Maximising return

grey_gym_sock

i didn't say you should never borrow for a car. my point was that buying such an expensive car is optional / discretionary / luxury (pick whichever term you find least / most offensive ) expenditure; and that borrowing for discretionary expenditure is bad value: you get more for your money if you save it before you spend it; and it's a way that a lot of ppl mess up their finances.

your earlier explanation - "I didn't want to wang out 40 g's on a car" - is interestingly worded. does that mean you could have raised the cash, but it felt less painful not paying it all at once? if so, that is illogical.

you say you have "a couple of houses", so presumably at least 1 is BTL. are you effectively borrowing to invest? if so, it's probably not worth it at 6%, at least if your investment opportunities are limited to BTLs + mainstream investments (stocks & shares, etc). it could easily be worth it if you were starting your own business with the money, though.

if you think asset prices are going to fall, then borrowing to invest makes even less sense. but borrowing to spend doesn't make any more sense - you're still paying 6% which you wouldn't pay if you saved up first.

you say the car finance is only 6% of your income. but what about the depreciation? the total cost of buying a more expensive car includes that, as well as any higher servicing and insurance costs. you should work out a total annual cost (compared to a cheaper car), and see if that scares you.

is your income going to go on forever? you are not putting enough into a pension to replace it. but are you saving lots from after-tax income, and using it to buy BTLs? that might work. however, there is a huge tax advantage in putting all income over £100k into pensions, because then you get your personal allowance back - otherwise you have an effective marginal tax rate of 60%.

MoneyGeoff

You're paying at Tax/NI at 62%, PCP at 6% and Mortgage at 3%

Tax efficiency is way better for you than overpaying the debts. If your employer matches contributions then for every £100 net salary, £526 goes into your pension pot. So over 500% return before investment return. Even if they don't match contributions it's still a no brainer, and pension tax relief may change before too long so best to get the benefit whilst you can.

Ask your employer if they have any other salary sacrifice benefits. A salary sacrifice car lease for example would be better than a PCP due to your marginal rate of tax.

jimjames

DominicH wrote: »

I get your point about enjoying today for there may be no tomorrow, I do. But it nevertheless does not make financial sense to borrow money to own a car that you could simply buy. You're paying other people to use their money when you have perfectly good money of your own.

Maybe it feels worse to spend £40k cash on a car and find out 3 years later it's only worth £20k as it's your money and very visible how much you now have left. Spend it each month on finance instead, keep the £40k in the bank and the amount you've spent doesn't really show.

redux

This might be seen as impertinent, but I wonder a bit about the budget.

Income of £6 to 9k income a month leaves a certain amount left over for investment

On the other hand £35000 should be enough cash to pay a year of living expenses

Then how long did it take to accrue that amount? A few months, a few years?

I agree with the people about making much larger pension contributions before saving up for buy to lets

racing_blue

MP80 if locking the money away for 20+ years in a pension does not appeal, have you considered venture capital trusts and enterprise investment schemes?

I'm not the best person to write about these. But if anyone more knowledgeable could post a quick summary that might be helpful.

edit: monevator on VCTs

mp80

Not sure how long it took to accrue, probably a year or so. Had a fair amount of expense this last year on holiday, house building work and the like.

Now with the child, things have changed so we need to be quite a bit more financially responsible, but not to the point of gluing sandpaper shavings together to make a joist for the roof (not yet, anyway!)