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How much to spend on a car? Ask 2 questions.

Saturday, July 15, 2017

Guy A:
I want to buy a car but my elder brother keeps telling me how expensive it is. He even worked out the depreciation. All in, about $12K a year. I think that is OK.


Guy B:
$12K a year in Singapore for a car is quite normal. My car is about the same.


Guy C:
Can be lesser than $12K a year lah but that is OK for most families.

Is it a good idea to lose $12K a year to own a car?

Hey, having a car definitely improves our quality of life. It is worth it!

Sure or not?

Cannot find an unoccupied seat on the train or bus? 

What?

Cannot even get on the train because too crowded?

What?

Train broke down? Again?


Alamak. 

All these issues are magnified if we are on an outing with children and the elderly. Stop for a moment and imagine that.

I get exhausted just by thinking about it. Shudder. Yes, we have a finite amount of energy too.

Of course, like many people have pointed out, having a car also helps to save lots of time used in travelling. Time is precious.

Here is a something from a fellow blogger whom I respect:

"Financial bloggers are more conservative than the general public. My advice to all financial bloggers is this: 


"Just live life a little."

Read his blog here:
What's good about owning a car?


In my retirement, I don't need a car but I have a car too. It definitely helps to make life more comfortable.


Now, before some start building castles in the air, we really should be asking other questions before we buy a car. I will share two questions in this blog but before I ask them,

Guy A takes home an earned income of $40K a year.


Guy B takes home an earned income of $40K a year and has passive income of $12K a year.


Guy C has no earned income because he is unemployed but he has passive income of $120K a year.


So, what are the questions?

1. Are we using more than 10% of our total income for the car?

Why 10%? For an average young worker, spending $200 per month on transportation is pretty normal, riding mostly on mass transportation and with taxi rides on certain days. Assuming a monthly pay of about $2,000 a month, $200 is about 10%.

2. How much of our total income depends on us holding a job?

Of course, regular readers would be familiar with this line of thought. Try not to consume with our earned income. Instead, invest to have passive income and consume with our passive income.

If being jobless means we have to cut back on our consumption drastically, we might want to think twice about that car.

There are some other things I would consider and if you are interested, please read related posts at the end of this blog.

(This blog was inspired by an email from a reader and my subsequent reply.)
Related posts:
1. 
Buy a car with 4D winnings.
2. AK learns to embrace YOLO.

https://www.gov.sg/microsites/whatsyourplan/finances/can-you-truly-afford-a-car-in-singapore

14 comments:

Siew Mun said...

I have 4 children, bought a Wish last year. My depreciation is about $10k. Certainly bring joy to my wife who ferries the children and me to school and etc. Been encouraging her to use the car for part time grab/uber gigs. Rental cost is $0. I took up a 1 year loan which cost me $800+ for the interest. All good though it is an luxury item

AK71 said...

Hi Siew Mun,

This is an undemanding luxury for you. ;)

It brings joy to your family and that is priceless. :)

Laurence said...

It all depends on how the individual weigh the benefits and likes against the various costs and dislikes of owning a car. When the individual's circumstances and lifestyle changes, the weightage accorded to those factors change as well. I'm single so my situation is likely to differ from most people.

I'll use myself as an example:
My job required working and reporting at any hours of the day and night and on any day. Not to mention getting to and from the office without a personal transport is like going on the PLA's Long March (a bit of exaggeration here).
I therefore opted to own a car for its convenience, time savings and to fulfill the job requirements although I drove only 8000km annually. This was despite a long list of stuff I dislike about owning a car:

- don't like to drive
- don't like to waste time refueling
- don't like to waste time at car wash
- don't like to send car for annual servicing
- don't like to send car for Vicom inspection
- don't like the super hot interior after parking outdoors
- stress over morning bird droppings on car
- stress over increasing number of scratches on bodywork
- stress over the status of the car after unused in car park for a few days and nights
- stress over getting lost on the road
- stress over slow drivers
- stress over finding a car park lot even when arriving home
- stress over forgetting to insert ERP card
- stress over slow traffic and traffic road
- getting drenched getting in and out of car despite using umbrella
- unhappy with paying the monthly loan, insurance, parking, fuel, ERP, etc.
- stress over 3 separate minor accidents on my last 3 new cars caused by other car owners
- etc etc

After retiring myself away, I got rid of the car. I immediately felt a huge weight off my mind as the above list of dislikes and inconveniences disappeared as if by magic. I live just a minute's walk from the MRT Stn. Now, I travel mostly during weekdays and during non-peak hours, so commuting on MRT and even taxi is a breeze. I won't even get wet on rainy days as there's covered walkway from home to MRT and nearly all my destinations are fully sheltered as well. Barring train breakdowns, I'm always able to calculate how much time my journey will take and plan accordingly. In essence, my commute within SG became fast, efficient, comfortable, stress-free and at a negligible cost compared to owning a car. And I now get to see SG for real as I now take public transport and walk.

veronika said...

Joy probably for about 20 years ( 2 cars over 20 years )

Kids grow up. They have their own friends, things.
National Service. University.

I am not sure how being a driver to ferry the kids
to and fro their activities is a good thing.
It certainly is good for them to learn how to take the bus or train.
The frugal & prudent start to mobility.

I taught my sons to take public buses to school from primary 3.
One even rode a bicycle... with my blessings. ( it got stolen once )

They are grown up now. They take the train ( curses galore ) and buses.
One intends to buy a 2nd hand car soon.

I take the train & bus.
I can afford to buy a car.. but I choose not. Its only use is to
provide music and air conditioning while travelling.
Not worth $100K++ to have that.

blazingruby60 said...

hi AK
Would you be getting some Netlink NBN trust IPO yielding some 5 pct. if no, why? i always enjoy reading your opinion
Stock exchange is somewhat expensive of late.
thanks n cheers :)

Ah John said...

Hi AK, seems you are 守株待兔 recently, right?
I also don't know what to do now :(

AK71 said...

Hi Laurence and Veronika,

Enjoyed reading your perspectives. Keep them coming! :D

AK71 said...

Hi Ruby,

Not attractive enough for me.

Why har? I too lazy to blog about the reasons but one of them has to do with depreciation and replacement cost. I am not too sure about how this is being accounted for and how it might play out in future since the biz trust structure is going to let them pay out more of their cash flow than probably is prudent.

Also, there will be more CAPEX in future which means gearing will go up and, if I am not mistaken, the performance is boosted by some grants from the government. When the grants run out, what is going to happen? It is anyone's guess how things will play out.

The 5% yield might not be sustainable. I am just hazarding a guess here.

There just seems to be quite a bit of financial engineering going on and I rather avoid something I am not sure of especially for just a 5% yield.

For a parallel on depreciation, you might want to read my blog on Keppel DC REIT and why I am not interested in that:
Keppel DC REIT attractive investment?

AK71 said...

Hi Ah John,

Chasing after rabbits is very tiring. ;p

AK71 said...

Hi Dave,

I think you have raised some pertinent points and I will publish your comments in a proper blog to encourage financial prudence amongst readers. :)

AK71 said...

Lee Jiahui on Netlink NBN Trust IPO:
I see the grant manifested in the form of guaranteed pricing.

In the prospectus, it is mentioned that currently NLT gets paid $20/month/residential subscription but this will be reduced to $15/month/residential subscription as part of the government regulation.

I was also wondering how they so optimistic about revenue growth if residential segment revenue is expected to drop by 25% (cant remember which year).

They also mentioned that the capex is depreciated over 25 yrs but from the formation of NLT, they decided not to record this depreciation expense any more (cant remember how much too but enough to make me feel that it was financial engineering to the max.)

Payout cashflow instead of profits isnt sustainable especially when the cashflow is a few times of profits. Not vested in this musical chairs game. Vested in singtel though. P.s. any misinterpretation of prospectus is unintentional as i am just a lay man, not familiar with their lingo.

Laurence said...

I was on the fence about the Netlink NBN Trust IPO until this blog post by SMOL tipped me over to the Nay side of the fence:

http://singaporemanofleisure.blogspot.sg/2017/07/netlink-trust-ipo-who-benefits-most.html

AK71 said...

Hi Laurence,

SMOL does not only have a sharp tongue.

He has a sharp mind too. ;)

AK71 said...

See also:
Cost of car ownership skyrocket in Singapore.
Monday, July 17, 2017
Dave Lim, a reader who seems to be to be quite the expert on car ownership in Singapore, weighs in on my last blog on the subject.

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