tell you that taking your monthly expenses, adding a few hundred on top of that and then multiplying  that sum by 3 would be a smart savings amount before picking up a car loan. Maybe that's an excessive savings but I've seen way too many people burn out over their cost-of-living and their failure to adjust appropriately when shit hits the fan. So instead of having to deal with the stab at your pride when having to lower the cost/quality of living that you'll probably grow accustomed to at a $95K salary, just prepare for the worst.  Oh, and did I mention... A NEW JOB IS NOT A SECURE JOB Consider yourself to likely be the first asset dropped from the company if even the tiniest thing goes wrong. I know way too many people who were fresh hires at Intel, Boeing, and a few other big tech companies that pay around what you make and, despite being bad asses in college, they were dropped like a bad habit when their employers hit rough patches. To those even more experienced than me, please feel free to add to the list. I'd personally love to know them myself." In a very similar situation as yours, I bought a used motorcycle for $3000. It was still reasonably new, very reliable, and with California weather, you can use it year-round. It reduced my time in traffic, and it had very low fuel and maintenance costs. The biggest expense was tires. The biggest pitfall in buying a motorcycle is auto-insurance. Do your research and ask for quotes from your broker before even considering a particular model of bike. When I decided that my finances justified a new motorcycle, I was surprised that full collision coverage cost about $3000/year on a lower powered bike that had a bad accident record because it appealed to new riders. I got a much more powerful bike that appealed to more experienced riders and the premium was only $500/year. Is this answer not what you were looking for? Spend as little as you can on a 4-6 year old car. Drive it until you can save enough cash to buy the one you really want. I'm currently driving a 2007 Corolla, and I'm waiting until I can get a new civic turbo with a manual transmission to replace it. (They currently only offer them with a CVT, but next fall they'll have them with the MT, so I'm probably 2 1/2 years out from buying one used.) most of the people who lurk in money.se will probably tell you to spend as little as possible on a car, but that is a really personal decision. since you live with your parents, you can probably afford to waste a lot of money on a car. on the other hand, you already have a large income so you don't really have the normal graduate excuses for deferring student loans and retirement savings. for the sake of other people in a less comfortable position, here is a more general algorithm for making the decision: "Money is a token that you can trade to other people for favors. Debt is a tool that allows you to ask for favors earlier than you might otherwise. What you have currently is: If the very worst were to happen, such as: You would owe $23,000 favors, and your ""salary"" wouldn't make a difference. What is a responsible amount to put toward a car? This is a tricky question to answer. Statistically speaking the very worst isn't worth your consideration. Only the ""very bad"", or ""kinda annoying"" circumstances are worth worrying about. The things that have a >5% chance of actually happening to you. Some of the ""very bad"" things that could happen (10k+ favors): Some of the ""kinda annoying"" things that could happen (~5k favors): So now that these issues are identified, we can settle on a time frame. This is very important. Your $30,000 in favors owed are not due in the next year. If your student loans have a typical 10-year payoff, then your risk management strategy only requires that you keep $3,000 in favors (approx) because that's how many are due in the next year. Except you have more than student loans for favors owed to others. You have rent. You eat food. You need to socialize. You need to meet your various needs. Each of these things will cost a certain number of favors in the next year. Add all of them up. Pretending that this data was correct (it obviously isn't) you'd owe $27,500 in favors if you made no money. Up until this point, I've been treating the data as though there's no income. So how does your income work with all of this? Simple, until you've saved 6-12 months of your expenses (not salary) in an FDIC or NCUSIF insured savings account, you have no free income. If you don't have savings to save yourself when bad things happen, you will start having more stress (what if something breaks? how will I survive till my next paycheck? etc.). Stress reduces your life expectancy. If you have no free income, and you need to buy a car, you need to buy the cheapest car that will meet your most basic needs. Consider carpooling. Consider walking or biking or public transit. You listed your salary at ""$95k"", but that isn't really $95k. It's more like $63k after taxes have been taken out. If you only needed to save ~$35k in favors, and the previous data was accurate (it isn't, do your own math): Per month you owe $2,875 in favors (34,500 / 12) Per month you gain $5,250 in favors (63,000 / 12) You have $7,000 in initial capital--I mean--favors You net $2,375 each month (5,250 - 2,875)   To get $34,500 in favors will take you 12 months ( ⌈(34,500 - 7,000) / 2,375⌉ ) After 12 months you will have $2,375 in free income each month. You no longer need to save all of it (Although you may still need to save some of it. Be sure recalculate your expenses regularly to reevaluate if you need additional savings). What you do with your free income is up to you. You've got a safety net in saved earnings to get you through rough times, so if you want to buy a $100,000 sports car, all you have to do is account for it in your savings and expenses in all further calculations as you pay it off. To come up with a reasonable number, decide on how much you want to spend per month on a car. $500 is a nice round number that's less than $2,375. How many years do you want to save for the car? OR How many years do you want to pay off a car loan? 4 is a nice even number. $500 * 12 * 4 = $24,000 Now reduce that number 10% for taxes and fees $24,000 * 0.9 = $21,600 If you're getting a loan, deduct the cost of interest (using 5% as a ballpark here) $21,600 * 0.95 = $20,520 So according to my napkin math you can afford a car that costs ~$20k if you're willing to save/owe $500/month, but only after you've saved enough to be financially secure." "I have a slightly different take on this, compared to the other answers. In general, I think your emergency fund should always be at least 3K, especially if you own a used car that is out of warranty. Any number of unlucky auto repairs could easily cost over 2K. So, if you have 7K in savings, I would personally buy a car that is 4K or less or finance any amount of the car over 4K (if you can get a relatively low interest rate). Then I would pay down the financed portion of the car as quickly as possible while maintaining at least a 3K emergency fund. That being said, notice I mentioned ""In general"". Your situation may actually be quite different. If you don't have much debt, with your income you might be able to build up a couple of thousand in savings in a single month, and if so the above doesn't really apply. Even if you spent the entire 7K on a car, you'd likely have at least 3K in your emergency fund within 60-90 days. As for what's responsible, there are too many factors to dictate that. If you don't have many other expenses, you could possibly afford a $40K car, and I don't think anyone here could fairly call that ""irresponsible"" if you spent that much, though surely no one would call it ""responsible"" either. Perhaps the best advice is to buy the least expensive car you will be happy with. Many people regret overspending on a vehicle, but few regret underspending (unless they got a lemon that requires lots of repairs). Finally, you could also consider another option. You could get a very cheap car for 1K or less and drive it for a year. By then you may have closer to 20K saved up for a much nicer car than you can afford today." Regardless of your circumstances, the amount of money you should put into a car is about $6000-8000 or the amount of cash you actually have, whichever is less. You can get a very reliable gently-used car in that price range, and a car that's plenty good to drive for basically whatever your budget is, down to about $1500-2000 or so. Spending more is never a financially sound decision; it's purely a luxury expenditure. Buying a car with a loan is always a financially bad decision. "As an absolute basic in life you always need 1 month's salary free and clear sitting in the bank. You do not have this. You don't even get to count that. It's what Napoleon would refer to as an ""iron reserve"": you have to have this. You actually won't even have this for some two or three months. Note that you have a staggering amount of debt. You have absolutely no assets. You own nothing. You have no savings. So at this point we can say ""Could your situation be any worse?"" and the answer is ""It could not be any worse."" On the ""good things in your outlook"" side you have the idea that you probably have a job (it's unfortunate how you refer to it as ""will pay"" when you mean ""might pay"") but you're in perhaps the highest-expense, most-flakey economic zone on Earth.  Recall that i) every company eventually closes and ii) every job eventually ends. The next incredible problem you face is that I'm guessing you just have no clue how expensive it is to insure and run a car. Any ideas of buying anything more than a junker is a non-starter, but on top of that you're not realizing how expensive it is going to be for you to run a car. Disturbingly, you have a very poor idea of even how far it is you have to drive each day. The only realistic solution for you is to bike each day to work (buy the cheapest possible bike); become the ""eccentric guy"" who really focusses on health. Bike in for an hour, shower at the office or a nearby gym, enjoy your day and bike home. You'll need a backpack to carry your pack lunch, buy the cheapest backpack. Since it's LA, it may be impractical. You may literally need a car. In that case, your only solution is That's the only thing you can do.  Plain lean on your parents or relatives to borrow some old car and use that. (It will still cost you an awful lot of money to do so - repairs, tires, insurance, and everything else.) A reminder, You do not have your one-month ""iron reserve"". You have a staggering amount of debt. You have absolutely no assets. You own nothing. You have no savings. Additionally you live with the parents; you have a dream of a job (in one the highest-priced, most flakey regions) and ""job"" is another word for no security - jobs evaporate all the time for many reasons. Please be careful. Regarding a car, find a way to borrow one; offer to make a repair on it, say.  Don't spend one cent on anything your first six months at work, concentrate only on your job.  See where you are after six months." So many answers here are missing the mark.  I have a $100k mortgage--because that isn't paid off, I can't buy a car?  That's really misguided logic. You have a reasonably large amount of college debt and didn't mention any other debt-- It's a really big deal what kind of debt this is.  Is it unsecured debt through a private lender? Is it a federal loan from the Department of Education? Let's assume the worst possible (reasonable) situation.  You lose your job and spend the next year plus looking for work.  This is the boat numerous people out of college are in (far far far FAR more than the unemployment rates indicate).  Federal loans have somewhat reasonable (indentured servitude, but I digress) repayment strategies; you can base the payment on your current income through income-based and income-continent repayment plans.  If you're through a private lender, they still expect payment.  In both cases--because the US hit students with ridiculous lending practices, your interest rates are likely 5-10% or even higher. Given your take-home income is quite large and I don't know exactly the cost of living where you live--you have to make some reasonable decisions.  You can afford a car note for basically any car you want.  What's the worst that happens if you can't afford the car?  They take it back. If you can afford to feed yourself, house yourself, pay your other monthly bills...you make so much more than the median income in the US that I really don't see any issues. What you should do is write out all your monthly costs and figure out how much unallocated money you have, but I'd imagine you have enough money coming in to finance any reasonable new or used car.  Keep in mind new will have much higher insurance and costs, but if you pick a good car your headaches besides that will be minimal. "I think the answer to how much you ""should"" spend depends on a few more questions: Once you answer these questions I think you'll have a better idea of what you should spend. If you have no financial goals then what kind of car you buy doesn't really matter. But if your goals are to build and accumulate wealth both in the short and long term then you should know that, by the numbers, a car is terrible financial investment. A new car loses thousands of dollars in value the moment you drive it off the lot. Buy the cheapest, reliable commuter you can ($5k or less) and use the extra money to pay off your debts. Then once your debts are paid off start investing that money. If you continue this frugal mindset with your other purchases (what house to buy, what food to eat, what indulgences to indulge in, etc...) and invest a bit, I think you'll find it pretty easy to create a giant amount of wealth."
The first thing that strikes me is: Is this a time-limited offer? Because if you can expect the offer to still be valid in a few weeks, why not just wait that month (which will earn you the money) and buy the car then? The second thing you need to consider is obviously the risk that in the interim, there will be an actual emergency which would require the money that you no longer have. The third thing to consider is whether you need the car now. Do you require a car to get around and your current one is breaking down, perhaps even to the point that repairing it would cost you more than buying a new car and it is currently not safe to drive? If so, compare the cost of repairing to the cost of buying; if the difference is small, and the new car would be more likely to be reliable than the old car after spending the money, then it can make sense to buy a new car and perhaps sell the old one in its current condition to someone who likes to tinker. (Even if you only recover a few hundreds of dollars, that's still money that perhaps you wouldn't otherwise have.) The fourth thing I would consider, especially given the time frame involved, is: Can you get a loan to buy the new car? Even if the interest rate is high, one month's worth of interest expense won't set you back very far, and it will keep the money in your emergency fund for if there is an actual emergency in the weeks ahead. Doing so might be a better choice than to take the money out of the emergency fund, if you have the opportunity; save the emergency fund for when that opportunity does not exist. And of course, without knowing how much you earn, take care to not end up with a car that is no more reliable than what you have now. Without knowing how much you earn and what the car you have in mind would cost, it's hard to say anything for certain, but if the car you have in mind costs less than a month's worth of net pay for you, consider whether it's likely to be reliable. Maybe you are making an absolutely stellar pay and the car will be perfectly fine; but there's that risk. Running the car by a mechanic to have it briefly checked out before buying it may be a wise move, just to make sure that you don't end up with a large car repair expense in a few months when the transmission gives up, for example. There needs to be more numbers with your choices, without those any answer is purely speculation. Assuming that India is much like the US, you are almost always better to go with a company leased car.  That is if you are not responsible for the lease if your employment ends with the company. Here in the US companies typically reimburse, so tax free, their employees for about 50 cents per mile, or about 31 cents per kilometer.  This barely covers the gas and insurance and falls way short when one includes deprecation and maintenance.  So it is better to have the company to pick up all those costs.      Borrowing money on a car is just plain dumb no matter what the interest rate.  So I would stick with choice number 1 or 3 depending on the arrangement for the company leased car. The next question becomes how much you should spend for a car?  I would say enough to keep you happy and safe, but not much more than that until you are wealthy. You are planning on buying a car that is 50% of your salary. Add your student debt to that and your total debt is >50% of your salary. I would suggest getting a few credit cards to build up credit, but can you manage that? Buying a 25k car with 55k salary is overspending. Get a second-hand car for 7k or so. Plus, buying a new car is not smart either, from a pricing standpoint, if you really want a new car, buy one that is 1 to 2 years old. Question (which you need to ask yourself): How well are your friends paid for their work? What would happen if you just took your money and bought a garage, and hired two car mechanics? How would that be different from what you are doing?  The money that you put into the company, is that paid in capital, or is it a loan to the company that will be repaid? On paper the whole 6 months living costs sounds (and is) great, but in real life there are a lot of things that you need to consider. For example, my first car was constantly falling apart and was an SUV that got 16MPG. I have to travel for work (about 300 miles per week) so getting a sedan that averages close to 40MPG saves me more in gas and maintenance than the monthly payment for the new car costs. When our apartment lease was up, the new monthly rent would have been $1685 per month, we got a 30 year mortgage with a monthly payment of $1372. So buying a house actually let us put aside more each month. We have just under 3 months of living expenses set aside (1 month in liquid assets, 2 months in a brokerage account) and I worry about it. I wish we had a better buffer, but in our case the house and car made more sense as an early investment compared to just squirreling away all our savings. Also, do you have any debt? Paying off debt (student loans, credit card debt, etc.) should often take top priority. Have some rainy day funds, of course, but pay down debts, and then create a personal financial plan for what works best in your situation. That would be my suggestion. Get rid of the lease and buy a used car. A good buy is an Audi because they are popular, high-quality cars. A 2007 Audi A4 costs about $7000. You will save a lot of money by dumping the lease and owning. Go for quality. Stay away from fad cars and SUVs which are overpriced for their value. Full sized sedans are the safest cars. The maintenance on a high-quality old car is way cheaper than the costs of a newer car. Sell the overseas property. It is a strong real estate market now, good time to sell. It is never good to have property far away from where you are. You need to have a timeline to plan investments. Are you going to medical school in one year, three years, five years? You need to make a plan. Every investment is a BUY and a SELL and you should plan for both. If your business is software, look for a revenue-generating asset in that area. An example of a revenue-generating asset is a license. For example, some software like ANSYS has license costs in the region of $30,000 annually. If you broker the license, or buy and re-sell the license you can make a good profit. This is just one example. Use your expertise to find the right vehicle. Make sure it is a REVENUE-GENERATING ASSET. I don't have a reference, but I think it depends on when you entered the workforce: If you finished school at age 24, your primary goals are to pay down expensive debt and to save up enough for a down payment.  So essentially not much.  Maybe $5k to $10k at the most. On the other hand if you entered the workforce at age 20, with no debts and no significant expenses, it should have been easy to sock away 20% of your income for 6 years, so $40k to $50k would be reasonable. The difference is that the first person's income earning potential should be higher, so eventually they'd be able to make up the difference and pass them. I've read online that 20% is a reasonable amount to pay for a car each month - Don't believe everything you read on the internet.  But, let me ask, does your current car have zero expense? No fuel, no oil change, no repairs, no insurance? If the 20% is true, you are already spending a good chunk of it each month. My car just celebrated her 8th birthday. And at 125,000 miles, needed $3000 worth of maintenance repairs.  The issue isn't with buying the expensive car, you can buy whatever you can afford, that's a personal preference. It's how you propose to budget for it that seems to be bad math. Other members here have already pointed out that this financial decision might not be so wise. You may not have a good choice until you start that job. $2,000 is awfully low for a car, so it could be very risky. But you may not be able to get a loan until you start the new job. I would talk to a bank or credit union to get an idea of how much, if anything, you could borrow at this time. If you have a letter offering you the job that might help to get a loan. There are dealers who will finance a very cheap used car for anybody, but that kind of deal is likely to be at a very high interest rate and should be avoided. You could wind up with a debt and no car. One other possibility is to have a co-signer, such as a parent or other relative. That could make getting a car loan easy. If you want the new car, pay cash for it. Here's why: By paying cash for the car, you immediately save $2,500 off the price of the car. That is not insignificant, it's 8.3% off.  By paying cash, you'll never be upside down on the car, and you can sell the car anytime you want.  You said that all you need to do is beat the 0.9% interest rate with your investment to come out ahead. That doesn't take into account the discount you would have gotten by paying cash. $30,000 invested for 5 years at 1.6% (rough estimate) would get you $2,500 (the discount), so the rate you need to beat to come out ahead is actually 2.5%. Still doable, but it is much less of a sure thing on a 5 year investment, and much less worth the trouble.  New cars are an expensive luxury. If you are wealthy enough, a new car certainly can be appropriate for you. However, if you don't like the idea of paying $30k in cash all at once, that is a strong indication that perhaps the new car is a luxury you aren't in a position to buy at this time. Borrowing the money and paying for it over time makes it psychologically easier to over spend on transportation. Liquidity. That's the issue. You rent, and that's not bad. No new roof, boiler, etc. But, you have a car? Your savings is a guarantee that you'll not have to charge a $2000 transmission on an 18% credit card. You job may be secure, but employment (aside from self employment) is never 100% guaranteed. With $3000 income per month, I'd not prepay the student loan until I had at least $9000 in savings.  We don't know your country, although we don't have fortnights in the US, so if you are in the US, you have a non-US background. Either way, if your employer offers any kind of matching retirement deposits, I'd prioritize that. Never leave that matched money on the table.  You are off to a great start, this relatively low student loan debt shouldn't keep you awake at night. I think you are making this more complicated that it has to be.  In the end you will end up with a car that you paid X, and is worth Y. Your numbers are a bit hard to follow.  Hopefully I got this right. I am no accountant, this is how I would figure the deal: The payments made are irrelevant.  The downpayment is irrelevant as it is still a reduction in net worth.   Your current car has a asset value of <29,500>.  That should make anyone pause a bit.   In order to get into this new car you will have to finance the shortfall on the current car (29,500), the price of the vehicle (45,300), the immediate depreciation (say 7,000).  In the end you will have a car worth 38K and owe 82K.  So you will have a asset value of <44,000>.  Obviously a much worse situation.  To do this car deal it would cost the person 14,500 of net worth the day the deal was done.  As time marched on, it would be more as the reduction in debt is unlikely to keep up with the depreciation. Additionally the new car purchase screen shows a payment of $609/month if you bought the car with zero down.  Except you don't have zero down, you have -29,500 down.  Making the car payment higher, I estamate 1005/month with 3.5%@84 months.  So rather than having a hit to your cash flow of $567 for 69 more months, you would have a payment of about $1000 for 84 months if you could obtain the interest rate of 3.5%. Those are the two things I would focus on is the reduction in net worth and the cash flow liability.   I understand you are trying to get a feel for things, but there are two things that make this very unrealistic.  The first is financing.  It is unlikely that financing could be obtained with this deal and if it could this would be considered a sub-prime loan.  However, perhaps a relative could finance the deal. Secondly, there is no way even a moderately financially responsible spouse would approve this deal.  That is provided there were not sigificant assets, like a few million. If that is the case why not just write a check? Not long after college in my new job I bought a used car with payments, I have never done that since. I just don't like having a car payment. I have bought every car since then with cash. You should never borrow money to buy a car There are several things that come into play when buying a car. When you are shopping with cash you tend to be more conservative with your purchases look at this Study on Credit card purchases.   A Dunn & Bradstreet study found that people spend 12-18% more when using credit cards than when using cash. And McDonald's found that the average transaction rose from $4.50 to $7.00 when customers used plastic instead of cash.  I would bet you if you had $27,000 dollars cash in your hand you wouldn't buy that car. You'd find a better deal, and or a cheaper car. When you finance it, it just doesn't seem to hurt as bad. Even though it's worse because now you are paying interest.  A new car is just insanity unless you have a high net worth, at least seven figures. Your $27,000 car in 5 years will be worth about $6500. That's like striking a match to $340 dollars a month, you can't afford to lose that much money. Pay Cash If you lose your job, get hurt, or any number of things that can cost you money or reduce your income, it's no problem with a paid for car. They don't repo paid for cars. You have so much more flexibility when you don't have payments. You mention you have 10k in cash, and a $2000 a month positive cash flow. I would find a deal on a 8000 - 9000 car I would not buy from a dealer*. Sell the car you have put that money with the positive cash flow and every other dime you can get at your student loans and any other debt you have, keep renting cheap keep the college lifestyle (broke) until you are completely out of debt. Then I would save for a house.  Finally I would read this Dave Ramsey book, if I would have read this at your age, I would literally be a millionaire by now, I'm 37. *Don't buy from a dealer Find a private sale car that you can get a deal on, pay less than Kelly Blue Book. Pay a little money $50 - 75 to have an automotive technician to check it out for you and get a car fax, to make sure there are no major problems. I have worked in the automotive industry for 20 + years and you rarely get a good deal from a dealer. “Everything popular is wrong.”         Oscar Wilde "You have a job ""lined up"". What if it falls through? Then you have to sell your fancy car, and you are back to scare, apart from the dough you owe your dad. For consumption items, live within your means. A cheap first car is just fine.   Spend cash where it brings you more cash." Suppose you're a European Company, selling say a software product to a US company. As much as you might want the US company to pay you in Euros they might insist (or you'll lose the contract) that you agree pricing in USD.  The software is licensed on a yearly recurring amount, say 100K USD per year payable on the 1st January every year. In this example, you know that on the 1st Jan that 100K USD will arrive in your USD bank account.   You will want to convert that to Euros and to remove uncertainty from your business you might take out an FX Forward today to remove your currency risk.   If in the next 9 months the dollar strengthens against the Euro then notionally you'll have lost out by taking out the forward.   Similarly, you've notionally gained if the USD weakens against the EURO.    The forward gives you the certainty you need to plan your business.