We get it, buying a car in Singapore is expensive. Not just normal expensive, but stupid expensive as evidenced by these articles:
- (2018 Edition) Cost Of Owning A Car In Singapore Over 10 Years
- Cost of Getting A Car In Singapore 2019: What Contributes To The High Car Price?
- Buying A Car? You Need To Be Earning At Least S$7,500 First
- Why Owning A Simple Family Car In Singapore Can Cost You SGD 234,621 Over 10 Years
You get the idea. It sounds like you’ve got to be pretty darn wealthy and willing to part with a ton of cash over 10 years to be able to afford a car in Singapore. Then at the end, you are forced to sell it for scrap or put more money in to get another COE.
As a result, I can never understand why anybody would buy a car here. However it seems that some people still feel that it’s totally worth it (evident by the number of cars on the road, some even driven by pretty young professionals!)
I guess they justify it like this:
“I’m buying convenience and freedom to go around anywhere whenever I want!”
Who’s to say that’s not worth SGS 200,000 over 10 years right? It’s only SGD 20,000 a year! Totally worth it!
Well, I’m here to tell you that that’s not the end of the “cost” of buying a car.
You’re also saying “No thanks” to a passive income of SGD 1,000
Why do I say that?
Well, as a FIRE-path walker, we should all be familiar with the Safe Withdrawal Rate. It is essentially the rate which we can withdraw from our investment without running out of money. We can follow that formula to figure out how much we’d be able to withdraw from our portfolios had we invested the money instead of buying a car.
In order to make this calculation, I’ll be borrowing the numbers from this excellent Seedly article titled “Buying A Car? You Need To Be Earning At Least S$7,500 First”. Then I will be assuming that instead of using whatever money that you’d have spent on the car, we would instead be investing it.
Here’s the breakdown.
Upfront fees & downpayment
Based on the above article, we will be purchasing a Perodua Bezza 1.3 Premium X (Automatic Transmission), the cheapest possible car you can buy today.
The total price of the car (including the COE) is SGD 57,800. The breakdown between how much you can borrow and how much you will have to put as a downpayment is as per below:
| Total Price | SGD 57,800 |
| Loan Amount (70%) | SGD 40,460 |
| Downpayment (30%) | SGD 17,340 |
So, right at the beginning, we are seeding our investment portfolio with SGD 17,340 up front.
Monthly Instalments
Since the rest of the car is actually going to be financed, let’s assume we will take out the maximum tenure at the quoted 2.78% interest rate. That will mean we will be paying SGD 575 per month on this loan for 84 months.
This is just for the car itself. In order to drive the car, there are a bunch of other things you will be paying on a monthly basis to make use of it on Singapore roads.
The rest of the monthly costs for the life of the car
Here are the list of the rest of the items to account for (for details and assumptions on how the numbers are arrived at, I suggest you check the linked article above.):
| Line Item | Monthly Cost |
| Road Tax | SGD 48.67 |
| Car Insurance Premium | SGD 204.17 |
| Petrol | SGD 227.65 |
| Parking | SGD 309.00 |
| ERP | SGD 40.00 |
| Servicing & Repair | SGD 100.00 |
| Total | SGD 929.49 |
So let’s assume a round number of SGD 930 per month for the life of the car which is 10 years or 120 months.
So now we have the rough total of money you’ll be investing for the next 10 years if you did not buy a car.
Here’s the of the investment setup
| Item | Amount | Duration |
| Initial Capital | SGD 17,340 | one-time |
| Monthly Loan Instalment | SGD 575 | 84 months |
| Monthly Operating Cost | SGD 930 | 120 months |
We will be investing all of this money with a few sample rate of return of 5%, 7% and 9% p.a. (You should be able to beat the CPF rate with your own investments by following this portfolio setup. Even the STI ETF can beat that!)
The length of the total investment will be until the end of 120 months, and we will assess how much you would have made.
Portfolio value after 10 years
So at 10 years, your COE will need to be renewed in order to continue using the car or the car must be deregistered. At this point, it’s a good time to take stock of what we would have had. Want to take a guess? Here are the numbers:
| Rate of Returns | 5% | 7% | 9% |
| Portfolio Values After 10 Years | SGD 239,975 | SGD 272,380 | SGD 310,082 |
That’s SGD 240,000 to SGD 310,000 in investments at the end of 10 years!
“Hang on, hang on” I hear you say. “If I don’t buy a car, I’ve gotta take public transport! Not having a car isn’t free!
Let’s account for public transportation
Fine, so let’s assume you take out SGD 6 per day – that’s SGD 180 per month – from your investment to account for your transportation. That sounds reasonable right? If you take public transport most days and maybe cab once a week, certainly doable with a little planning.
This is a big benefit for living in Singapore. The country is quite small and the public transportation options are much better than a lot of other countries. You can get to a lot of places by just buses and trains within an hour or so. For those times you really need a car, you can take a taxi, Grab or Go Jek at pretty reasonable prices compared to other developed countries.
Here’s what you’d have had left in the portfolio even if you take some money out for other forms of transportation:
| Rate of Returns | 5% | 7% | 9% |
| Portfolio Values After 10 Years | SGD 212,025 | SGD 241,225 | SGD 275,250 |
Public transportation took out between SGD 27,000 to SGD 35,000 over 10 years (the magic of compound interest at work – against us in this case.)
If you had purchased a car, this money is POOF! GONE! Sayonara! No getting it back.
Of course, as I mentioned in the beginning, that’s not all the cost. If invested, this money could be left in the portfolio to continue making money. You can also withdraw the money bit by bit to generate passive income forever. That will be gone too.
So how much passive income are we talking about?
Passive income calculation
Now to the fun part. In order to calculate the passive income we can withdraw from the portfolio, we can look to our Safe Withdrawal Rate (SWR). The assumption we’ll use is the standard 4% SWR of our portfolio value.
By multiplying our portfolio’s total value with 4% we will get the amount of money that we can withdraw from the portfolio each year without running out.
With these amounts in our portfolio, our yearly safe withdrawal amounts at 4% are:
| Rate of Returns | 5% | 7% | 9% |
| Portfolio Values After 10 Years | SGD 212,025 | SGD 241,225 | SGD 275,250 |
| Annual Income (4% Rule) | SGD 8,481 | SGD 9,649 | SGD 11,010 |
| Monthly Income (Forever) | SGD 706 | SGD 804 | SGD 917 |
That’s a pretty nice amount to be getting for free each month, without having to lift a finger or wake up early to go to work no?
Closing thoughts
There you have it, almost SGD 1,000 per month in passive income. Forever!
What would you do with an extra SGD 1,000 per month today without having to do any extra work? Would you trade that and get a car?
For a car, not only are you giving up the money now to purchase it, maintain it and utilize it today. Since a car is a depreciating asset that goes to almost $0 at the end of 10 years, you are also giving up on any future income that the money could have made if you had invested your money instead.
If you really take all the cost into account, a total of potentially SGD 200,000 to SGD 275,000 in investment dollars you could have and a passive income of SGD 1,000 per month over the next 30 years, you’re actually throwing away nearer to SGD 330,000 of your income over your lifetime by deciding to purchase it instead of deciding to invest this money – even for the cheapest possible car you can buy today.
If after 10 years, you stopped putting anymore money into this portfolio and let it grow for another 20 years at 5% p.a., you would actually end up with even more in your portfolio by the time you retire.
So, what do you think? Does it ever make sense to spend this kind of money for a car? Let me know by commenting below or tweet me @firepathlion!
If you enjoyed this post, it would make my day if you could help share this article with your friends who might also find it interesting. Thank you!
Until next time.
FPL
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The mathematics definitely makes sense. I dont have a driving license and definitely dont drive. Whatever spare cash I have, i put into investing. Am considering putting more into some SG dividend stocks this year.
However, for many who drive, they feel they need a car no matter what. The mathematics part (logic side) wont tempt them into not driving (emotional part is being fulfilled by owning a car).
For now, i surely choose the passive income part haha! Thanks for writing this. I enjoyed many of your posts.
Even if you really really need a car, I think spending S$30 per day on a grab ride is STILL cheaper than buying a car 😁 I mean, we can even push it to $40 a day and still come out pretty even without all the headache of finding parking. But yes I definitely get what you mean, if some one insist they need to drive themselves no matter what, there isn’t much in the math that will convince them! Although adding this passive income point in there will hopefully make the argument a bit stronger hehe. Thank you very much for reading and I’m glad you enjoyed the posts!
How do you come up with a motor insurance of $204 per month and parking of $309 per month?
Hi Ace, I used the numbers referenced in the linked Seedly article for this post. It’s likely the author made some assumptions and it may not reflect everyone’s expenses. However, the calculations that are extrapolated from the expense numbers are valid and can be used and adjusted for the expense levels that matches your own. The overall message should still be valid.
Good read. I bought a car after many years of contemplating. One reason was my ageing parent with arthritis. The only way to get around was booking a cab. Second reason was, my work starts at 7.30am (teacher) so I should at least be there around 7.15am. taking a bus / mrt would mean getting up as early as 4.30am n leaving the house for the 1st bus out at 5.50am. Still, I don’t get to my workplace by 7.30 (traffic or bus driver driving way too slow).
What took me this long to buy a car, one – a good plan. I saved a substantial amount after all the necessary expenses. I basically calculated every single detail and worked out a financial plan on my own.
From my pay every month I (no matter what!) I quickly put $1000 into a savings account / investment portfolio. That leaves me with a $2000 – which goes into groccery, water & electricity, carpark , petrol and so on.
I also paid at least 50% payment and got the rest as a loan. So I get to pay lesser each month.
The only time I drive are to and from work, weekends if I need to buy groccery or even bring my parent out.
It’s definitely convenient. Easy to find carparks, especially open carparks which charges lesser than sheltered ones.
What I am saying is, if u have a good plan, u can meet the $1000 threshold of savings / month.
1. Stop eating outside. Cook and the left overs can be ur lunch at workplace. Weekends HV family hot pot at home or have a potluck.
2. Textbook for kids, get 2nd hand. After all, they use for 1 yr only. Buy the workbooks separately.
3. Don’t indulge in too many shoes and clothes. Wait for festive season n get discounts. U only need a good 4 pair of shoes!!!
4. Become Eco friendly user – buy washing machine that uses less electricity n water but still does the job. Don’t wash everyday wash every other day.
5. Change all your lights to the low powered LED ones in ur house. That’ll save a ton on your electricity bill.
I guess once u decide to buy a house or car or go on an expensive holiday. Everyone plans. It’s only worrisome if one keeps spending and throws in a little into savings when ever they wish are the ones, regardless of car or not, will still have problems later.
And yes, I’ve decided to forgo the amount stated when I bought the car, but I made sure I compensate the loss through a strict “no matter what” condition to save / put aside $1000 every month. Trust me I don’t earn $4000 and above yet. Soon…
It’s doable…u just need a good financial planning n stick to a regime. Opportunity cost is in everything we do and buy.
😉
Hi there MaheshMonika!
Thank you so much for stopping by and taking the time to explain your planning & thought process that went into your decision to ultimately purchase a car. You’ve clearly put a lot of thought and considerations into making that decision and even put a plan together for yourself to follow (and even follow it through!) Your list of items that helps cut back on expenses will be helpful for a lot of people reading this blog.
This discipline and level of planning is something that I rarely see. Often the decision is made without a proper plan and even if there was a plan in place, it’s so easy to get derailed or demotivated from following it that they stop, which in turn can really put their future off track.
Discipline and planning is definitely the key to make sure you’re ready for a future retirement, however I wanted to paint a picture and point out – as with the spirit of this blog – that if you can maintain your expenses to the indicated S$2,000 per month (as you can afford to save and invest the other S$1,000) then if you invest the money that would have gone into the car for 10 years; you would be in a position to make S$1,000 in passive income – or close to it – in 10 years, which is 50% of your current monthly expenses.
If you add that to the S$1,000 that you are already saving and investing, you may no longer need to rely on your teaching job for income and choose to continue working only if you want to and really enjoy the job.
I certainly am not saying that your decision to purchase a car is a bad decision, as I think you are clear on why you find value in the car and the convenience outweighs the cost for you. I just want to offer a “food for thought” to consider that for anything that does not bring us enough value that we can cut out it does 2 things:
If the key to financial independence is to have our passive income cover all of our monthly expense needs, then cutting expenses really accelerate our journey towards that goal!
Although I say this, I am not perfect in my finances either and am still working on cutting back on unnecessary spending that doesn’t add much happiness to my life so that I can save even more as well!
I’m glad to hear from others with the same financial mindset and really enjoyed hearing about how you approach financial planning! Thank you again for taking the time to comment and I hope to hear more from you soon on your financial journey!
– FPL
Am turning 30 in a few months and the comments from friends and family is that I should invest in a car since I live in Jurong but work in Changi.
This article really helped make the decision to forgo a car easier. I have a lot of poor financial choices and really want to get better at it.
Hey Mike! Thank you for stopping by and reading my blog! I’m glad I was able to help.
Remember that cars are not investments (although I’m sure your friends and family are using that term loosely.) investments are meant to appreciate in value over time and cars certainly do not.
However, if you will not get a car (given the distance you live from your work place) make sure you do not give in to taking a cab to work. Take the money you were going to put into a car and invest that instead into real assets and watch it grow.
Cheers!
A bit of a contrarian view here which is – you’re looking only at one-dimensional value of a car (finances). Of course, it’s a no brainer that a car is a depreciating asset on its own.
However for those THAT NEED IT (not random BMW buyers), a car is invaluable. It comes down to opportunity cost and time (which is worth more than money). These are true utility factors.
I wont go into a whole breakdown but put another way – a computer is also like a car in that it depreciates tremendously in value. But with your PC you:
– Can do work (freelance )
– Educate yourself easily through the internet
– Can entertain yourself often at no cost (free spotify, youtube), which drastically reduces entertainment expenses.
For a car, again FOR SOME, it means a lot. Even if I put aside use for family, self-experiential road trips (which are also of value), a car allows you to make a trip in 15 minutes that takes 1 hour by bus/MRT.
That 1.5 hours total of MRT commuting per day – that is wasted opportunity as you are unable to effectively do work (unless you’re lucky to grab a seat, and can reply emails I suppose).
My point is not to say cars are an amazing investment. They aren’t. But a multifactor analysis of the utility (not just cost) of a car would be a fairer assessment. What may be interesting is cab vs car, which used to be a no-brainer in favor of cabs. However with surge pricing of Grab/Go-Jek, it may actually be a fair comparison for those that regularly need rapid transport and take grab at peak hours.
Hey NB! I totally agree that this post was written to look only at the financial aspects of the decision and didn’t really dive into the utility that someone would be able to get from a car. This is mainly because each person’s utility and situation will be very different and the final trade-off decision must lie with the person making that decision. My hope is this post provides the financial lens and the decider can take that and see if the utility that they are getting from the car beats the passive income opportunity or not.
For some I am sure that it will be completely worth it.
Since this is a Financial Independence / Retire Early blog and the objective is to save as much as possible as quickly as possible, the reader will have to assess whether a car is worth reaching financial independence a few years later (could even be decades) as a passive income of SGD 1,000 could cover half of a person’s monthly expenses if they live frugally.
However, I think comparing it with a computer is probably not the best analogy since there is no replacement (phones and tablets are either more expensive or can’t do some fo the things that the computer can be used for.) However a car can be replaced by public transportation to save on cost if you just want to get from point A to point B.
Of course, it’s also not an either or choice. If your journey to work is long, you might want to take the train/bus one way, then on the way back take a cab. Let’s say that’s S$30 per day, you’re spending S$660 a month if you’re only taking it on weekdays. For times you need a car for a road trip, you could rent one. Doing it this way will have the person come out saving money as well as still have the flexibility of utilising a car when there’s a need or when the utility outweighs the costs.
I think that’s a long way of saying that I agree with you and ultimately the person making the decision must take everything into consideration – financials, personal situations and utility – before making the final call.