I recently talked to a client, Julie, who is in her mid-twenties. She’s trying to figure out if she can afford a new car, given the student loan debt she’s paying off. I think her situation is relevant to many young people , so – with Julie’s permission – I’m sharing her questions and my answers...

Q: Can I afford a new Camaro? 

Here’s my situation:

• I own a 2007 Ford Fusion with 60,000 miles. The trade-in value would be $5,000 to $6,000.
• My annual salary is $96,000, and I save 20 percent in my 401k.
• I have $28,000 in outstanding student loans and make monthly payments of  $350.
• My monthly living costs (for rent, food and utilities) are about $2,500.
• I spend $160 each month on car insurance.
• I have about $40,000 in my bank account.
• The car I want is a 2012 Camaro, which would lease for about $450 a month.
• I will likely have an overseas assignment sometime in the next five to 10 years.
• I want to buy a home in a few years.

A: Yes, you can afford the Camaro. Enjoy it. Let me congratulate you on the savings you’ve amassed at such a young age. Setting aside 20 percent for retirement is a tremendous achievement.

Q: Should I pay off my student loans now or wait?

A: Yes, go ahead and pay off the student loan in full. You have $40,000 sitting in your bank account. Use it to free yourself of debt. At your income level ($90,000 to $100,000) and increasingly good credit, you will still be in a decent position to buy a home in the next few years. If you are already saving 20 percent and paying off debt, you should certainly be able to indulge in the car you want.

Q.  Do you have an opinion on leasing a car rather than buying?

A. I do. I wrote an article in the AJC recently on leasing. I believe leasing could be a good option for you. (Note that each case is individual. I do not recommend leasing for everyone.) But if you think you’re going to move abroad within the 36-month lease period, you should consider buying the car. You don’t want to be stuck with a lease here in the U.S. if you relocate. Either way, you should know that our ad valorem tax (also known as the “birthday tax”) has recently changed, thanks to House Bill 386: 

New Ad Valorem Title Tax (“TAVT”).  

On any car purchased in Georgia after March 1, 2013, the annual ad valorem title tax no longer applies. However, if you bought your car on or before Jan. 1, 2012, it’s business as usual for you. If you bought or leased a car between Jan. 1, 2012 and March 1, 2013, you can use either option (the old tax method or the new tax method), but you must decide by the end of this year. The state Department of Revenue’s online calculator at www.dor.ga.gov can you help determine what option is best.

Since March, car buyers pay 6.5 percent of the purchase price at the time of purchase. And that’s it. No more annual “birthday tax.”

More good news: A trade-in (with value) will reduce your purchase price and reduce your TAVT. So a $30,000 car purchased, in part, with a $10,000 trade-in, results in paying taxes only on $20,000. That’s always been the case when buying. Now, it goes for leasing, too.

If you have debt, follow Julie’s lead. Make a budget and a plan for paying it off.  When you’re a prudent saver, you may be able to afford the spiffy new Camaro. Just manage your debt, save regularly and enjoy the ride.