What Car Should Be Bought at What Income?

[rakeshkn]

Sirji what is your monthly running? When you renewed the insurance of the car? Do you see any immediate or slightly distant but fat expense in near future in car as well as in house? Something like tires of car, admission of children, fees, some medical expenses or anything like that. Do you pay a monthly house rent or home loan installments too? Make a list of all the expenses and add 20% more to the number obtained to get a 20% buffer in case of sudden rise in expenses. Then make out your savings and then see that after you meet your monthly savings targets, you have enough for a new car or not.

Thank you for your valuable reply Vipul.

My monthly running not exceed 1000 kilometers at any cost. My insurance is due in March only and with the previous years experience I am sure it will not exceed 6k. About the expense of the car, I replaced everything as per the manual from the brake pads to the struts. My axle making a weird noise sometimes and SA advised to change only when it high or annoyed. I have a house and a rented room, including both I had to spend 9k a month. For the family I had to spend another 10k min a month. What do you think.

 

[TSIVipul]

Caution: Long Post!!

For an income of slightly less than 2 Lac per month (some goes for EMI of car, some goes for rent, some goes for house expenses, some goes in bills and entertainment, almost half is saved), what would you guys suggest as an apt budget for a new car to be kept for minimum 8 years. We are 3 people working in a family of 4. We were hinting at around 8 Lacs but it would be good if someone else can comment on it keeping in mind that full payment of the car would be done and it would take some time to restore the bank balance. I would also provide more precise information if needed, it would be great if someone could make a specific chart/table to calculate how much one shall spend after considering the income, expenses and future expenses.

Three out of four in a family earning.. sirji let's talk about this after seventh pay commission
You can plan your purchase again in February because I am getting a gut feeling that you have at least one govt. employee in your home. My suggestion for you will be to wait for at least Holi if you have govt. employees in your home. Wait for what the new pay commission packs for you. After that let your parents decide how much they want to spend on cars or are they even interested in a car or a property. Once decided, then we can talk from zero.

Rakeshkn - Keep the car for some more years, cover 80-90k kms and then part with it. Seeing the value and dedication you have shown towards maintaining it, all efforts would be in vain as the next owner would enjoy the fruits of your hardwork on the car. The itch for a new car will slowly fade away as you spend time remembering all your good experiences with the Alto. Being married and running the house has a lot of expenses seriously, so think twice before the heart starts to take control of the head.

+100 any day

Thank you for your valuable reply Vipul.

Welcome for your valuable word of thanks saarji.

My monthly running not exceed 1000 kilometers at any cost. My insurance is due in March only and with the previous years experience I am sure it will not exceed 6k. About the expense of the car, I replaced everything as per the manual from the brake pads to the struts. My axle making a weird noise sometimes and SA advised to change only when it high or annoyed. I have a house and a rented room, including both I had to spend 9k a month. For the family I had to spend another 10k min a month. What do you think.

Mathematics time​

Let's think of car's expenses this way:
1000 kilometers = 4500 bucks
Servicing (Twice an year) = 10,000 bucks or around INR 836 per month
Insurance = 6000 bucks or INR 500 per month

So looking at the maintenance of Alto and all the expenses you have already done. The car costs you around INR 5836 per month. Reduce that number from 40k and you are left with around 34k per month for all your other expenses.

Of that 33k you spend 9k for house and rented room and 10-15k for family expenses (Min 10k, can easily reach 15) which makes it an expense of minimum 19k and maximum 24k per month.

Add the expenses of the car and you are already flirting with 30k per month as expenses only. I guess you are paying income tax too and some misc expenses also need to be added. No more assumptions from my end and you have to see where your expenses exactly take you.

If you buy a 6.5 lac car:
Alto with 65k kms and 2007 model: 1.5 lac as exchange value and some exchange bonus; say 20k.

So what Alto fetches: 1.7 lac.
Remaining amount: 6.5-1.7 = 4.8 lac

Case 1: You pay 1.8 lac more from your savings
Loan amount: 3 lac for 7 years
Installments: 1666*3 = 4998 per month

Case 2: You pay nothing from your savings
Loan amount: 4.8 lac for 7 years
Installments: INR 7996 per month

For a car worth 6.5 lac; say Swift VXi(O) or i20 Magna 1.2. The expenses go this way:
Fuel for 1000 kilometers: INR 5000
Servicing (Once an year): 6000 bucks or 500 per month
Insurance: 21k for zero dep or INR 1750 per month

So for a 6 lac costing petrol car, you will be paying INR 7250 per month for it's running, maintenance and insurance.

Putting this figure in the 40k income bracket, we get:

• Household expenses: 19-24k per month
• Car EMI: 4998-7996 per month
• Car running cost: 7250 per month

Minimum expenses: INR 31,248; after you have paid 1.8 lac from your savings and are managing household expenses strictly at 19k max including house + room rent and family expenses. Something really tough to maintain and hence you can expect the expenses to reach 35k easily. And you are left with an amount of hardly 5k per month. Bringing the risks of sudden expenses into the equation and your safety from such risks is not very strong here.

Maximum expenses: INR 39,246, do I need to say anything in this case?

My suggestion: Hold on to your Alto for now for the following reasons:

• The Alto has already taken the major part of the price depreciation and now the price depreciation won't be as high as for a >5 years old car. So you can still drive the car for 2 more years and 24k kilometers more and the price hit will be hardly 20k more.
• You have spent a good amount on keeping the car in mint condition. Enjoy the car now because the evaluation guy or new buyer won't give you the deserved amount at any cost.
• The Alto shouldn't be having any EMI now and the car is light on pocket to run and maintain too. So calmly enjoy the peace of mind now sirji. Believe me, you are more confident driving an Alto with a filled pocket than driving an i20 with empty pockets. C'mon man, the joy of ownership is only when you need not to think twice about the expenses like fuel and maintenance.
• Save, save and save. Save as much as possible for next 2-3 years and then plan the upgrade. That time also follow the proper calculations and mark my word; the one who pushes his bank account to zero for paying car down payment is the biggest fool. It's better to have a lac higher as loan amount and have 1 lac in your account. This 1 lac will help you keep check on several things but if paid to bank then the money is blocked in form of the car.
• 1 lac more means 1666 more in EMI; but you have an amount for other expenses too in your account. And salaries /incomes do rise with time. Let your income do rise, make adjustments of all the expenses and then look for a new car with which you can enjoy a peaceful ownership again.

 

[ice_wise]

Lol Vipul, I try to move away every time I see your "Mathematics Time" title! (Joking)

No, no government employees. My brother is in an MNC as maintenance head and gets a fair bit from the 2 Lac. Father is an accountant (in private firm) and mother is a teacher in private school. I am job-less! Now what do you suggest?

 

[TSIVipul]

Lol Vipul, I try to move away every time I see your "Mathematics Time" title!(Joking)

Ehh sirji that's a specific part that I love to do, Engineers love playing with numbers you know.

No, no government employees. My brother is in an MNC as maintenance head and gets a fair bit from the 2 Lac. Father is an accountant (in private firm) and mother is a teacher in private school. I am job-less! Now what do you suggest?

Maintenance head!! Haha, a couple of months back I also worked as a maintenance engineer in an auto component manufacturer. Programmed a lot of PLCs' and drives those days and then left it for good. So I am also jobless these days.
That's an OT, let's get back to the topic.

Follow the mathematics above and move ahead purchasing the car with which you won't face any issues in terms of finances and savings, that also your brother will do quite well IMO.

 

[furious_driver]

My monthly running not exceed 1000 kilometers at any cost. My insurance is due in March only and with the previous years experience I am sure it will not exceed 6k. About the expense of the car, I replaced everything as per the manual from the brake pads to the struts. My axle making a weird noise sometimes and SA advised to change only when it high or annoyed. I have a house and a rented room, including both I had to spend 9k a month. For the family I had to spend another 10k min a month. What do you think.

I am not going to give you any suggestion. Vipul has already given you an exhaustive, detailed one. It isn't worth risking personal finance just because we had the itch to smell new car dashboard. I know that pain and it is far worse. I could have gone to a car which is a segment higher, but my sane mind kept me from doing so, and now, I am here, a happy(not 100%, but that's about car) Xcent owner. If I would have gone with Verna or City, I might have ended up having no money for fuel. Then it'll be like Diwali for me. Waiting for huge money to even take the car out for spin!!

So please, think with your head and for this, take decision with your head. Heart rules over head is pure BS, if you have no food to eat...

 

[manish12345]

Lol Vipul, I try to move away every time I see your "Mathematics Time" title! (Joking)

No, no government employees. My brother is in an MNC as maintenance head and gets a fair bit from the 2 Lac. Father is an accountant (in private firm) and mother is a teacher in private school. I am job-less! Now what do you suggest?

Bro, After getting job you'll also Earn salary in Lakhs(Maybe). 4 members in family will be earning so no problem on buying car. You may plan to buy car at this new year as you'll get good discounts on cars!!

I'm also jobless (lol) As I'm a student studying Automobile Engineering got a intern at Renault-Nissan but proceeding to higer studies in abroad. Maybe I'll get Internship at Bmw.

 

[TSIVipul]

It isn't worth risking personal finance just because we had the itch to smell new car dashboard.

Saarji looking at your name got me back to memory lane and then I discovered that your AT thread I need to check.
Rest I agree on every single word you wrote. Compromising on personal finance, personal financial goals or basic needs just for the itch of a new car is not going to lead anywhere. Even I was also planning to get a new Fortuner A/T this May-June or maybe July after I received the payments from my first completed contract and had a plan to buy it in cash (after giving my Corolla in return). Although I had a 50:50 plan but then my father came to rescue me by alerting me exactly at the time my thinking capabilities were being played by the devil. Result: I spent 7 lac and got a used Innova for the purpose and Corolla is later sold. This was killing 3 birds with a singe stone.
1) I had money for the initial phase of my next contract; the one I am working on now.
2) Innova served very well and is serving back home as the Laura is also sold now.
3) I have got a Honda City selling the Corolla and affixed a good quality CNG kit in it. Now I will be buying a hatchback for my trips to dense parts of New Delhi sometime and the same hatchback will serve me when I will be a student again.

Had I bought a Fortuner then, I would have lost Corolla instantly and would have had to ask my father to bail me out at the time I required slightly more than my regular requirement in the work. Definitely I am not having any fancy number in passbooks today but my security amount/buffer amount is still keeping me afloat at the times when I would have required a bail out for sure. This is my small experience which taught me very well that better planning is more important than having a fancy set of wheels. At least I can peacefully wait for my current project to complete and then I can enjoy my student life again at its best without having made a single call back home asking for money. Good planning and control definitely works, at least in my case it does.

I know that pain and it is far worse. I could have gone to a car which is a segment higher, but my sane mind kept me from doing so, and now, I am here, a happy(not 100%, but that's about car) Xcent owner.

Sirji peace of mind is what keeps an owner contented during the ownership. It's something like; a confident Xcent owner can show stars to a Verna owner who has over stretched. I have people back in my village who don't consider even the 50 lac+ cars nothing even when they ride a Scorpio, why so? They know they can buy a number of them and that also for cash(Thanks to land acquisition); even I also have the same though process.

If I would have gone with Verna or City, I might have ended up having no money for fuel.

Saarji let me narrate a small incident here.
I was in a meeting with my bank manager regarding some business jhol jugaads when the manager got a list out of his printer. Since the guy is having a friendly chap; he just laughed and said:
"You don't even own a credit card and here I have more than 100 defaulters who haven't paid their CC bills or their loan EMIs again this time and some have defaulted continuously for 2-3 months".
I was surprised to hear the number of defaulters he told and the approx ratio of loan/CC beneficiaries to defaulters was even more surprising. Just had a word with the manager over the reason and the manager and it was like:
Manager: "sir what to do, these people just want to show off big cars, houses and credit card limits but don't know how to use these facilities".
Me: I haven't got you.
Manager: Sir my own salary is way higher than most of these defaulters but my car is three segments lower than theirs. My credit card expenses are well under controlled and I have opted for a smaller limit just to cut the expenses even better but these defaulters just spend so much that they are left with nothing at the end of the month to pay these bills. Now they will start talking foul, pleading or some even shed tears in the ban when we start pressing them for the payments.

IMO it's always better to control my expenses on the things which I can live without or whose lower version I can live with and divert my hard earned money in the direction where I can make a productive use of it like business, education, property etc.

So please, think with your head and for this, take decision with your head. Heart rules over head is pure BS, if you have no food to eat...

+100 sirji, it is definitely a pure BS. In fact it's more of a speech by heavy pocket guys without thinking or pondering over the exact position of the person they are advising. This is like a love relationship which has gone bad because one can't even love or make love with a hungry stomach for long.

 

[adithya]

hi vipul,
thats interesting. of late i have been reading that the reported NPA (non performing asset) by banks is not the actual NPA and they are hiding a lot of it. would you mind sharing which bank is this?. or at least share whether its a PSU or private bank?. ( i am just curious. i am a shareholder in some NBFC's and private banks. so just doing some ground reality check :-))
off topic: what he is saying is true. people live beyond their means. last week one of friends called me asking to lend money to his business. he told he already had 5 personal loans and wont get anymore. (some of them as high as 18% interest rate)
this guys keeps buying all the new fancy gadgets.

"You don't even own a credit card and here I have more than 100 defaulters who haven't paid their CC bills or their loan EMIs again this time and some have defaulted continuously for 2-3 months".

 

[puneet848]

I'm in the under 3.5l annual bracket. age 26 n unmarried. bought a grand i10 for 4.9 with 11k emi fr 3 years. really wanted a car and this will last me 5-6 years i really hope.

 

[rakeshkn]

Thanks for your query Rakesh and I am even more surprised to find out that this thread will turn 4 years old in next two days. Believe me, a lot has changed in these 4 years; I have turned from a mere consumer to earner, learned a lot about earning money and managing finances and today I can see that this thread also needs a lot of changes based on the situation of market that has changed a lot since 2011. Now coming back to the topic....

Man, This was an eye opener for me actually. Why this reply is late, because of I didn't like to put in a single word by using my mobile. I was planned to take a VDI swift, in that case the calculation would go higher. I will plan according to your calculation for sure, and wait to get my account filled with a reasonable amount to give half of the price down-payment, if it takes two year or five I will wait. Thank you sirji. You are such an adviser.

BTW one of my friend who is related into 30k point, took a Volkswagen polo High-line TDI, but that case he given half of the price as a down-payment. Such a brilliant vehicle man, I loved it

 

[SS53]

I agree with the pearls of wisdom given by Mr. TSIVipul. Presently I am in a position to buy a Rs. 10 lakh car. But after doing a lot of calculations, I bought a Wagon R. Some of my friends called me a fool. But I knew what I was doing. Rather than inventing Rs. 10 lakhs in a depreciating asset, I preferred to invest only Rs. 5 lakhs in a depreciating asset [Wagon R] which is serving me well. The savings of Rs. 5 lakhs can be invested productively anywhere which will appreciate to a bigger amount in 5-7 years [by the time I will start to think of changing my car]. Also other costs like insurance, spare parts, servicing cost etc are also cheaper in a low cost car.

Saving for the future is always better.

 

[chevrolet]

Paying 1/5th of income as emi is comfortable and safe. example, 40k salary 8k emi. So a car with 8k emi should be the limit

 

[furious_driver]

Paying 1/5th of income as emi is comfortable and safe. example, 40k salary 8k emi. So a car with 8k emi should be the limit

And that's exactly what I'm doing. An infact, I've took loan for 7 years, but planning to close soon so paying 12k(1/5th) instead of 8k!

For me, the equation is simple, after all your expenses and EMIs, will you have enough money for fuel? If not, hell no. Don't buy a car just yet!

 

[bharatbharija]

With an expected family income of 22 LPA (adding my and my fiancee's current annual ctc), 2 members and an existing car (Ford Ecosport - TDCi), I am again in a confusion of what budget should I set for the second car (to be used by my fiancee, post wedding, than wife). I already have 86,000 Rs left to pay for my ecosport as i have already pre-paid the rest 4.2 Lakh Rs loan. Although, technically speaking I can buy another car in 10-12 Lakh range, but I dont guess it would be wise. Right now, we don't have a flat of our home, also our savings are going to be blasted for buying household stuff, financing honeymoon and financing our wedding (atleast the clothes). This is going to leave me in a personal loan of 2-3 Lakhs in December. Another expense that would be added to my kitty will be house rent, as right now I am in my office's service appartment which just costs a deduction of 7k from salary.

Post deduction, loan payment and heavy spending on a punjabi wedding I guess our in hand cash would be just over a lakh at that time. We also plan to set aside / save 25k-20k for a future property procurement. I am confused now, what budget should I set for the second car, As it has to be a CNG/Diesel vehicle with good front seat space, and I dont have nay option in the 5-6 Lakh categroy (which i think the budget should be).

: me decide the budget guys, I dont want my heart to rule over my brain again, as right now I am all wooed by the Elite i20 Diesel.

 

[furious_driver]

I would say go for Figo. Even the mid variant with ABS+Airbags will be good and it shouldn't cost you anything more than 8L. After all your initial expenses wean off, you got good money to spend on and in that case, Figo with 1.5L engine is best choice if you ask me. It will act as your city run-about and in some cases where your Ecosport goes to service etc, it can even act as highway cruiser!

Else, go with used City Diesel. You can see a lot of them around 7L region and with little bargain, you can reduce the price a little bit. If thats the case, it will be much better choice because it offers oodles of space and power closer to TDCi!