Is Buying that New BMW in your 20’s Really Worth It? By: Jake Kuss
By: Jake Kuss
I found this question while looking over an article at CNNmoney.com:
Question: I just turned 24, and the constant pressure from financial advisers to “save save save” for retirement makes me anxious that I’ll never be able to retire. I contribute 10% of my salary to my 401(k) each year – some of which my company matches – and I recently took on a second job to save for a home. Still, I feel miserable. My friends cruise around in BMWs, but I’m afraid to spend a dime on myself lest I ruin my future. I’ve looked at retirement calculators, but most don’t let you enter an age below 25. So I have no idea whether I’m doing enough, too much or just the right amount. What do you think? Are my worries are justified? —Jessica, Boston, Mass.
I know most of us (myself included) are looking forward to getting that killer job when we graduate and then buying that sleek car after we settle into our jobs for a few years. But is it really worth it to buy that car when you can be saving? Walter Updegrave of money magazine stated the following tips for 20 year old savers:
- Clearly, retirement planning has got to strike a balance. You want to save enough so you’ll be able to enjoy retirement. But not so much that you can’t also live a satisfying life during your career.
- Live below your means: Buying the upper range Toyota instead of the BMW. Choices like these still allow you to live comfortably, but not extravagantly. Choices like these allow you to keep your standard of living in retirement.
- Get an estimate: Consult a financial advisor, use the formulas we are learning in class, or an online calculator to estimate how much you should be saving to reach what you consider a comfortable amount of money. Updegrave suggests “that someone in their 20s will find that they’ve got to save somewhere in the neighborhood of 10% of their salary to have a decent shot at a secure retirement. The figure might be lower for someone who’s already got some savings set aside, as you do. The figure might be higher if your income is high for the simple reason that Social Security will replace less of your pre-retirement income, which means you’ll be relying more on your savings to provide what Social Security can’t.”
- Expect the unexpected: A lot can happen to markets before we retire in 40 something years. The markets may come to record low or you may not get the return you thought you would. So if possible you want to “build a cushion into your savings regimen, maybe shoot for 12% if 10% is called for. If you can’t manage that, then set aside a few extra bucks when you can – save part of a bonus or a windfall if you’re lucky enough to receive one. It’s also a good idea to monitor your progress periodically, say annually.”
- Most importantly, “remember that the savings target you eventually settle on has got to make sense in the context of your life as a whole. It’s okay if you’ve got to exert control over certain spending impulses or even decide that some purchases are off limits and that you do not need them”
- Don’t get so caught up in your drive to save so that dominates your life and sucks the joy out of living your youth.
Source: http://asktheexpert.blogs.money.cnn.com/2008/08/19/too-young-to-save-too-afraid-not-to/
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It is very important to budget your money after you get your first job out of college. If you do land that big job out of college don’t blow it on an expensive car lease like a BMW. You will have less available funds available now to invest with the time value of money, and a leased car does not add any value to your net worth. Also, usually by making these expensive car payments, you will have to live on a tighter budget. I have seen it first hand. My cousin landed a great job out of college through a family friend and his first big purchase was a new two door, fully loaded 325xi coupe. Although I have to say it’s a beautiful car and a lot of fun riding around in it, he was still living at home eating meatloaf with his mother at 6pm. Is it worth it?
davidlevy - September 17, 2008 at 5:49 am
Clearly landing a big job out of college is all of our dreams. And for many of us, buying an expensive luxury item like a new car is also one of our dreams. However, I think there is a balance between putting away money for your retirement and also making the purchase you have always wanted. Personally, I would love a BMW but I also can list at least 10 other cars that are probably $10,000 less than a BMW that I would be comfortable with. I am not saying that going out and buying an expensive car is right, but if it is something you have always wanted then do your research and know what your financial situation will be if you decide to do it. Again, BMW’s and Mercades are nice, but there are a lot of other cars out there which are much less expensive which will still give you the satisfaction of owning a brand new car like you have always wanted.
tmsiverd - September 17, 2008 at 3:35 pm
I like to think that graduating from Syracuse University, we are all very likely to get a pretty respectable college right after graduation. But having a high-paying job doesn’t necessarily entitle us to going out and splurging on a fresh BMW right away. I agree with the suggestion that you need to live below your means for a while until you’ve built up a bit of a nest egg in a retirement fund. As cool as it would be to have a bigger house than we could necessarily afford, there’s nothing cool about risking your credit by defaulting on a home mortgage or car lease–especially with the currently volatile and unpredictable economy.
scottcraft - September 17, 2008 at 7:22 pm
The golden rule that EVERYBODY needs to learn right from the get-go is:
“ITS NOT HOW MUCH YOU MAKE, ITS HOW MUCH YOU SAVE”
Life is a trade off. Whenever you choose on thing, you forgo another thing. This is called opportunity cost. In truth, the fact that this girl is asking a question like this is silly. No financial calculator can really answer her question. The question isn’t math, its about values.
So what if she figures out if she can afford the BMW or not. What is she going to do next time she wants to buy something? Maybe a watch, or Prada shoes? Is she going to consult a financial calculator each time she makes a noteworthy purchase?
She needs to weigh the ups and downs of her decision, and not just using financials. Maybe she needs the car to look a certain way to potential clients, or maybe potential clients will look down on her for splurging on the car. This is just one example of something she would have to think of.
Personally, I’d rather have an Audi anyway…
bmkriger - September 17, 2008 at 8:01 pm
The way I think about this article is that it is much more of your own personal values. If you are the type of person that likes to live life one day at a time then buying the BMW might be a good idea. No one knows how many days they have left so if you have an opportunity to do something then they should take advantage. When people get older they are always saying “take advantage when your young”. It is also very important to save your money, but if you are thinking about get a BMW i think you are doing pretty well for yourself. At the same time when buying a BMW most often you are buying the logo not the car, so buying a high-end car that does not have the luxurious name of BMW might not be a bad idea.
joshwilliams11 - September 17, 2008 at 8:38 pm
This article is important because I’m sure everyone out of college wants to land that huge job and make all the money right away. It shouldn’t be about making all the money right away anyway because the first thing you should with the money you earn is to start saving for the future. Be able to budget yourself. Our parents have worked real hard for us to be where we are now and for us to come out of college and buy a $35,000 car is ridiculous. First year out of colleges even if you are making so much money, there’s no reason to spend it on a luxury car when you can buy other cars such as a honda or ford and be able to get around.
alexchung01 - September 17, 2008 at 9:23 pm
A car is a terrible investment. It depreciates the second you drive it off the lot. In addition to the initial expense of owning a expensive car one must remember the insurance on the vehicle. The rates on a new luxury car could be very steep for a 20 something year old driver. The person is better off saving and putting the money into something more practical like a home.
patricksullivan - September 18, 2008 at 12:04 am
My Father use to own a Automotive repair shop and I have grown up working on cars my entire life. One of the things my Father always use to tell me was the more expensive car you buy, the more expensive repairs are going to be on them. So when looking to purchase a new car (brand new or used), the buyer has to look into the additional costs of the purchase. Insurance, repair, and even maintenance. These costs can be a small fortune if you buy the best car on the market. You must also look into all of the factors when you buy a car. Just like every large financial purchase, you have to research the additional costs that go along with the purchase.
Additionally I feel that if you save money now and wait to spend it when you get older you can drive that car you alway have dreamed about. Plus if you wait longer you will probably get a better car with the new and best technologies. When your retire you have nothing better to do then spend money so you might as well have a lot of it to spend.
mfschoeneck - September 18, 2008 at 1:04 am
M mother just recently gave me some advice. The markets are a crazy thing and everyone would love a large paycheck. But as other people have commented before it is all about your values and being smart. You have to do a cost benefit analysis. Would you rather have a high salary but give up your life working as slave labor? Its important to make healthy choices, buying that bmw or putting it towards a life and a family. It depends on what you value and what makes you happy. So although a car isn’t the smartest decision, it might make you happy. And why wouldn’t want to be happy?
stephaniehan - September 20, 2008 at 2:31 am
My advice is to buy whatever you can afford to buy with cash. My personal value is to buy a reasonably priced car. I was not always that way. At the age of 50 I have owned a BMW, an Audi, two Fords two VW’s and a 15 year old Suburban. My favorite car is the old Suburban – 275,000 miles and humming. It is relegated to hauling gardening and home improvement supplies now but I can’t bear to part with it. Not pretty but reliable.
The VW’s were the least expensive cars and the most fun per dollar. The BMW and Audi were way too expensive to acquire and operate. Great cars but budget busters (and I was making A LOT of money at the time). Would not go that way again.
Whatever you do – save the money and pay cash. On a basic car that will save you at least $2000 without even negotiating. Remember – the reason most people are broke is parked in their driveway.
cdaviscpa - September 21, 2008 at 2:52 am
Sure, its nice to have the car you always dreamed about right out of college, but it is important to realize the added costs to purchasing something like a car or house. Many of us are probably in debt from the students loans and credit cards we use during college, which will all have to paid off after graduation. Factoring the cost of an expensive car does not seem like the smart financial decision.
daniellee2 - September 21, 2008 at 5:32 pm
I do not think that buying a bmw in your 20s is worth it. There is absolutely no need to spend that kind of money on a car before so many other things have not been attained. Many people think that a car defines who you are. I read the book “The Millionaire Next Door” and it clearly says that the successful person is not the one with the fancy car or the fancy watch. He is the one that knows where and when to spend the money and not be flassy about it. There are appropriate times for someone to own something that is a big expense. Someone in their twenties is starting out and researching the possibilities to own a home. I think that that is what should come first – buying a home or a piece of property. The car is a toy as there are so many others that are less expensive. It also gives incentive to work harder and save more to try and buy the ultimate dream car. Having goals is important and if someone wants or always dreamt of a special car then there should be goal to follow to get to it. Nothing comes easy and it is sure more satisfying when you have to work hard to get it.
joshgoodman3 - September 23, 2008 at 1:31 am