Car Loans, Deposit Funds and more...

Hanley

Hey all, first time poster. I've been doing a bit of basic research on what I'm about to post so forgive me if Im missing some blindingly obvious points. And I apologise in advance for the length of this post.

I'm a final year college student and will be starting work with a major Audit firm next October so I figured it was about time to do some financial planning. My 3 main concerns right now are 1) getting a nice car (as a college completition present to myself!), 2) building up a deposit for a house and 3) making sure I've budgeted well enough to do both of the above and still have a decent enough standard of living.

I expect to be earning c 1,800 net (after tax and some money to my 'rents) per month in my first year, excluding bonuses. I'm not sure of the wage progression but by the time I've fully qualified (3.5 years after I start), I would hope to be looking at earning 40-45k pa, all the following numbers are based off year 1 earnings tho.

So firstly, I plan on spending about 25k on a car (approx 24k loan). A bit over the top I know, but that's the plan. I've checked around online with various banks and the best rates seem to be from BOI, Halifax and PTSB. Each working out to 471 per month over 5 years. Cost of credit's around 4.5k, BUT I'd rather do it over 5 years as it would allow me to build up a bigger house deposit fund by the time I finish my training contract.

I'd plan on saving roughly 700 per month going straight into a savings fund. Using PTSB's online calculator I'd have roughly 31k over 3.5 years doing this. Any bonuses I receive during my training contract would be split 50/50 going towards nice things and savings. In addition I'm expecting around 15k from an investment made on my behalf by my dad to mature around that date too. So the total house deposit fund would probably end up in the 45k range.

Now, that leaves about 660 left over per month. 160ish per week. Which is wayyyy more than I need. I'll be living at home the whole time and I'll already have given my 'rents some cash so that's basically all mine. The plan there would be to not go to wild and just spend what I need and let the rest build up to cover and unforeseen expenses I may incur.

So to summarise.... 25k car over 5 years, 31k saving for a house deposit after 3.5 years. Would that sounds like a wise way to plan or should I be looking at something completely different?

And one last question, since I'll be looking at a mortgage in 4-5 years, should I be applying for the car loan to the bank I foresee myself taking a mortgage with to build up a good credit rating with them?

Many thanks to anyone who's made it this far!!!

Hitchhiker's Guide to...

Hi Hanley,

Obviously 25k seems like a lot to spend on a car. But, then that's fully your choice. Have you thought about (say) spending 20k on a car, and then maybe 5k on a mega holiday (maybe even something like a three-month career break holiday)?

Your plans look very well thought out. The first step is always to, at least, think about the various choices you have, and this is something you've done. The second thing is that even the best made plans sometimes don't get stuck to.

It's worth bearing in mind that your current plan involves staying at home for nearly 5 years - which seems like a scary long time! What happens if, for example, you meet and move in with a girlfriend?

/ on a practical note, you might need to get your parents to guarantee your car loan, given that you've just left college

/ the idea of getting the car loan and the mortgage from the same place seems like a sensible plan. I can't imagine that PTSB will still be around in 3-5 years time, so maybe go to one of the bigger banks that are unlikely to be taken over?

dobsdave

I replied to your post on askabout money also, but you haven't allowed for the running costs of your car,(as far as I can see).

Hanley

dobsdave wrote: »

I replied to your post on askabout money also, but you haven't allowed for the running costs of your car,(as far as I can see).

I'm just after replying to it this second!!

Roundtower2, thanks for the reply!

I honestly have no interest at all in travelling. I seem to be one of the few people who don't want to spend 3 months travelling and living of crap. Mainly because I'm one of the countries top powerlifters and I'm not willing to sacrifice the training time to go globe trotting!!

Living at home shouldn't be that much of a problem. My girlfriend of the last 2 years will still be studying for most of that time anyway so it woudn't really be all that practical for us, I did consider it tho!!

PTSB are a possible take over candidate? I wasn't aware of that. I must tell my mum to hold onto here shares!! Would BOI be a better option? I had thought the sharks were circiling them too...?

dellas1979

Definately a good idea to plan, but dont get complacent and sit back there with a grin on your face just yet.

Anything can happen in 3.5 years. Believe me I know! I think getting a first car for that much is wayyyyyy too much of a statement. You will be a first time car owner on the road driving a 25K car. I dont think that is a good idea. Something around the 2000-5000K should be enough. You are investing 25K of your hard earned cashed (well future hard-earned cash) on something that can and will only depreciate in value.

You can still get a loan (for future loan references for i.e a mortgage).

But it depends on your preferences and your lifestyle. You want a nice shiny car and be in crazy debt, off you go.

What happens if you, oh you know, loose your job? Or had you that factored in?

I think saving for a house is much more of a realistic goal than buying a 25K car and would encourage you to save for that as well.

By the way, if you do set up a savings account for saving for a house, or indeed what ever you are saving for, dont forget a rainy day account for when something unexpected comes up - cause from what I see, everything seems to be pretty black and white to you.

dellas1979

Can I just point out also that you are able to make this "spreadsheet" work so well cause you dont live in the real world yet. Its what we call "idealistic". You do not seem to be a bit cynical about anything.

Hanley

Owww... Burn on me.

I've very much aware all the calculations are deeply rooted in theory only. Buuuuut it's Febuary now, none of this will happen until November at the earliest so I'm giving myself plenty of time to plan ahead for all eventualities. I figured there was nothing wrong with starting with an ideal plan and working backwards to take account for different factors I might have overlooked originally...?

What other factors should I be looking out for that exist in th real world that I haven't encountered yet??

stepbar

Car tax, insurance, fuel, car maintence, one night out a month yada yada yada :eek:?? You'll be doing well to save a couple of hundred euro a month. Let's be realistic. I would forget about the shiny new car for the moment. It's a waste of money if you are not going to be driving it every day. Get a reasonably priced car and save the balance.

chump

Hey OP,

Know many people who've gone a similar route to you.

A few things you should expect salary increases peaking at I'd say 55k by the time contract finished.

End year one, you'll be ~ 30k, and depending on which exams will be mid 30's or 40's at end of year 2. Which is good.

You will find that you will blow a lot on booze and partying.
You may get fed up living at home.
You will have to buy clothes/dry cleaning/presents/phone calls. Things really add up.

I think the money you want to spend on the car is madness, obviously that's a personal opinion!

Saving for a house is a good call, wish I could do that myself.

From past experience,

Similar salary, say 1800
Outgoings,
Rent+bills+basics = 700pm
Loan = 400
remainder = 700

That's about 170euro a week. And boy you may think it is a lot but it is not. Particularly if you're a typical 20something who eats, drinks and tries to have a good time.

I scraped by - but in your situation with no rent etc., you could easily save 500odd a month and be comfortable.

dellas1979

I guarantee you, you will not live by your spreadsheet, you'll live by what happens your in life - thats the big dictator.

I cannot for the life of me understand why you will need a car for 25K. Can you explain why? You know, in, what, 4 years time, your 25K car will be worth about 11K? Did you realise that? You'll still be stuck paying a loan for a 25K car. Does that make sense to you? On top of this you pay car tax, insurance, petrol, car maintenance.

A small engined, reliable car is what you need. Thats the realistic point of view.

You are much better off pumping that money into something that doesnt suck the money out of you.

I guess its all experience. I was once a little bit like you too. If I make X amount of money in my first year of work, I can then by this and this and this....never happened like that though, so excuse my cinicism.

Sangre

As everyone else has said. 25k is a lot to spend on a first card that will depreciate in value rapidly. Its huge negative equity. Even buying a car 2/3 years old you save a fair few grand and still have a car in great nick.

I might advise spliting your savings between a notice deposit account and a no notice saving accounts. Maybe 70/30. Means you have a bit of a safety net if you need a lot of money one week, without having to pay a penalty on a notice and having access straight away.

I'm guessing you could save more than most as you probably don't spend nearly as much going at as most because of your training. (btw have you included costs of training e.g. gym, equipment, supplements, flights to events?)

Hanley

chump wrote: »

Hey OP,

Know many people who've gone a similar route to you.

A few things you should expect salary increases peaking at I'd say 55k by the time contract finished.

End year one, you'll be ~ 30k, and depending on which exams will be mid 30's or 40's at end of year 2. Which is good.

You will find that you will blow a lot on booze and partying.
You may get fed up living at home.
You will have to buy clothes/dry cleaning/presents/phone calls. Things really add up.

I think the money you want to spend on the car is madness, obviously that's a personal opinion!

Saving for a house is a good call, wish I could do that myself.

From past experience,

Similar salary, say 1800
Outgoings,
Rent+bills+basics = 700pm
Loan = 400
remainder = 700

That's about 170euro a week. And boy you may think it is a lot but it is not. Particularly if you're a typical 20something who eats, drinks and tries to have a good time.

I scraped by - but in your situation with no rent etc., you could easily save 500odd a month and be comfortable.

Wow, that's a pretty insane salary scale to be looking at when you're 21!! It does match what I was told by someone else a few months ago tho so maybe it's realistic. I migt actually actually our career guidance office in college an see if they have any idea of wage progression.

If that is the case then I'd probably be MORE inclined to get the car.... I'd be happy enoguh to take a hit on first year savings and try and get as much of the car paid off as possible. Maybe only save 400-500 a month instead of the 700 I was planning to. That should take over 3.5k off the car straight away.
Truthfully, 25k is the absolute max I'd be prepared to pay. I'd rather be in the 20-22k bracket.

I'm not really a typical 20 something... I don't drink or smoke and much of what I eat is dictated by my training needs!!! I live a pretty regimented life but I have fun doing what I do. And it has the added bonus that I have a pretty good idea on food and other outgoings. My biggest expense at the mo is travelling to international competitions, but I can see that being cutrailed in my first year of work. I don't wanna go in and start asking for days off all the time!

dellas1979 wrote: »

I guarantee you, you will not live by your spreadsheet, you'll live by what happens your in life - thats the big dictator.

I cannot for the life of me understand why you will need a car for 25K. Can you explain why? You know, in, what, 4 years time, your 25K car will be worth about 11K? Did you realise that? You'll still be stuck paying a loan for a 25K car. Does that make sense to you? On top of this you pay car tax, insurance, petrol, car maintenance.

A small engined, reliable car is what you need. Thats the realistic point of view.

You are much better off pumping that money into something that doesnt suck the money out of you.

I guess its all experience. I was once a little bit like you too. If I make X amount of money in my first year of work, I can then by this and this and this....never happened like that though, so excuse my cinicism.

Sounds like a challenge

Hell, you're right. I don't NEED the car, I just want it. I don't see anything that badly wrong with it. I've spent the last 16 years of my life in full time education, done quite well grades wise (1.1 in first year, 2.1 in second and 1.1 so far in 3rd) and landed myself a great job with an infinate number of future options out of it. I feel like I deserve to buy myself something really nice now as a reward!!

Can I ask where the depreciation figure is coming from? Since the car is only newly released it's hard to judge what the residual will be. It's closest counter part would be the Golf GTI. They're around 40k new, early '05 models sell for around 26-29k depending on spec levels. So maybe 12.5% dep per annum?

That number is completely based off empirical evidence so it's something that definately requires further consideration. Can you see the accountancy student in me popping out????

Sangre wrote: »

As everyone else has said. 25k is a lot to spend on a first card that will depreciate in value rapidly. Its huge negative equity. Even buying a car 2/3 years old you save a fair few grand and still have a car in great nick.

I might advise spliting your savings between a notice deposit account and a no notice saving accounts. Maybe 70/30. Means you have a bit of a safety net if you need a lot of money one week, without having to pay a penalty on a notice and having access straight away.

I'm guessing you could save more than most as you probably don't spend nearly as much going at as most because of your training. (btw have you included costs of training e.g. gym, equipment, supplements, flights to events?)

Splitting between the zero notice and deposit a/c is actually a really good idea, thanks! I'd be tempted to make the ratio closer to 50:50 in the first year if I do decide to go ahead with the original plan. Like you said, it gives me that safety, especially if I'm getting the car.

Another option I've looked at is waiting til january '09 before getting the car, it should mean there'll be more second hand models on the market should I choose to go that route, and price will have fallen again because of the year change. It also gives me the chance to save about 3 months salary to put towards the car and I should at that stage know how workable my budget actually is.

You're dead right about being in a better position to save. Not going out on the p!ss 2/3x a week will be a huge saving compared to most people my age. I have factored in gym costs into the figures above but not international travel, simply because as I said further up in this post, I don't think it'll be an option in my first year. I'd much rather get in there, put my head down and make a good name for myself than be taking Fridays/Mondays off every couple of months ya know?

But once again, thanks to everyone for all the ideas and consideration to take into account. I've until October before this becomes a reality so I've lots of thinking time!!

dellas1979

An accountant eh? Hence the starch, structured spreadsheet point of view.

Can I just say, you seem to thrive on structure: job, car, house. What if one of these was to be taken away from you? Would your structure fall down? The building industry is gone and from what Ive read in the PI forum (a solicitor lady) law industry is also on the fall.

I wouldnt be so cocky about "not needing but wanting" a car just yet. Reality may just get the final bite. Remember all these figures are just forecasts on a piece of paper.

All that in consideration, I still think you are making a mistake going for a 25K car. If you were a good accountant you'd advise any of your clients the same (or at least I hope you would) in dealing with negative equity.

If you were mid-20's-30's Id say go for it as you'd be a bit more savvy as to the real deal with buying cars.

I once knew an accountant who was a crazed alcoholic.

Tails142

Did something similar to you - finished up in college, bought a car, living with parents, saving up for something etc

Earning 2000 p.m. after tax. Took out a 14k loan for a car over 3 years, repayments are about 450. Got 800 a month going into rabodirect. The cost of my loan will be about 2k over the three years.

I'm currently on a one year contract and will be moving to a new company after this year so after I settle in I will probably use the savings I have built-up (~8000) to pay off the remainder of the car loan. What's the point of paying 8% interest on a loan when I'm only gaining 4.3% in my savings account. I just have to look into the penalties associated with paying off a fixed rate loan early.

You certainly need to factor in your running costs for the car - I get regular bonuses on top of standard pay and without them my plan would be screwed up; as it is with the amount of fuel, frivilous spending on gadgets, food and girlfriends (damn valentines day!!); I try to keep a balance of about 2k in my current account but it has been dipping lower and lower lately - but certainly do-able and very enjoyable. Vive living with your parents!!

kmick

Sorry Im pissing myself here. The ideal view of a well funded student. What i would say is €160 per week being way more than you need is ludicrous. You work for an audit form therefore you will need suits, ties, shoes etc. Then you need money for lunch, public transport, travel, beer on friday (you are student now but you will soon understand Fri beers) etc etc. First car = 2k insurance, tax, petrol, service.

Also borrowing 25k for a car is madness. You do understand as a trainee you WONT be getting a parking space. Therefore you are going to spend 25k + interest on something you will use on sat and sun. You may imaginge yourself cruising around on weekdays but you may not know that after 10 hours (youll need to do that much to keep up with the other trainess) work and the 1 hour commute you will eat your dinner, wash your teeth and hit the hay.

Im not going to bother doing a spreadsheet to rival yours. What I would say is wait until you are in the job 2 months and then make out your budget. It may seem cynical but its more realism.

Hanley

dellas1979 wrote: »

An accountant eh? Hence the starch, structured spreadsheet point of view.

Can I just say, you seem to thrive on structure: job, car, house. What if one of these was to be taken away from you? Would your structure fall down? The building industry is gone and from what Ive read in the PI forum (a solicitor lady) law industry is also on the fall.

I wouldnt be so cocky about "not needing but wanting" a car just yet. Reality may just get the final bite. Remember all these figures are just forecasts on a piece of paper.

Yes, I thrive on structure, but so what? Are you saying I should give up on the idea of living a structured life and just crawl up into a ball because it's all gonna go to sh!t anyway...?

The building industry went downhill because it was unsustainable. We were always going to reach a saturation point when it came to housing. Nobody knew exactly when it was going to happen, but it was always going to happen eventually. Now there's gonna be major job losses, the majority of which will be to people who left school early to make a quick buck in a thriving industry. If anything they were the ones without a plan or structure, and look where it got them!!!

All that in consideration, I still think you are making a mistake going for a 25K car. If you were a good accountant you'd advise any of your clients the same (or at least I hope you would) in dealing with negative equity.

If you were mid-20's-30's Id say go for it as you'd be a bit more savvy as to the real deal with buying cars.

I once knew an accountant who was a crazed alcoholic.

I don't understand why if I was 4 or 5 years older it would be ok? Is it because I'd be earning more, or would just have some real world exp...??

By the way... remember Harold Shipman? He was a sociopath doctor.

Hanley

kmick wrote: »

Sorry Im pissing myself here. The ideal view of a well funded student. What i would say is €160 per week being way more than you need is ludicrous. You work for an audit form therefore you will need suits, ties, shoes etc. Then you need money for lunch, public transport, travel, beer on friday (you are student now but you will soon understand Fri beers) etc etc. First car = 2k insurance, tax, petrol, service.

I spent last summer working in Anglo Irish Bank so I've a bit of a stockpile of suits/shirts/ties etc build up... I also plan on working for 3 months this summer somewhere (possible civil service) so there should be more than enough coming in there to get everything I need apparel wise. If all goes to plan I should also end up with a little bit of a savings stash in my current a/c too!!

As I already said, I don't drink. I've been thru 4 years of college and several years of secondary school without succuming to peer pressure. I think I can manage a few accountants!!

Also borrowing 25k for a car is madness. You do understand as a trainee you WONT be getting a parking space. Therefore you are going to spend 25k + interest on something you will use on sat and sun. You may imaginge yourself cruising around on weekdays but you may not know that after 10 hours (youll need to do that much to keep up with the other trainess) work and the 1 hour commute you will eat your dinner, wash your teeth and hit the hay.

Im not going to bother doing a spreadsheet to rival yours. What I would say is wait until you are in the job 2 months and then make out your budget. It may seem cynical but its more realism.

I know I won't be getting a parking space... I probably wouldn't drive into town anyway. The commute for me is <30 mins like on public transport. I guarantee you I will use a car during the week, I need transport to and from the gym if nothing else.

But yes, waiting til I'm in the job a few months is starting to seem like a good option. I'd probably wait til Jan '09 before I decided anything anyway!!

broker2008

Hi Hanley, I know where you are coming from and maybe even where you would like to be. The one thing that jumps off the page for me though is the value of the car. Maybe I missed it, but how long have you being driving ? If you read Rich Dad Poor Dad, there is no way he'd recommend a car that was that valuable. Why not go half way house and get an older car yet in good nick bought privately or from some of the leasing houses. There are plenty of cars, jeeps being repossessed at the moment and there will be a good selection available which can be upto 20% discounted off value. This may be an option that could be worth looking at.

Also don't rely on getting that level of loan either. I would get the head down and keep saving and personally my goal of obtaining a mortgage would be greater. There may be others in the same boat as you who would buy a rental property with you to help you get on the property ladder.

Consider a term loan instead of lease. As your net savings increase pay a higher amount off the car loan to reduce the capital outstanding.