Doesn't matter. Bank wants to get their money back, they use the best proxy to understand how to do that, and guess what...its income not net worth. Doesn't matter if you actually go and pay cash, the fact that the bank cares about one tells you which matters.Tying it back to the article, Financial Samurai is not talking about buying on credit.
They are still getting the full match, and you can call it a "depreciating asset" all you want, but what it really is is a basic necessity that is required just as shelter or medical care is. Furthermore, if you buy a used car (as this rule would suggest at that income level) then they are buying a car well past its high depreciation years, its certainly no worse an investment at that point than rent is. The 6 months of reduced contribution to retirement may not be ideal, but neither is loosing your job because you can't get to work anymore.
This obsession with net worth being an all important part of the puzzle makes no sense. The vast majority of the population does not have significant liquid net worth not tied up in retirement accounts, and even to the extent they have some its generally well correlated to income as well.
Again, there is a reason lenders care about income, but rarely net worth in determining how much car someone can afford.
If you read it, he's talking cash, not taking a loan. He's against buying cars on credit.
So if paying cash, you have to have the cash, which comes out of your net worth.
I also don't really care what he's talking about, because in many cases paying cash isn't even the right financial answer in the first place. There are times when a loan is appropriate.
It also does not matter if it comes out of your net worth if it will be replaced by the end of the year. It matters if it was money that took you 10 years to build up. Guess what, those are both a result of...income again.
For the vast majority of people, using a rule based on gross income will produce very reasonable results that work just fine. Anyone with enough net worth for this rule to not work for doesn't need the rule in the first place, they just pick whatever car on the lot out they want and write a cheque. But that isn't most people, and its not anyone that I suspect FS is really trying to help with this.
Statistics: Posted by rogue_economist — Fri Nov 01, 2024 12:51 am