Cars the High Income Doctor Can Afford Using Net Worth

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Cars the high income doctor can afford

This is a fun post for me. Not only does it include one of my passions, personal finance, but also cars. My absolute weakness.

This will not be one of those posts that condemns people for leasing or financing cars. Rather, I’d like to focus on the outstanding cars the high income doctor can afford if they are serious about investing.

The best rule for car buying I have ever found is Financial Samurai’s 5% net worth rule for car buying. As it sounds, you should only spend 5% of your current net worth on a car. It’s a great rule because the 60 year old who makes $100,000 and has $5M in assets shouldn’t be treated the same as the 30 year old making $100,000 with no assets.


My Car Buying Rule

The greater of 5% of net worth or 15% of post-tax income.

  • 5% of net worth on purchase price
    • includes your own car
    • includes your spouse’s car if he/she doesn’t work
    • includes your kids’ cars if applicable
    • assumes you have some cash flow (like a salary or dividends) or liquid assets like stocks
      • basically, you can’t only own a home with no salary or stocks and use that to justify buying a car

Or

  • 15% of post-tax income on purchase price
    • includes your own car
    • includes your spouse’s car if he/she doesn’t work
    • includes your kids’ cars if applicable
    • useful for doctors just out of school who have no net worth yet

Investing Strategy- House and Stocks

Before I get to the cars the high income doctor can afford, we have to understand how to invest.

The high income doctor should invest a fixed amount over his entire career, so he can grow into his income as it increases. Ideally, he would invest an amount that is a very high percentage of his income initially but as his income grows, it becomes a smaller percentage.

Everyone will have more expensive taste when they are 50 versus 30 and investing as much of your income as possible is much more important at age 30 than it is at age 50 because of compounding interest.

Assuming the doctor has little or no debt (like 30% do), he should invest 20.8% of his post-tax salary because he has 32 years to invest (the doctor below has a 6 year residency.) He is between the 31 and 34 years to invest in my analysis. Let’s consider the money he invested during residency as gravy on top.

If he does have a full debt load, his car buying guide will be the same as below but 3 years delayed. His investing amount is always based on his average salary (which he will get to eventually) rather than his starting salary at first. This is the only way to get to the right retirement income based on his ages 45-65 income.

With regards to the doctor’s house, he will invest as much in his house as he does in his investment accounts.

His investments grow at 7% and his house value grows at 2% annually.


Car Price Inflation

Also, I have to address inflation before I get to the cars the high income doctor can afford.

Car prices will inflate in the future, but his salary will as well. Assuming cars and the general consumer price index inflates at 2% per year, his salary will increase by a similar amount. This is why every year doctors’ salaries go up.

Technically, the doctor would keep increasing his investments in his house and stocks by 2% a year to keep up with car price inflation and because his salary is rising by that amount. This will also keep the percentage of his income he is investing to a constant.

Basically, car price inflation doesn’t affect this analysis because your salary and annual investing amount will increase by the same percentage


High Income Doctor’s Cars

Finally, let’s get to the fun part. What are the cars the high income doctor can afford?

The high income doctor in my scenario is going to be an interventional (invasive) radiologist.

Clinical interventional radiologists make $593,000 on average, according to AMGA’s consulting division. To access it fill this out. Medscape doesn’t include salaries on sub-specializations. Considering the fact that regular diagnostic radiologists were offered $750,000 on the high end and $475,000 on average, according to Merritt Hawkins, just under 600k seems like an accurate number for a sub-specialization.

Starting salaries for these sub-specialized doctors can be estimated at $350,000 based on some research after a 6 year residency.  This is the only time that salary matters for our analysis because after he is around 40 his net worth will justify a more expensive car than 15% of his post-tax income (even at a very high income.)

 

Net Worth and Salary Forecast

Cars the high income doctor can afford


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Doctor’s Car in Residency (Post-tax salary $47,000)

Cars the high income doctor can afford

2013 Toyota Corolla
Used Price: $7,500
Mileage: 70,000

Comment: A toyota corolla is the definition of “just a car.” As my roommate, a serious car guy, puts it: “When it’s monday morning and you decide you need to get a car that day, you get a corolla.” Extremely boring. Very reliable. Gets the job done.

As you may have expected, you don’t get to the really nice cars the high income doctor can afford until later in life.

 

Doctor’s Car at Age 33 (Post-tax salary $240k)

Cars the high income doctor can afford

2017 VW CC
MSRP: $34,000

Comment: The volkswagen cc is one of my absolute favorite cars. It is the best looking car in its price range in my opinion. Having driven 4 of them, the turbo kick is really fun and the interior looks and feels very upscale. It’s classy and doesn’t have the douchebag stigma like Camaros (and mustangs to a lesser extent) have even though those cars looks good.

Other notable cars: 2017 Mustang GT, 2017 Camaro SS

 

Doctor’s Car at Age 40 (Net worth $1.5M)

Cars the high income doctor can afford

2017 Corvette Stingray or Stingray Zo6
MSRP: $55,000 to $79,500

Comment: Remember when I just called Mustangs and Camaros douchebag cars? Let’s forget about that for now because the C7 Corvette is on deck. Despite having a bit of a negative stigma, the new Corvette Stingray is too good to pass up. The last generation Corvette looked okay, but the new one is the best looking car under $100k. It is better looking than the 911 and narrowly better looking than the Jaguar F-Type. Obviously, this is just my opinion. The base $55k one is awesome, but if you want the high end track-focused z06, you will get Car and Driver’s #1 ranked premium sports car. That is over the 911 and McLaren. It has a 3.0 sec 0 to 60 time, which is faster than all of the Lamborghinis from your favorite 2000’s rap videos.

Other notable cars: 2017 Mustang Shelby GT350, 2017 Porsche Cayman, 2017 Mercedes C63 AMG

 

Doctor’s Car at Age 50 (Net worth $4.6M)

Cars the high income doctor can afford

2017 Mercedes-Benz S63 AMG Coupe
MSRP: $145,000
(The amount to spend at this level was $220k with $45k for 3 children that might be nearing 16 at this age. This leaves $175k for yourself.)

Comment: There are few cars that have as much presence on the road as an S63. AMG is the performance division of Mercedes, and they make some spectacular engines. The engine note in AMG’s really just can’t be beat. Except maybe by the Stingray… Do I really need to say anything about its looks? It looks ridiculously good. At age 50, we are really getting to the nice cars the high income doctor can afford at a net worth north of 4 mil.

Other notable cars: Maserati Granturismo MC Stradale, Porsche 911 GT3

 

Doctor’s Cars at Age 58 (Net worth $8.6M)

1st Car:  Daily Driver

Cars the high income doctor can afford

2017 Maserati GranTurismo MC
MSRP: $155,000

Comment: The GranTurismo is really more of a luxury car than a sports car. Although it has an outstanding exhaust sound and drop-dead sporty good looks, it’s not incredibly fast or at least as fast as it looks. It’s still pretty fast though and is much more comfortable as a daily driver than the  a supercar.

2nd Car: Weekend Car

Cars the high income doctor can afford

2017 Lamborghini Huracan LP 580-2
MSRP: $200,000 (really $230,000 at dealerships)

Comment: It took me a while to accept the Huracan. The Gallardo has had my heart for my whole life. For those that don’t know, the Huracan is the updated Gallardo, both of which are the “baby lambos.” They are smaller, more practical, and in my opinion better looking than the Aventador and Murcielago, which are the top of the line Lamborghinis. Also, if you’re thinking I’m crazy at this point, yes this is one of the cars the high income doctor can afford. He has a net worth of $8.3M at age 58. I remember reading online that the average Ferrari owner has a net worth of around $5M.

 

Doctor’s Cars at Age 65 (Net worth $14.1M)

1st Car: Daily Driver

Cars the high income doctor can afford

2017 Aston Martin Vanquish S
MSRP: $312,000 ($340,000 at dealership)

Comment: Look familiar? This is the “James Bond car.” Well, technically the DB line is the James Bond car. Those cars actually cost about $100k less. The DB11 turbo at $80k less is a better buy for the money, but we have almost $700k to spend, so who cares? The ultimate car for an older car fanatic who doesn’t want to drive a harsh driving supercar. An Aston has serious road presence and “cool, classy” feel like the S63.

2nd Car: Occasional Driver

Cars the high income doctor can afford

Used 2008 Mercedes-Benz SLR McLaren
Mileage: 10,000
Price: $330,000

Comment: I was looking at cars that cost just under $350k and an obvious choice at age 65 is a Bentley or rolls-royce. I have no idea why people pay $200 or $300k to buy Bentleys when you could buy something so much cooler with that money. Rolls-Royces are also pretty “uppity” and no doctor would pay for a full-time driver. Enter the SLR, developed jointly by Mercedes and McLaren. This is one of the 2000’s celebrity cars like a Murcielago (although it didn’t sell as well.) Car guys will definitely approach you if you have this car. It has butterfly door too! Very cool retro car…


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Takeaways

  • Yes, almost no doctors drive cars like these. For one, not many make almost $600k and the ones that do are most likely bad with money. Bad with money means taking longer than 3 years to pay off debt like Jim the family practice doctor. Also, very few doctors that make this much invested $160k per year in their house and retirement account from the year they started working. If they did, these are absolutely cars the high income doctor can afford at different ages.
  • The car purchases would have to be made through either salary alone in most years or a combination of salary and stock sale when the cars cost more than your salary. You could also take out a basically 0 interest loan with your $10M in stock as collateral because selling a large amount of stock at once might not be the best idea.
  • You could easily buy used cars and save a good amount of money; however, if you can’t afford the car new, you probably won’t be able to afford the repair costs. For example, a $200k lamborghini might depreciate to $100k, but the repair costs will still be based on a $200k car.

 

Would you have picked different cars? Think these aren’t cars the high income doctor can afford? Comment below.

 

 

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