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What percentage of ones annual household income is a benchmark reasonable car price to pay? 50%? 30%?

I doubt its more but i could be wrong.

And i know it all depends on where other things stand in ones life, like housing situation, kids or no kids, etc.

Just looking for general figures.

Assume everything else is in line and one has reasonable house equity or retirement fund situation for anyones given age.

You are right that it must depend on your savings goals, retirement, kids, mortgage, everything.

The deeper question I think you're trying to be comfortable with is, is this too much? And the follow on question to that is not how much does it cost and is it hitting any particular dollar limit, but rather, what are you getting out of it for the price you are paying? And, are there reasonable alternatives to this?

In the end, you have to gauge whether it's worth it for you and your goals. Sometimes that comes from seeing your peers and how they're spending / saving and your relative comfort compared to them. Other times, it comes from yourself and how much you can justify to yourself spending on a car like this.

ok, just to throw a number out there since that's probably what you want! 25-33% *post*-tax income and after other mandatory savings, debt items.

As someone gets older, the number gets much lower. Some young guys will go 50% for the next new hot car. In my later 40s I put it under 10%. It also includes paying for my wife's car, son's insurance and maintenance on our third car. Get married, have kids, be prepared to pay far less on cars based on income. Going in debt to make a statement is a bad decision. Get smart while young. Pay less per month for a car than you put into your retirement account.

I know this is very old fashioned to say, but I have always gone for zero percent. I have always saved my money first then bought the car with cash. For my first car this involved riding the bus for three years so I could afford a Toyota Corolla. Just another perspective, I know this is not an option for people with families.

This is an almost impossible question because there are many acceptable answers depending on circumstances and future expectations. You should ask your wife, your financial advisor, and/or someone who understands your whole financial picture the question "Does spending X make sense for me?" Good luck.

+1 tezzla Buying with cash is the best way to prevent one from overspending on car or everything else but not everyone is able to do that.

Sorry reply was for N_Tesla.

"Buying with cash is"...baloney.

You guys don't seem like you've studied economics, business, or finance. Now, I'll grand you that most of us who did so are dicks, but here's the academics of it:

A car is a depreciating asset that provides you with a service for the duration of your ownership/lease/rental. We do not buy a car just as "something we own", we buy it as "something that provides me with a service this month". Thus, it makes perfect sense to pay for it "this month". That usually means financing, borrowing, or leasing.


It is a far wiser financial decision to borrow for a car at a low rate, say the 1.75% PenFed gave me on my Tesla, and to use some other wiser vehicle as an investment property...say, for ex: Tesla stock. Mixing car buying and future financial security is a bad choice.

There is a wide range of better ways of using your money, rather than saving for a car. There are tax-sheltered savings plans, 401kKs, Roth savings accounts, high and low risk stocks, or bonds. Just about ANY of those, on average, pay far better returns than the 1.75% PenFed is charging me to use their capital. Just make sure to actually invest the savings, and not just blow the cash you don't spend on a car.

Now, as to the original question. Here, I'm sorry to say, you are waaay over with 30%. That's how much people are supposed to spend on their housing each month, and housing delivers far more consumer value than transport. For a car, you should be looking at 5 to 15 percent, not including gas, insurance, and upkeep. 15% is at the high end, although many people seek to show off and live beyond their means. Well, it's a free country, so be my guest, but a Nissan Altima will also get you to your destination, so any amount of money beyond that is pure "discretionary spending". And that means you'll need to cut back on just about everything else.

The Tesla is a great car, but no car is worth putting stress on your life, or making you ill-prepared for a future home down-payment, or worse - ill-prepared for retirement.

I agree with Derek in that if you can obtain a higher rate of return on your cash, finance instead and invest the rest.

To the OP, it's hard to say. It depends more on your excess income after your expenses, taxes and savings are taken out. Also you need to crank some number on the cost of a gas automobile, compared to a Tesla. In my case, because of my miles and length of time I keep an auto, Tesla made economic sense, I put 20% down, and can afford the payment.

You missed my point. You will get the true idea of how much the car costs you only if you but it on cash. A lot of people could not mentally connect $1500 monthly payment is exactly the same as $80000 reduction of your net asset. There is no difference if you have the decipline but a lot of people don't.

I paid cash, studied business, economics and finance and am also a business owner. Nothing wrong with paying cash, allows one to observe the true cost up front eye to eye. Always a way to do things differently and many offer good suggestions to doing so. So paying cash is baloney? That's opinion not fact, yet it is stated as fact, and in stating it as fact one assumes all other options are baloney. That's way too narrow minded, but then I'm making assumptions also.

+1 jonlivesay

I personally think no more than 20 to 25% post tax income assuming you are saving for your kids' educations and your own retirement, comfortably paying all your other bills and able to live comfortably with your car payment if you finance or the depreciation in your liquid assets if you pay cash. I think our gut always tells us when we are going too far or stretching too much on something. If it feels scary or uncomfortable, don't do it.

I did the base price of the car (not counting tax, title, etc.) at 67% of my gross income.

If you 'can't' pay cash, then the general financial advisor's rule of thumb is that the gross value for personal car(s)in a family should be less than 1/3 of your annual after tax income. Some on this forum will advise that the S is different because other unique financial metrics provide cost saving, bit that is mostly wishful thinking when you consider charger installation, need to have a second car for long trips, etc.

I personally would never finance a luxury purchase (above-$30k auto, boat, motorcycle, plane, etc.). No one needs an S for transportation and the premium cannot be justified except with numerical gymnastics. A monthly payment mentality has you paying the man forever and restricts your ability to develop wealth. Interest payments, whether or not deductible, are a brake on financial success in life. Student loans, car loans, almost any loan or revolving debt short of a conservative mortgage (and even those can be questionable) will be an anchor throughout life in my opinion.

One responsible approach if you can't pay cash now is to keep driving what you have and put the S payment in a savings account for three or four years, and buy the latest model then. Across your life it will be a huge step up financially. We bought each of our kids a Prius on college graduation (no loan) and suggested that they put $500 aside every month as though they had a car payment, so that when the time comes to replace their first car, it is all-cash. Our first kid graduated 9 years ago and is still driving her '04 Prius with 210k miles, and has $50K in savings that would otherwise not exist.

eking and jonlivesay provide good advice.

I don't disagree with what others have said, but would point out that if the majority of MS buyers have that sound financial mindset, then it really is just a car for the 1% right now. Most Americans wouldn't meet any of the tests discussed above. Median household income in US is something like $65,000.

Again, I believe in what others have said, just think it makes it hard to say the car isn't just for rich people. It is - unless you go beyond your means.

Sorry, I think media HH income is closer to $50,000 across US.

Pungoteague_Dave's advice to his kids is the best advice any parent could give and it obviously sunk in. That mindset leads to real financial independence.

To elguapo Have you read people here suggest that the MS is for the typical median income family? Probably in most cases the cost is too high.--Elon Musk himself addressed this issue very directly a few weeks ago when he said Tesla is developing another EV that will be more in the $40K price range with a much improved range over the Nissan Leaf. A lot of people, including people who can easily afford today's MS, are waiting for that car. They are happy to wait for a more affordable option that gets the range they need.

I wonder what would you be doing with that money instead of the MS payment? Would you be eating Mac and cheese 4 nights a week or maybe just not getting box seats, limo rides, first class travel, etc? I don't know that there's really a percentage for this as much as, what's it worth to you. If you can never take a vacation again because of this payment then it's probably a bad idea. But if you can live with not buying $300 jeans (or whatever you do) it's probably fine.

What about quality of life/mental state? Owning something is a different experience than being beholden to someone else for it. As I have no dept of any kind, I throw away all the "important mortgage information", "do you owe >10K in taxes?", and "dept management seminar" flyers that come to mail box or inbox. I don't worry whether my bank will change the terms on any loan, because I have none. How much is that worth?

Doing a point spread gamble on loan interest rate vs. investment return is what caused the financial melt down on a personal scale. "Investing" in single financial instrument (like the often mentioned TSLA stock) is pure gambling, and has nothing to do with responsible, diversified investing.

TSLA stock is currently on a high, but does not have the 10 year+ horizon, and performance has not been stable for that period of time. When I select financial products, I look for long term performance and stability. The earning-volatility correlation is well-known, and volatility can mean it sinks to the bottom, and you lose your shirt.

Financial security has to do with being able to plan. The fewer variables in the equation, the lower the aggregate error/variability, the better the forecast. Removing any variables from borrowing by buying serves that purpose.

From my perspective, for necessities, one may be forced to get a loan. MS is not a necessity, but a luxury. If you cannot buy a luxury, you cannot afford it.

I wouldn't buy it if I couldn't pay cash for it. If you borrow the money you are not paying $100k for the car, you are paying a whole lot more. In the end, I'd rather decrease my savings and try to build it back up. Tesla's stock is actually helping me do that quite nicely lately.

There are two kinds of people in the world: Cash people and Credit people. The differences between them amount to this:

1) It takes a few years longer to become a Cash person (at any given level of consumption).
2) It costs ~15% more to be a Credit person.

Take your pick.

Unless you can borrow money at a lower interest rate than you can invest it (and you can't), any strictly financial argument in favor of borrowing for any retail purchase is nonsense. But, some people subjectively decide that option #2 is the better choice. Fair enough.

@eking I think one if the huge knocks on TM, particularly when they had the government loan, but even now, is "great, you built an awesome car for the one percenters". I realize that's how most new technology gets started and I love my MS, but I guess I feel guilty more people can't enjoy it without feeling like they're leveraging their future. Hopefully Gen III / Model E will come soon.

Also, TM has tried diligently to market the car outside of the top 1% and Elon has also said it's not just for the wealthy. TM's "crazy" math on their website regarding fuel and time savings isn't there for people paying all cash.

Like I said, I guess I just feel guilty with my Tesla grin...

Wow, some really screwy financial advice in this thread. Pay cash for a depreciating asset that will be worth almost nothing in 10 years. How is that smart? How is that good business? Can't you think of 1 asset that is an overall appreciating asset to invest your $100k in where that asset will be worth more money in 10 years rather than zero? Especially considering we have historical low borrowing rates put in place to encourage investment and spending.

It doesn't matter how much wealth you have. Paying cash for a large purchase, fast depreciating asset is not smart business. If I have to tell you where to put the $100k, then we are not on the same page.

Elguapo, yes I see your point. The government loan is controversial but I personally think overall it was a good investment. The technology Tesla developed, aided by that government loan, will be put to use for less expensive versions of EVs that travel further, modeled on the S. I also totally agree with you on the misleading pricing feature. My dad was on the website today, and he noted the misleading base price of low $60K (still expensive) but that was assuming that you are in a position to take full advantage of the $7500 tax credit. For that reason alone they should show the actual price first, and then the adjusted price with all caps warning that you only get this price if you owe at least $7500 on your taxes. My dad also very astutely observed that so many of the "options" are what anyone buying a $60K + vehicle would expect (sound, Michelin tires, nice leather seats, etc.). The true cost of the car before that tax credit is very easily between $80K and $90K for most people, possibly more. On this forum a lot of people go full bore and drop $120K. I didn't realize Elon Musk had suggested the car isn't primarily for well-off people. It certainly seems like it is.

@eking I completely agree on the options. Especially the tech package. I know there are people who didn't buy it and are very happy, but I find that hard to understand.

Well I don't have my car yet, so I can't say whether I think it is worth it, but I did go ahead and get it, and hopefully I will think it is worth it. LOL


You are a PRIME example of how financial education in this country has failed. I am a finance professor at a major university. Take it from me, when you finance a major depreciating asset, you are still paying cash (using someone else's checkbook), PLUS you are taking financial market risk and paying extra for the cash. The transaction must be looked at from the seller's perspective. They are receiving 100% cash for your car. One way or another, you are giving them all of the purchase cash by either paying real money, or by mortgaging your future. This isn't a guess or an opinion, it is fact. When you finance, you have taken on all of the cash obligation over time, PLUS the financing costs. How fast it does or does not depreciate is completely irrelevant.

The mentality that you espouse is what the real estate investment gurus convinced themselves was true before the financial crisis. Then they learned that asset value can go down as well as up.

What you suggest leverages BOTH your lifestyle (a luxury car) AND your investments, putting both at risk. Leverage is a beautiful thing when assets go up, not so much when they don't. That is why all the banks had to be 'bailed' out - they had too little equity to cover paper losses and fund obligations when their assets became illiquid. That caused/allowed the government to come in and loan them money at usurious rates, with warrants and other equity kickers. When the bank assets regained liquidity and value, the banks paid off the government with huge gains to the taxpayer (no bank failure cost taxpayers a dime in the end, even Lehman). But it cost the shareholders plenty.

You are a shareholder in life. Can you maybe use leverage to your advantage? Short term, yes. But it is a gamble on factors you cannot control (such as a financial crisis) - so long term, the house wins. Every time.

If you can't buy a consumer item for cash, you generally can't afford it. If you can afford to pay cash and then decide to finance, it is a slightly different equation, but not much, unless you are far more disciplined than the average household.

Lots of interesting ideas here.

My view is if you can't pay cash for a car don't buy it.

Interesting thought on investment values. The car will obviously depreciate so your money spent is truly spent.

But how much it will depreciate is an an interesting question in today's economic environment. With the government issuing stock ( printing money) ,at an extraordinary rate, the value of your dollar is being diluted rapidly. Owning dollars is a bad bet. Owning hard assets that will go up in an inflationary cycle may be smarter than sitting on dollars being diluted. This also works if you borrow since the future dollars you pay back are worth less than the dollars you borrowed.

We have been diluting the value of dollar bill stock certificates by issuing extraordinary amounts of new stock at the same time we are borrowing vast sums and spending it on no value added activities. This can only end with massive inflation to bring things back into balance.

Didn't work for the Weimar Republic or Zimbabway and won't work for America. So it may be OKay to put 100 k into a hard asset and enjoy the ride when the value of your dollars crashes but your hard asset is worth more because of inflation. Sooner or later economies have a nasty habit of forcing economic balance.

quite the discussion my inquiry has generated.

Couple of things i should point out:

- When i meant 30% or 40% of an annual salary, i meant that reflects total price of car, not total yearly contributions every year. So if someone makes 100k, would a reasonable car for that person be a 30K car, which i assumed would get them through 7-8 years.

- And lots of advice about investment or opportunity value. buts lets also assume that a car must be bought as neccessity. So spending 40-50k on car is a given already (in the demographic of the forums here at least)

Putting this much money into an asset that will depreciate this much is crazy, no doubt about it. With this car we will be over twice as crazy as we have ever been before!

However, we're cash customers for everything we do, cars, houses, whatever. Every time we confronted this decision in the past we were faced with a known cost of money and a good idea for depreciation vs unknown investment performance. I remember one time I committed to buy something using a liquid asset I intended to sell. Between contract signing and closing the liquid asset suddenly depreciated. One never knows. Investments and jobs can be unpredictable.

Crazy is as crazy does though. I'm totally looking forward to the ride!

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