Can I Afford A BMW? Let’s Break It Down

You can afford a BMW when you’re debt-free, have saved at least 6 months’ worth of living expenses in an emergency fund, and can comfortably send 10-20% into retirement savings and investments.

Getting your first serious job right out of college introduces you to the world of personal finance.

So here you are with your student loans, credit card debt, rent, bills, and a lifestyle that you’re the only one paying for. But you’re eager to afford some luxuries. You’re a working individual, after all, not a college student!

Here’s something you won’t be glad to hear – an expensive car is the worst investment you can make in your twenties.

It works as an ego boost, provides comfort and pleasure, and traps so much disposable income. Here’s what you need to sort out before so you can afford a BMW.

We’re not saying don’t get your hands on a brand new head-turning BMW, but when you can most comfortably afford this expense.

Why Do You Want A BMW?

The essence of personal finance is teaching you how to make the most of your money. This includes indulging in things that bring you joy. You should be able to make your money work for you, making you feel happy and secure.

Saving everything is equally as bad as spending everything you make. With the first, you don’t get to experience any pleasure; with the second, you don’t get to experience independence and security.

Dealing with debt and building an emergency fund sound boring, and honestly, it is – at least it was for me.

A period full of recalculations and countdowns – but not the fun ones. Then there comes the moment when you have a larger amount of disposable income that you can use for wise investments and some treats like a brand new BMW.

But why do you want a BMW?

Driving a nice car is a bucket list item for many. It’s a status symbol, an ego boost, fulfilling a promise to your younger self, and a way to prove that you’ve made it; you have your life sorted out!

Especially for those of us who didn’t grow up with the money, finally getting a nice car is a huge milestone.

Can You Afford A BMW?

Have you ever calculated how much car you can afford? If you haven’t, a quick heads up – it’s less than you think.

As a rule of thumb, you should spend as least as you can on a car. Cars are not a one-time expense; a defect can eat up a chunk of your monthly savings. As a result, thrifty finance enthusiasts stick to used cars that barely go over 10% of their annual income.

The following general rule most young adults favor is the 35%. It states that your car shouldn’t cost more than 35% of your annual income.

So if you’re making $60,000 a year, the vehicle you’re looking for is not over $21,000. It’s relatively reasonable but not very convenient as job security is not a given, and ending up with a high car lease and jobless is a nightmare.

The fair percent of how much you can afford is 20%. So it’s almost the average between splurging and frugality.

Does this mean that a person making $100,000 annually can’t afford a BMW Serie 5 starting at $54,200? Most likely, yes.

Percentages aside, there are other commitments that you should take care of to afford a BMW.

Build An Emergency Fund

Calculate precisely how much money do you need each month to cover your expenses.

These should include bills, debt payments, groceries, and personal money. This safety net has the purpose of saving you the stress in case you lose your job.

Take that amount and multiply it by 6 – that’s how much money you need as an emergency fund.

Become Debt-Free

After you’ve funded your emergency fund, send all your extra money to debt repayment. This includes credit cards, student and personal loans. Several plans can help you pay them off faster.

The Snowball Method is one of them – you start contributing the most to the smallest debt, and once you pay it off, you go to the second and so on.

Pick one you can stick to and think of your goal to stay motivated. Mortgage doesn’t fall under this debt.

Open And Fund A Retirment Savings Account

After you’re done with debt payoff and have a fully-funded emergency fund, think about retirement.

The sooner you set up a retirement account, the better. Pick a 401k that maybe your employer contributes to, a Roth IRA, and start building a diversified portfolio of investments.

By this step, you should be able to send 10-20 of your take-home pay to savings.

How To Pay For A BMW

You’ve probably heard the saying if you can’t afford to buy something twice, then it’s out of your budget. While you’re not obligated to wait until you can buy two BMWs at a time to get one, paying cash for the purchase is very welcome. Sound strange? Here’s why.

Have you found yourself swiping your card on something you would never buy in cash as it’s way over your budget?

Well, I have. When I started my first serious job, I parted with 70% of my paycheck for a designer bag. I would never pay so much in cash but swiping the card is harmless – or so I thought.

Cars are way more expensive, but the same rule applies. If you feel uneasy giving $50,000 of your savings for a car, why would you feel better with financing? And vice versa, if you can give $50,000 out of your savings account for a BMW, why would you choose to finance?

Financing is frowned upon when it comes to luxury because if you can afford it- why go for loans?

Suppose you decide to go with financing, try and keep the term of your car loan as short as possible.

You don’t want to be financing a depreciating item that’s worth less than what you owe!

In the past, it was unlikely to find a car loan that stretches over 5 years, while today, 72 months or even more is a common term. By keeping the payoff period short, you’ll save thousands in interest.

Leasing is your last resort and usually applies to getting a brand new car from a BMW dealership.

Think of it as a subscription or an extended rent a car. You lease it for 2-3 years, pay monthly rates but don’t own the vehicle. Then you give it back and take another brand new model.

The dealership sells the used car, making money from you and the new owner. Manufacturers love this type of customer, which is a red flag for you – you’re not the one getting the best deal!

New vs. Used

A new BMW i8 is parked at a car show for others to check out.

Cars are one of the most expensive things you’ll buy in life that decrease in price as soon as you drive them out of the dealership.

The first year is known to have the highest depreciation rate. And BMWs are not immune to this drop in value. But being the first owner comes with more perks – you get the original warranty, parts and you’re the first one touching the wheel.

There’s good news if you’re willing to buy used. If you’re ready to compromise on a pre-owned model, you can get a BMW that’s just a few years old for 50% of the original price.

However, be wary that this signifies the decrease in reliability of the vehicle. German cars are known for their durability and their expensive repairs too.


What’s the average income of luxury car buyers?

The average annual income of a luxury car owner in the US is just under $100,000. Half of the owners make more, while half make less than $100,000. The entry-level price of a luxury car like BMW is around $40,000.

I can finally afford a BMW. Will it be a pain to own?

Repairs on European cars cost 30% more than on American models. Buying a used car comes with more frequent visits to the mechanic. If you’re unlucky, you might end up paying a small fortune in repairs for your used BMW.

What car can I afford based on salary?

Financial advisors and money experts advise spending between 10% and 20% of your take-home pay on a car. While you might feel comfortable spending as much as 50%, it’s not a good financial move.

Are BMWs a waste of money?

BMWs are one of the most wanted luxury cars for a reason. Their price reflects their quality, performance, and reliability. They’re a reputable brand that’s been dominating the market for a little over a century. So it’s a bit relative, it’s only a waste of money if your savings and earnings are low, and you still want to buy a BMW.

Bottom Line

We work, save, invest and make rational financial decisions and deserve to treat ourselves once in a while. So it might come as a surprise that you can afford a more luxurious car than you thought.

You should always go for something you feel comfortable paying for, but it should make you happy too.

If you’re making progress on your personal finance journey, you’ll soon be able to get your hands on a pre-loved or even a brand new BMW – as long as that’s what satisfies you.

How much are you willing to spend on a car? Have you owned a BMW?

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