Isn’t that insane? Someone wants to spend over a year’s worth of take home pay on a new car! I guarantee you that almost everyone has judged the person who wants to buy the Mercedes already.
I initially did the same. However, after examining the situation I think this particular purchase of a $55,000 Mercedes-Benz on $45,000 a year take home pay is perfectly fine.
What Were The Details?
Technically, the potential Mercedes-Benz buyer is a 46 year old woman named Debbie that takes home $44,916 a year and has $16,848 a year of expenses.
She owns a home and actually owns it because she doesn’t have a mortgage at all. In fact, she doesn’t have any debt at all which is pretty awesome!
As far as monetary assets go (assets like cash, investments and retirement accounts) she has $142,000 in liquid assets, $6,000 in non-retirement investments and $390,000 in retirement accounts.
Analyzing Debbie’s Financial Situation
You should never make decisions solely based on income alone. You need to look at the full picture before making a decision. In this case, the full pictures shows a much different story than just Debbie’s income would.
Debbie has done an amazing job of only living on 38% of her take home pay. She has over 100 months of expenses in liquid assets. That’s over 8 years of expenses in liquid assets!
If that’s not good enough, Debbie has over 23 years of expenses in her retirement accounts. Combined, her liquid and retirement assets would provide over 30 years of current expenses. On top of that, her expenses are less than the often quoted 4% rule for retirement withdrawals.
Why I Think A Mercedes-Benz Is A Reasonable Purchase
In Debbie’s case, I think a $55,000 Mercedes-Benz on $45,000 a year in take home pay is a reasonable purchase. Debbie clearly lives well below her means and saves for what is important to her. If she wants to spend 40 months of her normal living expenses on a car, I’m betting she’s put a lot of thought into the purchase and really, really wants the car.
Yes, the car will depreciate and will eventually be worthless. Yes, she could make better decisions with her money to grow her money. However, she has 30 years in expenses saved already and still has at least 19 years until traditional retirement age!
She has plenty of time to let her money grow or save even more money for her future retirement. At some point you need to enjoy your money. You can’t take it with you when you go and it would be a shame to work so hard for the money and never use it.
I say she should buy the Mercedes if that is what she really wants! Enjoy it!
What Do You Think?
So, what do you think about this situation? Do you think Debbie should buy the Mercedes-Benz or do you think she’s crazy? If you don’t think she should buy the Mercedes, what do you think she should do with the money? There is no right or wrong answer, but I’d love to hear your opinion in the comments!
Where Did This Situation Come From?
I’ll admit it. I was watching the Suze Orman show and this clip caught my eye (view it here if you want). Normally I don’t comment on these shows, but this situation was extraordinary.
Photo by: NRMA Car News Text added by: Lance Cothern