When does it become necessary to buy a car?

With COE hovering around $100,000 (2023 - 2025), which is approximately a year's worth of the median household income in Singapore, I have heard this being discussed and argued time and time again, with many perspectives being dished out and defended with much fervour.

I don't need a car because it's too expensive. Only worth it if you drive every day. My house is too far from anything so I need a car. I think taxi/grab/tada/gojek is ok for me. I rent GetGo when I need to use a car. It's the worst investment / purchase you can make. You will need it when you have a kid, or only after 2 kids. I want but it's not cheap. No choice, my parents are old. The money is better used elsewhere, car depreciates. – You can think of whatever response to it. But guess what, they are all valid.

You know the drill. I am not going to give a “breakdown of car ownership in Singapore” or suggest “how much should you earn to afford a car in Singapore”. You will miss the forest for the trees. This is a trap I often observe people fall into – looking into the details without even understanding the big picture and situating the particular decision within the wider context. So let’s go through the principles by first zooming out…

Is it a need?

I remember when I was a kid, we were taught these are basic needs: water, food, shelter, clothing. You know, survival stuff. I don't remember a car being the list. The bigger picture is "transportation", which is arguable close to a basic need. Fortunately, at least in Singapore, there are other modes of transport besides a personal car that work reasonably well (not perfect, but ok for the most part).

Then, is it a want?

Somehow it has been ingrained in our minds that "if it is not a need, it is a want; and wants are bad"; it's not necessarily so. To me, this is a false dichotomy between needs and wants – needs are more granular than that. You have the above basic needs; then you have higher levels of needs, like safety, relationships, love, esteem, self-actualisation, etc. So there are some needs that must be met, and some needs that can wait or can be foregone (hopefully temporarily) in hard times. There are also different ways to satisfy these needs. Needs also change from time to time, and vary from person to person. Suffice to say, there are some needs that can definitely be better met by having a personal car. What are these needs? That's for you to think about. Find your forest first.

The trees, for that piece of paper of course.

Once you have the forest in view, it’s time to look at the trees.

The challenge is that in Singapore context, the trade-off is less favourable for car ownership due to the various layers of taxes involved (whether this is a good system or not, I'm not going to comment here; I am not running for the upcoming election). This is the other side of the needs trade-off equation, the cost details.

There are two categories of cost: (1) the car itself, and (2) the use of the car.

1. The car itself

It's like buying anything else, really. If you are paying for the whole package (car + taxes + COE) in cash, then you take it home – just like buying the latest iPhone from the Apple Store.

Otherwise, you can take up a loan to fund this purchase, since in Singapore, this is the bulk of the cost. For entry-level cars with OMV not exceeding $20,000, you can take a maximum loan of 70% of the total package for up to 7 years. This means the balance 30% of the package has to be paid upfront in cash. (For OMV above $20,000, the maximum loan is 60% of the total package.) The calculation is similar for new and used cars, except for small nuances for used cars related to the remaining COE duration. Used cars offer great value, if the cost of the car itself is a concern.

2. The use of the car

Even if someone gave you a car, you still have to pay to use the car. This can further be divided into: fixed cost and variable cost.

• Fixed cost: includes road tax, insurance, and season parking. These are cost that are incurred regardless of how much you drive, but instead depends on the car model, where you live and work, age, etc.
• Variable cost: includes parking, ERP, energy (petrol / charging), maintenance, and fines. It depends more on how much and how you drive.

Below is the summary of the cashflow over a 10 year period:

• Now: Upfront payment
• Between 0-7 years: loan instalment + fixed + variable cost
• Between 7-10 years: fixed + variable cost

Now, knowing the above, make a prudent decision, just like any other financial decisions you make. Remember the forest. To me, when relating to a car purchase, being prudent means choosing something I am comfortable to drive in and can reasonably afford, without worrying too much if it gets scratched, dented, etc. At the risk of sounding like a broken radio, if it doesn't let you sleep well at night, it's probably not a good decision. It is supposed to make your life better, not harder.

I will not go through the exact details and calculations, as there are many websites that explain this already. Nonetheless, perhaps I will release some kind of calculator in the future for subscribers. So stay tuned and subscribe, if you haven't.

Ok, when is it worth it then?

This is not a “milestone”. No two persons or families are the same, with different financial situations, different life circumstances, and they all have different needs. The fact is, there are many ways to meet these needs. A personal car is just one of the possible ways to do meet these needs. The way I see it, money buys you options and flexibility, it buys you convenience, it buys you time. In terms of transportation, it can mean buying a car, taking taxi, renting a car or car-sharing, moving closer to amenities, finding a job nearer to your house, enrolling your children to another school, taking a career break to look after your family, etc. Look at the big picture, don't miss the forest for the trees.

Summary

With limited resources, there will always be trade-off. How we decide what trade-off to make depends on our specific needs, and the hand we are dealt with. Zoom out to understand the big picture, know your needs before evaluating your options. Regardless of your choice, we are called to be good stewards of these resources and use them for the greater good.

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