What % does your Ferrari make up of your Net Worth?

Hmmmm.. College costs how much now?

Penn State is $18K+ a year. Ivys are over $40K, NYU is $40K+.

Unfortunately, saving for college is something of a catch 22. If you save, it counts against your ability to get aid, but it does mitigate costs. If you don't save, you may not be able to afford the best (most expensive) schools, and you'll have to borrow more, but will get more aid along the way. And, what you've saved for other kids' educations counts against your aid application, along with income of you, your spouse, and the ex-husband, etc.

I think Art's 5% rule applies to bigger bucks, married with children people and is certainly a good rule. I'm way under 5% on cars, and still sometimes feel a little guilty about what I spend on them. Single guys, or no kids, I think more than 5% would certainly be an option, otherwise you're driving a Yugo.

Single and worth a million bucks? driving a $50K car? Not here at fchat, I don't think. Married with kids, net worth $5MM+? Then $250K in cars wouldn't be a stretch, would it.

Married with kids worth a million bucks? Driving a used mini-van and a new Pontiac GTO? That might work, but I bet most of them are driving a Benz or BMW.

 

Wow,

i cant beleive how quickly this has spiralied into such a heated discussion.

however, I too am interested in such a topic, as i am currently looking for my first Ferrari, and dont know if i can really afford it?

i have no gripes about stating my wealth,

i have around $500k us to my name, (however if you dont include my house lets make that $300k).

and the concern i have is that i can quite easily afford to buy the car, but i dont really know if im "wealthy" (i use the term loosely as im not exactly rich) enough to buy a Ferrari.

bear in mind im only 25 and only out of University for 4 years.

 

Oh and just to add,

those figures i quoted were converted to $us,

and im married no kids.

 

My Ferrari makes up 0.00% of my net worth.

 

Well... No spouting whales so far. Some guppies trying, perhaps, but no whales!

 

The level of this list has fallen with its popularity increase.

 

Seeing as how my wife and I are going through the "529C stage" right now (baby due in 2 weeks!), I have done some digging on the topic you mention above. This "catch 22" also seemed quite unfair to me as well. It seems one will get "penalized" for thinking ahead and making an honest commitment to providing an adequate college savings plan.

The "loophole", if you want to call it that, is to have the college savings plan taken out someone else's name. The beneficiary of the plan is still your son/daughter. But, the actual "owner" of the plan can be anybody. So, if there is someone you trust explicitly (parent, brother, sister, etc), give them the money and have them open the account in their name with your child as the beneficiary. As long as you dont mind not having legal "ownership" of the account, no matter how much $ is sitting in that account when college time arrives, it will never show up on the financial aid application.

 

Actually you would be even worse off in your example because of the time value of money. You are paying out money for 3 years but don't receive your gain until the end of the period, so that gain is worth less in today's dollars.

So as an "investment", that example doesn't look good, but you left out a very important component in your investment analysis: the rent that the house could generate. In other words, if you didn't live in it, you could rent it out and drastically change your economics.

For example, how about if your rent covered your mortgage and tax payments? Now all of a sudden things look much better. They total $570 + $143 = $713/month in your example. Do you think that you could rent a $100K house for at least $713/month? I would think that you could do that or better.

Your investment is the $10K down + the $10K improvements + the $5K closing costs or $25K. You are breaking even on the mortgage and tax payments throughout the period, so the net cash flow per month is zero. At the end of the 3 years, your net proceeds after paying down the mortgage is $133K-$87K = $46K. Subtract your initial investment of $25K and you have made $21K, nearly double your investment or roughly a 22.5% annual return on your investment , in three years. Remember the house itself only appreciated at 10% per year, and you didn't ascribe any value to the $10K in improvements that you made (i.e. you assumed that the house was still worth $100K after you made the improvements, so why make them?). That's called leverage!

Of course you are going to say: "Wait, I'm not renting this out, I'm living in the house, so I can't credit myself with the rental income!" Yes, you can, because by living in the house, you are saving the rent that you would otherwise have to pay somewhere else. You've got to live somewhere and so you need to factor in your own cost of "renting" living space. If you live in the house, you get credit for that rent that you save.

This also doesn't take into consideration the tax benefits of the deductions for mortgage interest and property taxes.

It is important to not confuse your personal living costs with your "investments". Nevertheless, home ownership is one of the smartest things that anyone can do. Even if your house never appreciates a dime, eventually you will own it free and clear and your monthly rental costs will be much lower than paying rent to someone else.

That's one reason why something like 69% of people in the U.S. own their homes, and most of the other 31% probably would like to.

John

 

That's very true. However you are still able to afford to live where you are because you own the house. There are people in CT who live in a house that is worth $1 million but can afford it because they paid only $70K for it 30 years ago. They can still move in the area, but are only trading even unless their income has risen. Or they can move to a cheaper area and take out a big chunk of money from the equity. After 30 years, the kids are probably gone and maybe retirement is the goal and living in an expensive area with that much value tied up in a house might not make so much sense anymore.

 

as a money manager, i know very well that i could invest 200k at 20% CAGR [compound annual growth rate of capital], rather than spend it on a Ferrari. after 10 years, my opportunity cost for that car expenditure is $1.3 million lost capital, after 20 years $7.7 million.

but i'm also going to die and need to have some fun first. so what is the IRR [internal rate of return] on a Stradale??? at some point you have enough money. but many folks do not do an opportunity cost calculation to evaluate spend vs invest decisions and some spend too much and dont invest enough.....

 

All good reasons why it makes sense to limit the amount of your net worth that you have in non-income producing assets, such as exotic cars. Having a $200K Ferrari when your net worth is $500K would be pretty stupid, but if your net worth is $5MM, more justifiable.

I fully agree with the need to strike a balance between saving every last penny and enjoying some of your wealth now. Life is too short to go overboard on living like a miser. So even if your net worth is "only" $500K, you allocate 5% ($25K) to a fun car and maybe you buy a 308, a 400i 5 speed, a nice vintage Alfa Romeo or a Corvette for your exotic car fix, rather than a $200K Stradale.

The Stradale is nice, but I'll bet that it isn't 8 times as much fun as a 308!

John

 

All good reasons why it makes sense to limit the amount of your net worth that you have in non-income producing assets, such as exotic cars. Having a $200K Ferrari when your net worth is $500K would be pretty stupid, but if your net worth is $5MM, more justifiable.

I fully agree with the need to strike a balance between saving every last penny and enjoying some of your wealth now. Life is too short to go overboard on living like a miser. So even if your net worth is "only" $500K, you allocate 5% ($25K) to a fun car and maybe you buy a 308, a 400i 5 speed, a nice vintage Alfa Romeo or a Corvette for your exotic car fix, rather than a $200K Stradale.

The Stradale is nice, but I'll bet that it isn't 8 times as much fun as a 308!

John

 

There are 2 kinds of people in life. Those that talk about owning a Ferrari, and those that do. Which do you want to spend your life being? Enjoy life to the fullest.....

 

Carpe Ferrari!

John

 

Owning a Ferrari is not justifiable under any aspect. Justifying a 200k toy is hard to do in any logical kind of way. The more you want one the more you will be willing to pay as a percentage of you net worth.


I like the Stradale to 308 comparison. It really is hard to put a price tag on fun.

 

Dr. Tax - I think you are dead on - Honestly unless you outright own both (and even then) House and car is truly a liability - with taxes, registration, insurance, etc. I do not count them either - nor do I care - I have them for the fun... When I had a few of the 60's F-car models - I did look at them as an investment (because I did make money on them) - but not net worth..

 

When I bought my 308 six years ago, I had only a few 100 left on my savings account, no house and maybe $2000 in other pocessions. The ratio then was 91%. Not 5%. I still live.

 

AMEN!

The key words in your post imo, were "strike a balance".

I use the 5% rule because I like setting my goals HIGH...as we all should, but that didn't stop me from buying a Z06 last year. What's that old saying "sometimes you gotta say, WTF! "

Since that time, my net worth has grown by more than 75% and the Z has depreciated by at least 15%, but what I do care, I paid cash at dealer invoice w/a 7 year warranty to boot. The point is that you can have what you want, and grow your wealth by a significant amount at the same time. The key is to find the right "balance"...everyone's personal situation is different.

regards,

 

So is one considered a cheap bastard if they spend less than 1%?

 

Not if you are a billionaire!

 

There are exceptions to the rule. Even if I had only $500k net worth i would jump to get a 360 Spider at sticker, drive it for a year, then sell for $30k over what I paid.

 

my car makes up 170% of my net worth

 

See? That's the kind of results you can expect, team, when you put in 110%!

 

I think that numerical rules miss the point when it comes to owning a Ferrari or any other toy. It is all about priorities. 15 years ago, I was married with kids. There was no way that I had any bidness buying anything other than a Honda Accord, which I did. However, I did own a bunch of crappy British motorcycles because I could still afford to do so.

Moreover, for the last 15 years, I have been paying out the behind for private school tuition for two kids, which is a double tax because Texas is a high property tax state.

But today, the house is paid for and I have one kid out the door and another on the banana peel. I was able to pay for the house because I didn't play the move up game. That is, we have lived in the same 3,000 square foot house for 14 years. I got to a comfortable point and then concentrated on paying off the mortgage.

Why did I buy the Maranello? Because I wanted to and I could. I didn't look at it as an investment, other than in the smiles per mile department.

Why did I sell the Maranello? Somebody made me an offer that I couldn't refuse. So while I watch the horizon for my ships to come in, I'm going to have a Spec Miata built to have a cheap toy to have fun with (and teach my son how to use a stick). Again, it is all about priorities.

Just remember that a Ferrari will get you through times of no money better than money will get you through times of no Ferraris. (With a tip of the hat to R. Crumb for those old hippies in the group.)

Take care, Dale

 

Spec Miatas are great fun and make better drivers.

I was at a recent Porsche club track day and watched some Ferrari club invitees go around. A couple of days in a spec Miata would have helped them a lot.