How Much Money Do You Need to Afford a Sports Car?

In today's world, the allure of a high-performance sports car is undeniable. However, the question often arises: how much money do you need to earn a year to buy a decent sports car? This article will explore the nuances of this query and provide insights into the financial considerations involved in owning a sports car.

Net Worth vs. Annual Income

The key distinction in discussing affordability is the difference between net worth and annual income. Annual income refers to the money you earn in a year, while net worth encompasses the total value of your assets minus your liabilities. It is crucial to understand that owning a sports car, while exciting, should not tie up your entire net worth in a single asset.

For instance, a 22-year-old individual making $75,000 a year and purchasing a $25,000 sports car might seem like a reasonable decision. However, if the entire $25,000 is tied up in the car, there is no financial cushion for unexpected expenses, job loss, or other emergencies. On the other hand, a 55-year-old retiree with $1.2 million in assets can comfortably afford a sports car because it represents only about 1/12th of their net worth. The lesson here is clear: don't tie all your assets into one high-risk, low-durability asset like a sports car.

The Cost of Owning a Sports Car

When considering the purchase of a sports car, it is essential to factor in ongoing costs such as fuel, insurance, and maintenance. Let's break down the costs associated with buying and maintaining an entry-level sports car.

New vs. Used

If you are interested in a new car, the current national advertisement from Mazda for the 2015 MX-5 Sport with a manual transmission is available for $409 per month on a no-money-down plan. On the other hand, a 2017 Ford Mustang Ecoboost can be acquired for $350 per month with a $2,000 down payment. In California, general rules of thumb include adding 10% to the monthly payment for taxes and licenses. Thus, an advertised $350 per month could increase to $385, while the MX-5 could rise to $450.

Financing and Down Payments

Financing options and down payments can significantly impact your monthly costs. Assuming a price point of $20,000, here are some options from local advertisements:

To get your payments down to a reasonable amount, you may need a larger down payment, a longer-term loan, or both. Based on a 5-year loan with 5% interest, the monthly payment for a $20,000 car with a $2,000 down payment would be approximately $362.

Total Transportation Costs

When budgeting for a sports car, it's important to consider not just the monthly payment but also fuel, insurance, and maintenance. In general, transportation costs should not exceed 15% of your net monthly income after taxes and insurance.

Assuming a target total expense of $600 per month, your net monthly income would need to be around $4,000. However, insurance costs for sports cars, especially if driven by younger drivers or those with expensive repair costs, can be significantly higher.

Conclusion

To put it succinctly, to afford an entry-level sports car, you would need to make approximately $50,000 per year. This figure takes into account the car's purchase price, ongoing costs, and the importance of maintaining a healthy financial cushion. Whether you're considering a new or used car, it's crucial to weigh your financial priorities and manage your expenses accordingly to ensure long-term financial stability.