Financial Question

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I have a financial question:

I am in a career where the average pay is in the $50,000-60,000 range. There is a car I want that is in the $40,000-45,000 range, and a house in the $200,000 area.

How can I afford these, without winning the lottery or marrying for money?

Marry someone who makes what you stand to make, buy an old car, and a fixer-upper house.

Live in the ghetto and save every bleeding penny for the next decade. That ought to give you a decent nest egg.

And the car you ought be able to afford on that pay scale, so long as you're looking at a nice sized down payment and other bills are nice and low.

You want a house that costs $200K and a fine car. This suggests you don't have either yet. Can you stay where you are for a while and concentrate on saving?

I've been keeping a spreadsheet of my expenses, it helps me see where the money goes and be conscious of trade-offs (money versus pleasure). I still need to master the *_timing_* of big expenses like vehicle tires however.

If you do not have any credit rating, build one (gas station cards, maybe a department store card) (I haven't borrowed since I bought my car 10 years ago, I likely don't have a credit score anymore, so I'll be building my credit rating up soon).

If you have no credit, you won't be able to get that car without a substantial down payment. However, let's assume you are able to get it. A rule of thumb is $22 in car payment per thousand on a five year loan so approximately $880 to $990 per month in car payments, or about a third of your take-home pay after taxes.

Assuming you have no credit card payment, no child support, no alimony, no student loan payments, you can afford a $100,000 house but not a $200,000 house. With a regular FHA loan and $3,000 down plus $1,000 closing costs you can have monthly mortgage payments of $800 in a 6.0 fixed 30 year mortgage. That will leave you with about $900/month for gas, car repairs, home repairs, car taxes, home taxes, insurance, food, clothing, etc. If you only buy two new outfits per year and live on $50/week groceries, you can even set aside a little savings to cushion you in case of disaster.

In other words, you could afford the car or the house if you want to live tight in other areas of your life but there's really no way you can afford both. So decide whether it's more important to you to have a really nice car and a comfy house or a really nice house and a comfy car.

With $50,000/year income, you can afford to live really nice and comfortable, but not in luxury and wealthy style.

OP Find someone with a high income & excellent credit history to cosign on some very low interest long-term loans. It mite take 30/40 years to pay it all off thou but if the interest is low & the required minimum payment is manageable; it mite could be done. Figure out the max of what your sure you can afford monthly.
Some people nowadays are buying things they know they can not afford & then filling bankruptcy after. I hear if they only own the one vehicle & the one property; they mite could keep it & after seven years they are in the clear. I am NOT advocating bankruptcy but some people are finding loopholes to take advantage

Last edited by nick007 on 06 Jun 2010, 9:02 am, edited 1 time in total.

First congratulations the great income! I agree... Do not borrow money for the house or car - Those things are not assets but liabilites.

You need to think of several factors... What if you lose your job and you can not pay? Or you end up with a 40K medical emergency? The bank will take your house and your car. Sell them at auction and then sue you for the rest you owe them. The bank doesn't care about your situation.

BTW: My net worth is about $250K.... And I'm quite proud of driving my 15 year old jalopy and a 125K home. This allows me to save or invest about half my paycheck. I don't lose a lot of income to interest - interest is always money lost out of you pocket!

buy a used car on ebay for a couple thousand dollars. You can probably get a nice used BMW or Mercedes for less than the price of a crappy new honda or american car.

Good advice. We have a nice used Cadillac that cost far less than a thousand dollars. (We have to have big cars because my partner is 6'8" and doesn't fit in small cars.)

Buy a car on eBay? Their racing motorcycle auctions have much fraud, so I wouldn't trust their car auctions. Craigslist will show you local vehicles that you can see in person, this has worked well for me.

And yes, interest paid is money you will never get back. Pay as little interest as you can. I paid about 155 dollars in interest on my 2001 Saturn (cost was about $15,500). And yes, even there, buying used would have been a better value.

As for a house, make sure the loan says "NO PENALTY for paying the principal down ahead of schedule". (This might be mandatory under the laws of your state, check with your lawyer.) Paying extra to reduce the principal can chop quite a few of the final years off of your payments.

(And, of course, buy the insurance that protects you in case the builder did not pay his subcontractors, so they can't come after you.)

Can you afford what you want on what you make? Books say you shouldn't spend more than X percent on housing, transportation, etc. I don't know what those percentages are right now, but please heed them, otherwise you could be financially uncomfortable for a very long time.