Cars the “Low” Income Doctor Can Afford Using Net Worth

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Cars the low income doctor can afford

This post is part 2 of the Cars Doctors Can Afford series. You can check out the high income doctor’s cars here. What are the cars the “low” income doctor can afford?

I use quotations because low is a relative term. Making over $200k is awesome and even having high debt levels and delayed salary makes it very much worth it like in PA vs Family Practice Doctor.

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 “low” income doctor can afford, we have to understand how to invest.

The 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 16.3% of his post-tax income. He has 1 more year to invest compared to the doctor in my analysis with 34 years to invest. We will consider the invested money 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 “low” 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


“Low” Income Doctor’s Cars

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

The “low” income doctor in my scenario is going to be an internal medicine doctor.

The internal medicine doctor makes $249,000 per year according to AMGA’s consulting division. To access it, fill this out. To keep any possible comparison fair, this is the same physician salary survey that I used for the high income doctor to get the salary of a subspecialty. The average salary determines how much the doctor will invest.

The starting salary for internal medicine doctors is $171,000 according to Payscale.  I tend to not like using payscale because it seems to show much lower salaries than are actually true for the higher paying specialties; however, internal medicine docs have a relatively narrow range of income potential and $171,000 seems pretty accurate. The starting salary determines the price of the doctor’s car immediately out of school

 

Salary and Net Worth Forecast 

Cars the low income doctor can afford


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Car in Residency (Post tax salary $44,000)

Cars the low income doctor can afford

Used 2010 Honda Civic
Price: $6,000
Mileage: $100,000

Comment: I really don’t like this car; however, I don’t think I could find a car that costs $6k that I do like. Like the Toyota Corolla, this is a get from point A to point B car. On the bright side, this car will make any future car you get seem like the pinnacle of luxury and performance.

 

Car at Age 30 (Post-tax salary $123,000)

cars the low income doctor can afford2017 VW Jetta
MSRP: $17,000

Comment: This car looks like an S class compared to the Civic. I really hate the Civic once again. This is actually a pretty decent looking car with  the LED lights.

 

Car at Age 40 (Net worth $860,000)

Cars the low income doctor can afford

2017 BMW 4 series
MSRP: $42,000

Comment: If you can’t tell from my last post, I really like coupes (angling down, sporty looking, and often 2 door cars.) The BMW M4 is sadly a terrible value for over $80k, but the regular 4 series is a really great value for $42k. Powerful engine. You will also look much better than everybody else that drives 3 and 5 series. Lastly, I was dying to get a picture of a “frozen silver” 4 series because some of the “frozen” colors are just awesome, but they are reserved for the performance M line.

 

Cars at Age 50 (Net worth $2.2M)

 

Cars the low income doctor can afford

2017 Mercedes-Benz C63 AMG
MSRP: $65,000
($45k is for 3 kids’ cars at this age, so his amount to spend is $110,000-$45,000 = $65,000)

Comment: Technically, this is a C63S but they look about the same. Once again, AMG is the king of engine noise. What’s really great about this car is the crackling that comes after the roar, which is just awesome. There are few things better looking in this world than an all black AMG.

 

Car at age 58 (Net Worth $3.9M)

Cars the low income doctor can afford

2017 BMW M6
MSRP: $114,000

Comment: This is the frozen silver I was talking about that looks like a faint blue in the light. It looks way better than silver in person. The M6 is pretty far below the value that the doctor can spend at this point, but I couldn’t pass it up (looks better than the i8 IMO.) I made a similar decision when I picked the S63 for the high income doctor. At this point you may start thinking that this isn’t a car the “low” income doctor can afford, but think again. This car is only 2.9% of his net worth.

 

Car at age 65 (Net worth $6.4M)

Cars the low income doctor can afford

2017 McLaren 570S
MSRP: $191,000 ($220k at dealerships)

Comment: The “low” income doctor can’t really afford to have 2 cars like the high income doctor, so this is his daily driver.  I actually parked next to a doctor that drove this car every day this summer, so it’s definitely doable to drive every day. Like I mentioned before, I saw once that the average ferrari owner has a net worth of $5M and income of around $500k. This car is about $100k cheaper than what you will have to pay for a ferrari. Also, butterfly doors!


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Takeaways

  • Yes, almost no internal medicine doctors drive cars like these. Most of them are definitely 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 have a net worth of $6.4M at retirement. Very few put $60k towards their house and investment account every year of their working career. If they did, these are absolutely cars the “low” 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 salaryand 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 McLaren might depreciate to $100k, but the repair costs will still be based on a $200k car

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