How do people manage their lifestyle goals in amongst getting IP early on?

[timbom3]

Hi Guys,
Just wanting to ask a quick question --> not sure where else to ask. The fiance and I are looking at doing a reasonably sized trip up to Cairns/Cape York etc (4wd country) within the next 2 years. This though, will require a 4wd upgrade (the old thing I have now just won't cut it). I'm 26 now, am just finishing Uni and am hoping to get an IP towards the mid to end of next year to "get into the market".

I'm well aware that borrowing for a car is not so wise ("bad debt") but where do people draw the line? We have to live a bit when we're young, right? I'll have kids in 5 years lol! I have the opportunity to lease a 4wd through work, though I still feel like this is dead money. Would this be a better move? To be honest, my job in the next 5 years will likely mean I need a 4wd so at some point (not so much for work per se, but I will be working in rural and even remote areas at times) I need to get one. The question is when, and how. A good quality 4wd is a significant purchase, even as a second hand vehicle (>30 odd grand).

Im finding it really hard to negotiate a balance in my mind. Any advice would be great!

 

[thatbum]

Hang on, whats wrong with leasing a car?

 

[Aaron_C]

Hang on, whats wrong with leasing a car?

It's bad debt if you are a PAYG worker. If it's for business than car leasing is a smart idea.

 

[timbom3]

Hang on, whats wrong with leasing a car?

I don't know really. I just thought the ultimate goal would be to own an asset. I suppose you negate the depreciation and access some tax benefits (for now) when you lease.

From your reply I guess leasing may be the way to go? (thanks for replying btw)

And yes, I'll just be a PAYG worker, Aaron_C.

 

[Colin Rice]

I have the opportunity to lease a 4wd through work, though I still feel like this is dead money. Would this be a better move?

Im finding it really hard to negotiate a balance in my mind. Any advice would be great!

Will likely be a novated lease. Not a big fan of those.

Read this post. It will bring balance! http://somersoft.com/forums/showthread.php?t=24892

 

[thatbum]

I don't know really. I just thought the ultimate goal would be to own an asset.

Only if the asset is one that grows in value or generates income.

I guess leasing as a PAYG isn't ideal, but neither is paying non-deductable interest on a loan while watching your car depreciate harshly.

 

[timbom3]

I guess leasing as a PAYG isn't ideal

Could you please elaborate on this a little more? I'm still learning the ropes! I thought leasing was reasonable to get some tax benefit even if you are PAYG? Why is leasing under a business so much better?

 

[moyjos]

Deleted post. ...wrong track

 

[Sheryn]

Horses for courses...

Calculate how much trip will cost you to fly to Cairns and hire a 4WD etc. That will be a good indication of actual cost & always remember vehicles break on the cape so there will need to be a contingency.

Then work out how long it will take you to replace the money spent on holiday.

We rearranged our goals, built a duplex first then sold one unit the first financial year and brought a new 4WD, sold the next unit and then went onto the next project.

Mind you interest rates went to about 16% and it took us a long time to sell first unit!


Regards
Sheryn

 

[spludgey]

It's delayed gratification, I drive a beaten up 2002 Honda Jazz, shop for specials, go to the Thai hairdresser for a $10 hair cut, get my fruit and veggies from the Chinese grocers, etc. None of this really bothers me and I manage to save nearly half of my net pay.
I would be able to afford a lot more if I wasn't insisting on putting so much money towards my investments, but that really wouldn't be worth it to me.

How about hiring a 4WD? 99.9% of the time you would just use it like a normal car. I would also challenge the fact that you need a 4WD for working in rural areas. Half the guys living there seem to be driving 2WD utes.

 

[Aaron_C]

Could you please elaborate on this a little more? I'm still learning the ropes! I thought leasing was reasonable to get some tax benefit even if you are PAYG? Why is leasing under a business so much better?

For several reasons:
1) Cars are depreciating assets, so financing it means you are losing money on day 1 which you are actually borrowing for.
2) Interest rates for personal borrowers is always higher than for business car loans.
3) Interest repayments for a personal car loan is NOT tax deductible for a PAYG worker as there is no business use of the vehicle. You can sort of get around this with novated leasing / salary sacrificing but it is still not perfect.
4) As a businessman, when I purchase a car, I get to claim the GST back (1/11th of the price) back immediately in my next BAS as a tax refund. I also get to claim depreciation on the car on my tax return, making it cost less for me to run.

 

[alexlee]

Hi Guys,
Just wanting to ask a quick question --> not sure where else to ask. The fiance and I are looking at doing a reasonably sized trip up to Cairns/Cape York etc (4wd country) within the next 2 years. This though, will require a 4wd upgrade (the old thing I have now just won't cut it). I'm 26 now, am just finishing Uni and am hoping to get an IP towards the mid to end of next year to "get into the market".

Do you 'need' a 4WD, or do you 'want' a 4WD? Saying you 'need' a 4WD because you 'might' do a trip up the coast is just an excuse. By buying a smaller car, the savings over 2 years would probably be enough to rent a 4WD for the trip.

The whole thing boils back down to 'do I consumer now or save to buy investments'.

 

[wylie]

I also just read this, and thought the same as Sheryn and others.

Rent the 4WD for the holiday and keep the car you have until it really needs to be replaced.

 

[BayView]

PAYE car loan - bad debt. Minimise as much as possible.

Business Lease/Loan - still bad debt in my opinion; just not so much, because of the deceased cost due to tax deductions, and it is deemed a tool for producing income.

At the end of the day, you need the car.

So, work on setting a budget for what will allow you to get the best possible car for your budget (doesn't have to be new, and I recommend not new anyway - 2 years old is still very good in many instances, and you will save thousands), and still allow you to put aside some decent money for your investing.

 

[timbom3]

Thanks for the replies.

Although in most circumstances I agree, I don't think renting would be a feasible option for us. 2 reasons. People are also right, I do "want" one. Though for legit reasons, not just to talk up the engine specs to the boys.

1) We have an old 4wd now that is falling apart beyond belief so it does need to be replaced. The reason I say a 4wd replacement would be the only option is because both the girl and I are spontaneous and weekends away are actually quite common - mostly to places that 2wd can't access. The Cape York trip used as an examples is just the "big one" that we are planning but it's definitely not the only.

2) the fact I mentioned before about not knowing where I'll be living. I would keep it until it dies and I plan on picking up a few thousand acres which will not have gazetted roads, and from there running outreach clinics etc or working down at the local hospital from that. It would be a work car eventually.

I guess what I should have asked is (and perhaps what Sheryn has suggested) is the way in which to purchase. By the feel I'm getting it would be accumulate some property over the next few years and then sell one to fund the car.

Certainly grateful for the comments and if I were to be using the 4wd as a soccer mum car I would definitely agree!

 

[timbom3]

PAYE car loan - bad debt. Minimise as much as possible.

Business Lease/Loan - still bad debt in my opinion; just not so much, because of the deceased cost due to tax deductions, and it is deemed a tool for producing income.

At the end of the day, you need the car.

So, work on setting a budget for what will allow you to get the best possible car for your budget (doesn't have to be new, and I recommend not new anyway - 2 years old is still very good in many instances, and you will save thousands), and still allow you to put aside some decent money for your investing.

This is exactly what I'm so confused about! Saving 30k for a car is a house deposit! Lol grrr. Guess it'll just slow down the IPs in the first instance

 

[MTR]

Hi Timbom3

I take the attitude enjoy life go out and buy some toys, but this is when you have assets under your belt when $30,000 is nothing major in the big picture, however your age etc. to do this now will definitely be a noose around your neck moving forward.

I would say focus on investments property now rather than toys, go with the cheaper, sensible option for the moment that wont hurt.

I see you are from Brisbane, I think you guys are next off the rack for a rising market, from what I hear it is actually happening now in certain pockets, Nth Brissy. Chase the rising market, buy and then sit back and revisit.

MTR

 

[tobe]

go without a 4wd for now. It will motivate you to save and start investing. Delayed gratification is what its all about. Write a detailed plan of where you want to be in the future, with diferent goals etc. One of those goals is owning a 4wd perhaps. Is it before or after saving a hosue deposit?

 

[alexlee]

This is exactly what I'm so confused about! Saving 30k for a car is a house deposit! Lol grrr. Guess it'll just slow down the IPs in the first instance

You have to make a choice. To make that choice, it's better to understand the long term costs. Say you delay buying an IP for 2 years. That's 2 years of growth you miss out on, and the IPs you could buy using equity from that, etc.

You 'need' it for 'wants' (spontaneous trips). There's nothing wrong with that, as such, but you have to understand that everything has a cost. There's no right and wrong to it: you decide to spend the money on fun or whatever, it simply means you have less money to invest. Someone else who decides to not go on these trips can buy an IP faster, and reap the rewards. On the other hand, you have the experience and memories of going on those trips. What's it worth to you?

 

[xactly]

If you are "running outreach clinic from hospitals" soon....
Are u a bonded Uni student?

I hesitate to say "med student" in case china is reading. If so then you usually get a gov car if u get posted out there. Out west they are usually 4WD.

No matter what u are. Your two goals aren't mutually exclusive just be smart about it.
Don't buy a new car. Buy private <5yrs old. Take along a mechanic mate so you buy well. Or use the RACQ buyers service.
Then think of yr IP goal. It won't be as expensive as it otherwise would as your deposit with be lower but you have adjusted your goals.

For your whole life it's a juggle between risk, return, needs and wants. Personally, Proffesionaly and in yr investor life. The time when people stuff it up is confusing needs with wants and misjudging the risk retun bit.

Life isn't always about monkish self denial and delayed gratification. Neither is it about over consumerism.
Have fun and stop in at Mosman gorge. Breathtaking.