Purchase of a New Car

By Sue Ricketts

     Byron dreamed about owning a BMW Z4 sDrive 35i or 35is convertible for years. He bought magazines about cars and almost drooled over the latest gadgets and trim and horsepower and …. well, you know how it goes with young men and their status symbols.

     Mom and Dad promised him that if he finished his courses at University in the top 10% of his class and got a job in his field within six months, they would co-sign for a car loan. He was in the top 5% of his class at graduation. There was no student debt to re-pay as there had been sufficient Educational Savings Plan money put away over the years. Even though it took him eight months to land an entry level job in his field, his parents were still willing to sign his loan.

     Byron was earning a respectable $48,000 per year and after tax each month he had $2,720 take home. His only other big expense was $925 dollars for his one-bedroom furnished apartment in downtown Toronto. It was such an unimaginable deal he had to take it.

     After an exhaustive search he found an almost new 2009 Z4 sDrive 35i in Royal Blue. It was a steal at $61,800. The arrangement was for a 60 month repayment at a low 3.9% interest. Monthly payments were $1135.35. Mom and Dad made him purchase a term life insurance policy and name them as beneficiaries up to the balance of the loan that they would sign for. The dream of a lifetime had come true. He would have to be frugal but it was only himself he had to take care of. Car insurance would be another $250 per month. Still doable for a smart man like Byron.

     While he waited for them to clean the vehicle so he could take it home he called his landlord and asked about a parking spot. They told him that it would be $210 per month for an indoor spot or $150 per month for an outdoor one.

     That’s when the panic set in and he realized that he would either have to leave the car parked at his parents house in Georgina township all the time or have money to buy food for the month. Most months he wouldn’t be able to buy more than one tank of gas for his grand new possession. If he didn’t go through with the purchase he would have to admit to his parents and the dealer that he just wasn’t ready for this.

Solution:

1. Always review your current monthly budget and left over income before making a major discretionary purchase. Fulfilling your dreams is great, but keep them realistic.
2. Be sure to write down all of the expenses which will go along with a purchase; such as gasoline, maintenance, insurance, cleaning, parking, etc. and add 10% in case you forgot something important.
3. Consider carefully whether this is a good solution to your wants and desires.
4. Never stop putting away 7 – 10% of your take home income for rainy-day savings. They go a long way toward seeing you through emergencies, sickness, job loss etc. Dreams don’t usually pay any bills.