conversation: User (Ecdubz): "Just purchased a new car this week with the help of my parents. They are taking care of the loan until the new year in which my wife and I are taking it over.\n\nHere is the situation: I can now plan for our future based on this. With my wife Graduating this semester and most likely will walk out of the semester with a job (high chance, about 85%). We will be in a major surplus of inflow monthly wages. With her getting a job starting out we will have around $2200 unallocated cash. Subtract the new insurance &amp; car payment we are looking at $1300 surplus now. Here the rub, we are looking to buy a house in around 5 years putting $800 back per month this new year which will then put us at $500 surplus. I plan to put that $500 back in a savings for expenses on vehicles, major purchases and what not. Overall we will make ~$80,000 combined annually. 13.5% is going to car payments (payment &amp; insurance), 7.5% is going to savings for major expenses / just flat savings, 12% is going to a house fund (more savings), 67% is going to [Rent, Bills, Fun, Groceries, the works]. Are we going to be financially sound or would we need to reduce our yearly spending to a more reasonable level? Again, this is next year and im planning for our future (also possible child just throwing that out although we are not currently trying). Let me know!"
  Self: "You have an absolutely insane car payment and insurance if I did the math correct.  If I take 13.5% of 80k which comes to 10800 and divide that by 12 comes to $900 a month.  If that's correct, you are making bad choices.  You will take a bloodbath on depreciation alone"
  User (Ecdubz): "It will be $700 a month for the car note and $200 a month for car insurance on 2 cars ($100 each) that we will be taking over in the new year as well. Is that still bad?"
  Feelsgood767 (Feelsgood767): "Please tell me your car note is 3 years."
  User (Ecdubz): "It is over 7 years. If this is bad can you please explain the reasoning. It is 13.5% of our income with everything else over the top for annual expenses which is why im asking if we need to reduce our spending and put more into savings."
  Feelsgood767 (Feelsgood767): "You are married to that car for the next 7 or so years and will be underwater the entire time. I am guessing that car is about $55k which is 69% of your yearly income.\n\nAlso $900 does not include gas an maintenance when the car gets older."
  User (Ecdubz): "I still don't think you are explaining the reasoning of why 13.5% of my yearly income is going to paying the car off is bad. Its a $50,000 car with a payment of $700 a month. You need to have a better explanation than the overall car worth is 69% of my yearly income when im not paying the entirety of the car in a single year."
  auggiedoggies (auggiedoggies): "Because spending 14% of your annual income on a car note when you don't own a home or have any retirement savings is absolutely insane. \n\n\nAlso, your 13.5% calculation isn't taking any taxes into account. Your gross income is $80k, so your net income is probably more like $65k? \n\n\nNot to mention, **your wife doesn't even have a job yet**. You don't actually make 80k yet. What's your actual, current salary? "
  User (Ecdubz): "My current salary is $53,800 before taxes. After taxes our income is $1655 per paycheck, $3310 per month."
  auggiedoggies (auggiedoggies): "Do you have any debt? I'm going to try and answer the question that you actually posted about changing your spending, but we need a bit more information. \n\n\nWhat debt do you have besides the car loan?\n\n\nAny retirement savings?\n\n\nAny current cash savings?\n\n\nHow likely is it that your wife will land a job right out of college? What type of degree/job will she have?"
  User (Ecdubz): "We currently have roughly $3,000 of credit card debt. Retirement savings equate to around $14,000. Current cash savings is Nil at the moment which we are trying to remedy. My wife has about an 85% chance she will have a job in November of this year walking out of her degree program in December as a Teacher."
  auggiedoggies (auggiedoggies): "Alright, so don't take this the wrong way, but you need to drastically reduce your spending. That car payment is going to crush you.\n\nYou are spending about 27% of your take home pay on your car, and that is without any retirement savings. That is an incredibly high number. At that rate, you won't be able to afford a house for a long while.\n\n\n\nIf your wife actually gets a job and your salary is 80k, that's ok. But a 50k car is still absurd for an income that high. What's the interest rate on your loan?"
  User (Ecdubz): "The interest rate is 3.49"
  auggiedoggies (auggiedoggies): "Yeah, thats very high for a 7 year loan. Yikes. What kind of car did you get and why did you get it? "
  User (Ecdubz): "Can't justify rebuilding the transmission twice on the same vehicle we have. It was our large family vehicle and we needed to replace it. We ended up getting a Toyota Highlander. Smaller, better gas mileage, family sized. This vehicle will last us through the rest of my college as well as kids (fingers crossed)"
  auggiedoggies (auggiedoggies): "I mean, didn't you say you don't have kids yet?\n\n\nEither way, there's just no way to justify buying a 50k car on your salary. Too late now though. You're going to have to cut back spending if you want to buy a house. "
  