Saving up for an expensive car
The question is how does $16,000/year for 6.5 years fit into your budget. Or to put it another way, what won't you be spending that money on? Housing, food, vacations, retirement fund, investments (though you can invest your car fund in the meantime), building a hefty emergency fund, kids college funds, saving for a down payment on a home, charity, etc... are all other places that money could go. I don't know what your needs are today let alone 6.5 years into the future, but I'd encourage you to consider all your financial goals and evaluate where this expense would fit.  It seems your plan is to save up to the total cost of the car and then buy it in cash. That's a valid strategy, but it means you'll have no car (unless you already own one) for 6.5 years.  Do you need a car? If so, what will you drive in the meantime (and even if you already own another car outright, you'll have gas and maintenance expenses)? If you don't need a car, then $100,000 is a rather extravagant purchase for something we just established you don't need. Would you be happier having this expensive car in 6.5 years, or having a series of less expensive cars starting now? Or buying a used model of the expensive car sooner? Or having no car at all? Also, a lot can change in 6.5 years. Cars will evolve and there'll be different models and options available. Maybe your salary will have doubled, or maybe you'll be unemployed. You could be living in a different city, have a different commute, and maybe you'll need a minivan to haul kids around or live in a place with bad winters and want a 4-wheel-drive. You'll also need to be prepared for the additional expenses that generally come with expensive cars, such as higher insurance and maintenance rates, and parking could be costly if you live in an expensive city.  The other option, of course, if the car is truly something you need, want, and can afford, would be to save up a sizable down payment and finance the rest so you can get the car sooner. Finally, there's nothing wrong with saving your money for 6.5 years, building up that fund, and then reevaluating what makes the most sense for you at that time. Maybe it will the car, maybe something else, but the nice thing about having savings is that it gives you more options. I've read online that 20% is a reasonable amount to pay for a car each month - Don't believe everything you read on the internet.  But, let me ask, does your current car have zero expense? No fuel, no oil change, no repairs, no insurance? If the 20% is true, you are already spending a good chunk of it each month. My car just celebrated her 8th birthday. And at 125,000 miles, needed $3000 worth of maintenance repairs.  The issue isn't with buying the expensive car, you can buy whatever you can afford, that's a personal preference. It's how you propose to budget for it that seems to be bad math. Other members here have already pointed out that this financial decision might not be so wise. If you can afford to put $1,333 towards saving for a new car each month, then there is nothing wrong with your logic You should be aware that your car will probably cost around $110,000 in 6.5 years, but other than that the logic is fine. However... This seems really simple to me. Any way you look at it, this is a terrible idea. Cars lose value.  They are a disposable item that gets used up.  The more expensive the car, the more value they lose. If you spend $100,000 on a new car, in four years it will be worth less than $50,000.*  That is a lot of money to lose in four years. In addition to the loss of value, you will need to buy insurance, which, for a $100,000 car, is incredible. If your heart is set on this kind of car, you should definitely save up the cash and wait to buy the car.  Do not get a loan.  Here is why: Your plan has you saving $1,300 a month ($16,000 a year) for 6.5 years before you will be able to buy this car.  That is a lot of money for a long range goal.  If you faithfully save this money that long, and at the end of the 6.5 years you still want this car, it is your money to spend as you want.  You will have had a long time to reconsider your course of action, but you will have sacrificed for a long time, and you will have the money to lose.  However, you may find out a year into this process that you are spending too much money saving for this car, and reconsider. If, instead, you take out a loan for this car, then by the time you decide the car was too much of a stretch financially, it will be too late.  You will be upside down on the loan, and it will cost you thousands to sell the car. So go ahead and start saving.  If you haven't given up before you reach your goal, you may find that in 6.5 years when it is time to write that check, you will look back at the sacrifices you have made and decide that you don't want to simply blow that money on a car. Consider a different goal.  If you invest this $1300 a month and achieve 8% growth, you will be a millionaire in 23 years. * You don't need to take my word for it.  Look at the car you are interested in, go to kbb.com, select the 2012 version of the car, and look up the private sale value.  You'll most likely see a price that is about half of what a new one costs.
I agree with Option 3 from the accepted answer (His/Hers/Joint), but with one caveat (that my wife and I are finding out). Once you have children, if your income is in the mid-range where you are not paycheck to paycheck, but are not floating in excess money either (ie, you can have a vacation, but you have to plan for it and save up for a few months to do so), the child-relative expenses begin to be a huge factor in your overall budget, such that (particularly if one partner does more of the child-related buying) it can be hard to really keep up the 3 account separation, because those child-related expenses may end up being all of one earner's paycheck. We originally did the 3 way split, where we took rent, car, and utilities from joint (ie, each transferred a reasonable portion to the joint account to cover), and just bought groceries each occasionally such that it was generally a reasonable split (as we both shopped for groceries and both earned close enough to each other that it worked out).  But once we had kids, it ended up being very different, and we eventually had to more properly budget all of our funds as if they were basically joint funds.  While we still do have separate accounts (and, largely, separate credit cards/etc., except for one joint card), it's almost pro forma now due to the kids. I am 22 and was asking the same questions at age 18. I first started by getting a small credit card and paying it off before the end of each month. I use this credit card for groceries/gas small expenses. Then when I built up my credit more I then began to look for loans for expensive cars. The first being around 22k, the second around 41k. You may want to look at buying a much cheaper car. I would suggest that you look into starting a small credit card and get into a habit of paying it off every month and paying off your loans.  I would suggest saving as much money as possible to buy a car, the less amount of money you need to borrow the better. Having good credit is great, but nobody turns down people who wish to buy with cash. "I have a slightly different take on this, compared to the other answers. In general, I think your emergency fund should always be at least 3K, especially if you own a used car that is out of warranty. Any number of unlucky auto repairs could easily cost over 2K. So, if you have 7K in savings, I would personally buy a car that is 4K or less or finance any amount of the car over 4K (if you can get a relatively low interest rate). Then I would pay down the financed portion of the car as quickly as possible while maintaining at least a 3K emergency fund. That being said, notice I mentioned ""In general"". Your situation may actually be quite different. If you don't have much debt, with your income you might be able to build up a couple of thousand in savings in a single month, and if so the above doesn't really apply. Even if you spent the entire 7K on a car, you'd likely have at least 3K in your emergency fund within 60-90 days. As for what's responsible, there are too many factors to dictate that. If you don't have many other expenses, you could possibly afford a $40K car, and I don't think anyone here could fairly call that ""irresponsible"" if you spent that much, though surely no one would call it ""responsible"" either. Perhaps the best advice is to buy the least expensive car you will be happy with. Many people regret overspending on a vehicle, but few regret underspending (unless they got a lemon that requires lots of repairs). Finally, you could also consider another option. You could get a very cheap car for 1K or less and drive it for a year. By then you may have closer to 20K saved up for a much nicer car than you can afford today." So you will be saving $450 + price of commuting gas - cost of transportation + cost of commuting maintenance - the cost of recreational car rentals if decide to go without a car.  For some people that cost is not enough to forego the convenience of owning a car. One factor you have not alluded too is your current financial goals.  Are you attempting to live a spartan lifestyle in order to dramatically change your net worth?  Give up the car.   There really is more then the math you are presenting so the decision is very much based upon your behavior and your goals in life.  It is very likely that owning the car will be more expensive, but it will also be less convenient.  Is that cost great enough to forego the convenience?  Only you can decide. Buy a house when you can, but keep driving your current car until it dies. In ten years' time, a house should be worth more than you paid for it, while a new car will be worth next to nothing. And research shows that buying possessions like cars doesn't actually make you happier, even though you think it will. To me, this question is really about setting and meeting goals. The process is the same, whether it's about exercising regularly, or saving, or whatever. You need to have clear, personally-relevant reasons for doing something.  Write down: Exactly why you want to save. It may seem trivial, but if you can't visualize the prize it's hard to stay motivated. How much can you afford to save? Use something like Mint.com to find out your real monthly expenses, as opposed to what you think you're spending. Also, don't get overzealous... leave yourself some money for small luxuries and unexpected expenses so you don't feel like a miser. Saving should be a joy, not torture. Automate the saving process. Set up an automatic transfer to move the amount you figured out in step 2 to your savings account on the same date you get paid. This is very important. By saving early you ensure there will be enough money to save. If you wait until the end of the month, there will usually not be anything left. Don't you dare touch your savings! (Except in a real emergency) If you must dip into your savings, immediately create a plan to put it back as soon as possible. Also, get into the habit of reading personal finance books, blogs, sites, etc. I recommend authors like Robert Kiyosaki, and Suze Orman. Good luck! "Okay. Savings-in-a-nutshell. So, take at least year's worth of rent - $30k or so, maybe more for additional expenses. That's your core emergency fund for when you lose your job or total a few cars or something. Keep it in a good savings account, maybe a CD ladder - but the point is it's liquid, and you can get it when you need it in case of emergency. Replenish it immediately after using it. You may lose a little cash to inflation, but you need liquidity to protect you from risk. It is worth it. The rest is long-term savings, probably for retirement, or possibly for a down payment on a home. A blended set of stocks and bonds is appropriate, with stocks storing most of it. If saving for retirement, you may want to put the stocks in a tax-deferred account (if only for the reduced paperwork! egads, stocks generate so much!). Having some money (especially bonds) in something like a Roth IRA or a non-tax-advantaged account is also useful as a backup emergency fund, because you can withdraw it without penalties. Take the money out of stocks gradually when you are approaching the time when you use the money. If it's closer than five years, don't use stocks; your money should be mostly-bonds when you're about to use it. (And not 30-year bonds or anything like that either. Those are sensitive to interest rates in the short term. You should have bonds that mature approximately the same time you're going to use them. Keep an eye on that if you're using bond funds, which continually roll over.) That's basically how any savings goal should work. Retirement is a little special because it's sort of like 20 years' worth of savings goals (so you don't want all your savings in bonds at the beginning), and because you can get fancy tax-deferred accounts, but otherwise it's about the same thing. College savings? Likewise. There are tools available to help you with this. An asset allocation calculator can be found from a variety of sources, including most investment firms. You can use a target-date fund for something this if you'd like automation. There are also a couple things like, say, ""Vanguard LifeStrategy funds"" (from Vanguard) which target other savings goals. You may be able to understand the way these sorts of instruments function more easily than you could other investments. You could do a decent job for yourself by just opening up an account at Vanguard, using their online tool, and pouring your money into the stuff they recommend." Welcome to Money.SE. It appears there's public transportation to get you to work? And the area by your house is walkable? i.e. you and your wife can get groceries and other needs by walking. If it will take 5 years to pay the loans even without a car, how long if you get one? Will you even be able to afford the payments?  There's not enough detail here except to say that all purchases aside from true needs have a cost/reward to consider. Whatever the car's total cost is, will it add that much pleasure to your life? People in cities with great transportation save quite a bit on the expenses a car brings.  Personal anecdote - Mom lives in a city. She never drives out of the city. Ever. Between insurance, maintenance, and gas, even with low miles, she spends $3000/yr. Once per week, she drives 1500 ft (.3mi) each way to the grocery store. Once every month or 2 to a mall 6 miles away. She can walk and groceries delivered for free. In the end, she spends $250/mo for the feeling of freedom. I get that. When I am 70+, as she is, I will gladly pay car service the $20 to drive me around.  You are young, and need to sit with your partner (your wife is your partner in the business of running the family finances, or so I hope) and decide if the benefit is worth the cost. How does she take the kids to a doctor? How do you go out to dinner?