31 August 2015

"I'm a car guy and it was a dream of mine."

So, how do young'uns (~new college grads) afford supercars?

As one involved in the local car scene, I've seen some number of folks around the same age as I who have pretty nice cars. Two weekends ago, I was at the Cars and Coffee at Santana Row and saw a guy who has a new BMW i8, which nominally lists for $135,xxx before taxes, fees, and dealer markup.

Consider the average new-grad (with well-off parents, so no student debt) who gets an offer at a big tech company, say, Hooli. The typical full time offer is $100,000 base salary, $15,000 sign-on cash bonus, an estimated $33,000 (63 shares) equity bonus paid at the end of the first year, and a projected $15,000 year-end cash bonus. Take home from the salary after tax and with the tax refund is around $75,000. Bonuses are taxed differently (roughly 50%), so that's approximately $16,000 from equity and $15,000 from cash bonuses. Since the tax refund, equity, and year-end bonuses are not received until the ~end of year 1, we only have $67,500 after tax with which to work, or approximately $5,625 each month.

As for costs, let's assume we live in Silicon Valley. We will garage our supercar, and apartments with garages don't come cheap. To cut costs, we'll split a 2-bedroom with a roommate, which should run around $4,000/month including bills, so $2,000/month each. Since Hooli provides free food (albeit not the best), we only need to cover meals on weekends. Assuming we eat $100/weekend, that's $400/month. Car insurance will probably run $350/month [1]. Amortized maintenance is about $250/month, though some makes such as BMW provide free maintenance. If we assume an average of 15,000 miles driven per year, 15mpg, and $3.75/gal, then that's $3750 in gas per year, or $312 per month. So far, we have $2313/month remaining.

For the BMW i8, which lists at $135,xxx, BMW quotes a lease of around $1,7xx/month for 3 years/30,000 miles with a $7,500 down payment (but before any incentives -- governmental, in this case). Add taxes and fees, that $1,7xx balloons to approximately $2,000/month, which leaves around $300/month for miscellaneous, or maybe even savings!

Other exotics in this price range (≤ $125,xxx), as of Aug 2015:
  • Various Porsche 911 Carreras
  • Jaguar F-type R
  • Maserati GranTurismo
  • Audi R8 V8
  • Various used Aston Martins
  • Various used Bentleys
  • Used Ferrari California or 430
  • Used Lamborghini Gallardo
  • Used Audi R8 V10
  • and more.

Now, let us expand our population to include those with student loans. The MIT Student Financial Services department reports that 40% of students have a loan, 32% are tuition-free, and 28% paid some tuition but didn't take out loans. The average cumulative debt for a student who graduated in 2012 is $20,800, so assuming that it grows at 6% yearly, would make approximately $26,500 for a student graduating in 2016. So we must resolve that before indulging.

The average new grad who gets a full-time offer at Hooli usually received an internship in the year preceding. These pay around $7,000/month now, which makes $21,000 for the summer. After 40% taxes and deductions, that's around $12,600. Add back a 15% tax refund, and your total is $15,750.

The sophomore year internship is usually less glamorous, if anything. These pay around $5,000/month now, which makes $15,000 for the summer. After the same tax calculation and adding the tax refund, your total is $11,250.


Now, the effective income from these two internships is barely enough to cover the average student loan. What about some less common ways to earn income?
  • Getting an on-campus job (i.e. research, tech support, teaching assistant) or externship during the semester or during winter break
  • Finishing your degree in fewer than 4 years, and maybe starting work early
  • Running an independent consulting firm given solid background knowledge
  • Tutoring other students at your college or at a nearby college
  • Contracting for a `sharing economy` company, e.g. ride-sharing, Handy, Fiverr, TaskRabbit
  • Collecting donations or subscriptions from running a popular twitch.tv stream or Youtube channel
  • Trading (on more than just the equity markets)


There you have it: this is how a new grad can afford an exotic.

[1] http://www.car-insurance.com/price-07/2015-bmw-i8-14316-base_4wd_2_dr_coupe_i3-insurance-quote.html

[2] https://due.mit.edu/news/2012/undergraduate-student-debt-mit

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