Buying a spiffy new ride in Singapore is about the worst “investment” decision you can possibly make. Budget Babe does the math to explain why you should give car ownership a miss.
Words by Budget Babe
This post is inspired by one of my readers, who mentioned that he regretted buying his vehicle.
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I’ve never had any desire to own my own ride, but Terence’s comment prompted me to investigate the hidden costs of owning a car in Singapore, which I think many people do not fully consider when they say they want to buy a car.
Take my boyfriend for instance. He really wants to buy a car, and he keeps telling me that he can get a used model for just over $20,000. But I know the actual costs are going to be a lot more than that, because:
1. The COE in Singapore is dreadfully expensive
When I was studying in the U.S., I remember feeling amazed that my local friends could get a car of their own for as little as $2,000 (you read that right).
They were shocked when I told them about our COE system for car ownership in Singapore, which requires one to fork out at least $70k – $80k for a piece of paper.
May 2015 COE tender exercise. [Source: The Straits Times & Land Transport Authority]
2. Higher loan repayments every month
Due to car loan financing restrictions imposed in 2013 by the MAS, car owners are now required to pay off the full sum within a maximum tenure of five years, even if their car has more than five years of COE left.
Assuming a 3% interest rate, it would be safe to say that average monthly repayments would work out to a minimum of $1,500 for most people. Can you afford that extra $1,500 each month without resorting to more borrowing?
3. Road tax
Not counting ERP (which can be pretty hefty over time, especially if you drive during peak hours to and from work), you’ll need an average of $700+ for your annual road tax. It may not sound like much, but over the full 10 years of your COE, it can add up to quite a bit.
4. Car insurance payments
You’ll be stupid to try and save on this one, because an accident can easily wipe out most of your savings and leave you penniless.
Even assuming you’re a safe driver and entitled to a 5% Safe Driver Discount, the annual cost of your car insurance is going to amount to over $1,000 easily. Don’t forget to multiply that by 10 years again.
5. Petrol costs
My friend spends $250 a month on petrol for his car so I’m just going to take that as a rough guideline. In one year, that works out to be $3,000. In 10 years, that will set you back by $30,000.
And that’s not even factoring in the potential rise of oil prices.
6. Maintenance and grooming costs
Every car needs regular maintenance to keep it running well and looking decent. I found conflicting figures on this one, so let’s stick with a safe estimate of $10,000 over the lifetime of your car.
7. Parking fees
Most people I talk to forget about parking fees when they’re calculating their finances for their car. Considering that you will park mostly at home ($150), at work ($200 – I’m taking the cost my previous workplace charged) and occasionally at the malls or other places ($50), let’s estimate an average of $400 per month if you drive often.
The true cost of owning a car
Just based on your loan repayment, petrol costs and parking fees, the monthly cost of owning a car can come up to $2,000 easily.
If you take that amount and invest it into an ETF like the ST Index instead for long-term, you could be so much richer.
Using a very simplistic calculation and assuming that we reinvest our profits each year back into the STI, you can choose to be either $720,000 poorer by the end of 30 years, or $2,855,351 richer.
(Even if we were to assume an even more modest return of 5%, this would give you $1,646,039.)
I hear many Singaporeans talking about how buying a car in Singapore is a good investment for their career, for their social status, etc.
The truth is, buying a car in Singapore is possibly the worst investment decision you can make. Aside from the well-known fact that your car depreciates in value each year, you have to also factor in all the other hidden opportunity costs that you may not have thought about fully before wanting to buy a car.
While there may be circumstances where a car is downright necessary, for the most part, public transport is a good and cheaper alternative if you’re willing to cut back on the ego and put up with a bit of inconvenience in order to keep the money in your pocket. Furthermore, for times when you really need a car, there’s always a taxi, Uber or GrabCar.
If you truly want to grow your money, the trick is to skip the car and really save and invest the rest.
Given a choice between a liability that costs me money and also loses around 10% of its value every year, versus pumping that same money into the stock market for 8% annual growth, I think I would rather choose the latter.
What choice will you make?
This article originally appeared on Budget Babe’s blog and has been republished here with permission.