Can you afford a car?

[GR_Benji]

Highest COE ever for car was $110,500 in Nov 1994.

Looking back, I think I was nutz to have bought a Corona for $140k in May 1995.

 

[gohsan]

High coe and car price is not the solution. In the past it was thought this price mechanism will work but it turn out worse. Because of the high price and cheap usage everyone try to make full use of the cars (Eng Kou Pung). The result is more traffic jam. So from now usage cost will be the main focus of solving traffic jam.

 

[alanchia67]

Highest COE ever for car was $110,500 in Nov 1994.

Looking back, I think I was nutz to have bought a Corona for $140k in May 1995.

i'm sure you didnt keep your corona all the way to 10th year right?

 

[Antz621]

how to actually define can or cannot afford? seems like alot of ppl work e calculations and not advisable to own unless earn 5k abv? but i also hav frens wif 2.5k salary buying civics. how is tat possible ah?

The day when you realized that even without a car, you don't get to save much either now that would be the stage in which you are ready to own a car.

This means that the expenses of the car inclusive of installments + petrol + ERP etc etc does not exceed > 10% of your gross pay. Now I would define that as affordable; TRULY AFFORDABLE.

Your friends with 2.5k buying civics are sitting on time bombs. Have you talked them out before they buy? If yes, you had fulfilled your duty as a friend. If no, next year's economy slowdown may teach them a lesson the hard way...

 

[GR_Benji]

i'm sure you didnt keep your corona all the way to 10th year right?

Scrapped before its 7th birthday.

 

[magnifico]

The day when you realized that even without a car, you don't get to save much either now that would be the stage in which you are ready to own a car.

This means that the expenses of the car inclusive of installments + petrol + ERP etc etc does not exceed > 10% of your gross pay. Now I would define that as affordable; TRULY AFFORDABLE.

Your friends with 2.5k buying civics are sitting on time bombs. Have you talked them out before they buy? If yes, you had fulfilled your duty as a friend. If no, next year's economy slowdown may teach them a lesson the hard way...

huh?w/o car dun save much = ready to own?dun get tis theory...haha they bought it b4 i knew so there's no chance of talkin them outta it. even if i did, doubt they'll listen since i tink others would hav said e same thing to them too.

 

[alanchia67]

huh?w/o car dun save much = ready to own?dun get tis theory...haha they bought it b4 i knew so there's no chance of talkin them outta it. even if i did, doubt they'll listen since i tink others would hav said e same thing to them too.

no no, you got it wrong. he's not responding to your friend with $2.5K salary. the statement is in general, for someone who has car and all car related expenditure is <10% of total income (or no significant savings w/o owning a car) is considered well affordable to own a car.

 

[magnifico]

no no, you got it wrong. he's not responding to your friend with $2.5K salary. the statement is in general, for someone who has car and all car related expenditure is <10% of total income (or no significant savings w/o owning a car) is considered well affordable to own a car.

eh ok... but how many ppl actually fulfil e 10% rule?like tat doesnt it means gotta earn 10k n abv? anyway i realise tat some wif higher pay package wil tend to get a higher end car too so works out to b in e same situation.

 

[gohsan]

High end car or low end car still paid the same erp or car park charges. Higher consumption and road tax but overall the differant is marginal.

 

[alanchia67]

eh ok... but how many ppl actually fulfil e 10% rule?like tat doesnt it means gotta earn 10k n abv? anyway i realise tat some wif higher pay package wil tend to get a higher end car too so works out to b in e same situation.

in the discussion of true affordability, it's truly not many can afford. these people dont need car loan at all, and car expenditure is a small small portion of the salary. thus many wise persons dont want to own a car as the monthly expenditure could have been well invested in other forms, as car is not a asset but liability.

in the discussion of general affordability, majority falls under this group. taking loans (no matter long or short), calculating car expenditure carefully.

what we are more worried are the financially foolish people (a minority hopefully) thinking that they can afford a car but digging their own graves eventually.

 

[vanaxel]

Highest COE ever for car was $110,500 in Nov 1994.

Looking back, I think I was nutz to have bought a Corona for $140k in May 1995.

lol... My '95 car cost me 15K... but then again.. I'm AU where cars are dirt cheap..

I think that the public transport in SG is one of the best in the world... so try not to get a car unless its a necessity esp when the cost of owning one is so ridiculously high... Of course owning a car does have its advantages, but than again it depends on how much you NEED it... and not WANT it..

 

[blah]

lol... My '95 car cost me 15K... but then again.. I'm AU where cars are dirt cheap..

I think that the public transport in SG is one of the best in the world... so try not to get a car unless its a necessity esp when the cost of owning one is so ridiculously high... Of course owning a car does have its advantages, but than again it depends on how much you NEED it... and not WANT it..

I wonder what public transport systems you have used to come to the conclusion that singapore's system is one of the best in the world.

I find these 10% 'rule' or 25% 'rule' highly annoying. The only advantage it has is that its clear. Why not 5%? or 8% or 15%? The only people it will appeal to are those who are too dumb to realise that personal finances are made up of many factors and different people have different needs.

 

[iceanger]

lol... My '95 car cost me 15K... but then again.. I'm AU where cars are dirt cheap..

I think that the public transport in SG is one of the best in the world... so try not to get a car unless its a necessity esp when the cost of owning one is so ridiculously high... Of course owning a car does have its advantages, but than again it depends on how much you NEED it... and not WANT it..

The public transport in SG is no longer great. Long waiting times (7mins for mrts) and long waiting times for express buses and what nots. Not to forget expensive fares which continue to rise and buses with leaking roofs that has been used since the 80s. I prefer the transport in hongkong and taiwan better. Newer buses, shorter waiting times for mtr and metro, and much cheaper fares (in taiwan).

 

[Antz621]

huh?w/o car dun save much = ready to own?dun get tis theory...haha they bought it b4 i knew so there's no chance of talkin them outta it. even if i did, doubt they'll listen since i tink others would hav said e same thing to them too.

Then too bad for them. Let's pray for the next (minimum) 7 years to be "soon soon"...

A civic can easily cost between 600+~900+ per mth in installment. Plus the usual expenses like insurance, road tax, petrol + erp stuff like that minimum per mth we are looking at anything between 1200+~1500+. If your friends are earning at 2.5k, that's about 48%~60% of their pre-cpf income and about 60%~75% of their post-cpf income. Such percentages really qualify them for the "slave to the car" club. Even with car allowances, very few companies are willing to provide good packages like $1,000 anymore because expenses spent on a S plate pte car is taxable in the eyes of IRAS and thus will hit company's profit margins. The meagre car allowances nowadays can only either help pay for the petrol incurred or the installment only. It is very rare that the amount would be able to squeeze both components into one without bursting the company's budget...

Civics are designed for the young at heart. Yet in Singapore, Civics are not priced for the pockets of the young. It is really a worrying scene that many youngsters commit to the Civic even knowing that they are walking into a terrible debt trap for the sake of getting a good looking car at such a high premium.

 

[Antz621]

eh ok... but how many ppl actually fulfil e 10% rule?like tat doesnt it means gotta earn 10k n abv? anyway i realise tat some wif higher pay package wil tend to get a higher end car too so works out to b in e same situation.

It is true that not many people can fulfill the 10% rule. Btw it's not a rule; it's just a guideline. The lower the better; common sense should and will tell you that.

High Pay package people tend to get higher end car is correct. But high pay package people are more meow in general. So either the rich drive a bread-and-butter model like Altis / Latio or the super rich drive the BM/Mercs. Either way, these people have the cash to spurge and certainly, their chances of falling within the 10% "rule" is higher and better than us commoners. So it is not exactly the same situation...

 

[Antz621]

I find these 10% 'rule' or 25% 'rule' highly annoying. The only advantage it has is that its clear. Why not 5%? or 8% or 15%?

It can be 5%, 8% or even 15%. Nobody says 10% is a fixed value. As I said, common sense tells you the lower the better. Financial experts cap it at 15% of gross income. If you can do it @ 8% or even 5% is even better. How many times have you heard from your friends: WAH IF I DID NOT MAINTAIN A CAR I CAN SAVE A LOT MORE! Why? Because they sticked to Rule 50%.

When I bought my first car in 2000, I was earning 2k gross and spending 1k on a 9 yr old car. Simple Mathematics: 50%. I was working my ass off and I must admit I would probably be one of the core member in the comittee of "Slave to a car" club, if there is ever one in reality.

When I got my 2nd car in 2001, my monthly commitments dropped to 35%.

The 3rd car - A new City in 2003 costed me 30% of my gross pay to upkeep.

My current car? The biggest and most expensive car I ever bought to date - A Honda Stream MPV. Yet the monthly expenses consitituted only 15.8% of my Gross Income.

The monthly installment amount for my 4 cars above had always been between $570~$600 so my monthly expenses are more or less the same for the past 7 years albeit with a slightly higher figure nowadays due to the Petrol prices. I have to earn more while keeping my expenses capped in order to bring down the %. I have come a long way to realize that the "rule" is really important and I continue to treat it as my bible. Because I know that even if I am jobless tomorrow, I can still feed myself for 12 months and have enough to pay off the car without going into debts. That is my insurance against unforeseen risks.

The only people it will appeal to are those who are too dumb to realise that personal finances are made up of many factors and different people have different needs.

Precisely personal finances are made up of so many factors that is why the appeal is stronger for "dumb" people like us. Without visualizing and having a firm grasp on one's financial health, one is never ready to weather any storms that may come. People who ignore the importance of financial planning are the true "dumb" people who have no contingency plans at all when the worst happens and whom will probably blame everyone and everything around them for their plight...

 

[blah]

Precisely personal finances are made up of so many factors that is why the appeal is stronger for "dumb" people like us. Without visualizing and having a firm grasp on one's financial health, one is never ready to weather any storms that may come. People who ignore the importance of financial planning are the true "dumb" people who have no contingency plans at all when the worst happens and whom will probably blame everyone and everything around them for their plight...

You and I are in agreement that it is important to have a good grasp of financing planning, but we disagree on how to achieve it. You prefer to set personal 'targets' for yourself, one of which is this 10% rule. But your 10% rule is not actually a rule. It is a target which, after 8 years of car ownership, you still haven't reached.

What about the first time car owner who wants to own a car and is confused by the huge number of 'rules' and 'financial expert advice' which contains numbers which seems to come from nowhere? This thread is primarily intended for them. It is misleading when you come out point black to say 10%, which suggests that you shouldn't buy a car until you are earning $15k, gross. Is this really realistic or useful advice? A first time car owner will be thinking that you're talking nonsense and this will just add to the confusion.

The 'right' number will move back and forth depending on your commitments and overall salary. If your parents are wealthy, and you live with them, and you earn a reasonable salary, and you're young and have no commitments, I don't see why the number shouldn't be higher. If you have a family to upkeep and your salary is barely enough to put food on the table, the number should be zero.

 

[tmfwy]

To both Antz and Blah

Both of you offer great and logical advise on financial commitment versus imprisonment to the "Slave to a Car" Club. Both arguments make sense but in reality, the 10% rule doesn't always hold water in Singapore.

For a first time car buyer whose monthly expenditure is $1000, you are saying he needs to earn $10000. Which, IMO, won't be achievable for the majority of the Singaporeans until some experience has been gotten.

Lets look at it at a realistic PoV. A person who earns an average of $3000 a month gross after all allowances are factored in. A reasonable amount for a person with 1 year's experience.

He wishes to get an average 1.6l family sedan car.

Old Car Route with max loan of 3 years
[ $10000 @ 4% ] = $312/month

Outlay of $3000 one shot for overhaul and misc fees
Insurance = $2500
Road Tax = $1430
ERP = $50
Parking = $200
Servicing = $100/month

Minimum monthly expenditure = $677.5 + $312 = $987.5

New Car Route with max loan of 7 years
[ $50000 @ 2.8% ] = $712
Insurance = $2500
Road Tax = $900
ERP = $50
Parking = $200
Servicing = $50/month

Minimum monthly expenditure = $583.4 + $712 = $1295.4

Assuming he is an engineer with an AWS of one month, his yearly package is $39000
Old Car = 30.39% of his total package
New car = 39.86% if his total package

Delving deeper,
Take home pay = $3000 - $600 = $2400.

Spare Cash monthly
Old Car Route = $2400 - $987.5 = $1412.5
New Car Route = $2400 - $1295.4 = $1104.6

Now, a more practical financial commitment calculation would be Total expenditure < 30% of your gross income.

So delving indepth

Rental $450 a month ( Can calculate as giving parents money )
Food $10/day for $300 monthly
Clothes: $100/ month
Entertainment: $200/ month
Total expenses = $1050 a month

Including a monthly expenditure of a person, a person who is financially savvy should earn about $6000 - $7000 a month, before commiting to a car.

But like what some others say, this will be dependent on many factors..
Marital Status
Lifestyle
Need for a car.
Aversion to Risk

There is a saying that Singaporeans use money to buy time..

To Antz, Let me put forward a scenario...
If your daily commute takes an avertage of 1 - 2 hours daily and it involves at least 2 bus changes + an MRT ( and + the fact that you are single ... ) would your opinion differ?

 

[blah]

To both Antz and Blah

Both of you offer great and logical advise on financial commitment versus imprisonment to the "Slave to a Car" Club. Both arguments make sense but in reality, the 10% rule doesn't always hold water in Singapore.

To Antz, Let me put forward a scenario...
If your daily commute takes an avertage of 1 - 2 hours daily and it involves at least 2 bus changes + an MRT ( and + the fact that you are single ... ) would your opinion differ?

Thanks for running the numbers.

Just to be clear, I'm not in favour of the 10% or 25% or 16.33(recurring)% rule. I believe that if you are equipped with some basical personal financial planning ability, you should be able to determine what the 'correct' number for your own personal needs are.

If you choose to risk financial problems by owning a car, at least you go in with your eyes open - what I am hoping to achieve with this thread is for people not to be 'surprised' after the papers have all been signed and the initial excitement of car ownership fades.

As you move on in life and your career, naturally the number will fall - your income is growing and your commitments are also grow - you cannot be spending 50% of your salary on a car when you are 45 with a family, while you can still arguably get by with this kind of number when you are 25 with no commitments.

 

[Antz621]

You and I are in agreement that it is important to have a good grasp of financing planning, but we disagree on how to achieve it. You prefer to set personal 'targets' for yourself, one of which is this 10% rule. But your 10% rule is not actually a rule. It is a target which, after 8 years of car ownership, you still haven't reached.

Agreed. I had yet to reached the 10% guideline. But through the guideline I realised the importance of working out the mathematics. I don't post the previous reply to say: OEI LOOK HERE! I STARTED OFF WITH 50% LIABILITY. NOW I MANAGED TO MAKE IT 15.8% ONLY. SARK OR NOT? No that is not my point. The primary message I want to bring across here is simple: You want to own a set of wheels, you better do your maths. Problem with many first time owners is that they don't. Or even when they do, they do not factor in many other parameters that necessitates the continual of current quality lifestyle for them. That is why time to time someone is bound to tell you: MY FRIEND JUST BOUGHT NEW CAR. NOW HE DON'T GO SHOPPING OR CHONG WITH US THAT OFTEN LIAO. AND HEAR SAY HIS FAMILY DON'T GO ON FAR DESTINATION HOLIDAYS ANYMORE LIKE THEY USED TO... Buyers often just calculate; oh $2500 pay check. my car cost me 1000 to run every month. Aiyah can lah I still got 1000 dollar left to spend. No problem. Ok On! BUY! Once the monthly car installment kicks in that is when they start to realize: A? Minus $ to parents, my own pocket $, hp bill etc left only 1 or 200 only??? Siao Liao! Cannot go chong anymore. Must turn down XX's invitation to go Australia tour this year etc etc... Siao siao siao...

I dare to vouch here: I come across countless cases like above. Who doesn't?

What about the first time car owner who wants to own a car and is confused by the huge number of 'rules' and 'financial expert advice' which contains numbers which seems to come from nowhere? This thread is primarily intended for them. It is misleding when you come out point black to say 10%, and then people realise that this is only your personal goal, and not a 'rule'. 10% suggests that you should be earning S$15k before you buy a car. Is this really useful or meaningful advice to someone who really wants to buy a car for the first time?

Question: Does my numbers scares them? If they do, then I am glad it did. Even though first time buyers will view me negatively and groused at me, at the end of the day they will do so with $ in their pocket. That is more purposeful than telling people: please go buy if you are comfortable with 1/2 your pay left as long as you are happy. I don't own their $. They want to waste it it's absolutely fine with me. But I hoped first time buyers commit after they see the wider picture. This message must be carried across to them. That's why I posted here.

10% is a guideline. You want something more solid? Ok. Finanical experts capped it at 15%. 15% is a reasonable percentile spent on a confirmed depreciating asset. You want to shift the figures higher? Can. Your quality of life suffers that's all. I am not here to say 10% you can't fulfill and you go ahead and buy car you sure die. No. But if the official 15% you breached it; and by a lot (eg. 30~50%); then somewhere somehow, you are bound to make considerable sacrifices and compromises in your lifestyle in order to balance the equation. For what? For a piece of depreciating "Asset"??? Worth it?

The 'right' number will move back and forth depending on your commitments and overall salary. If your parents are wealthy, and you live with them, and you earn a reasonable salary, and you're young and have no commitments, I don't see why the number shouldn't be higher. If you have a family to upkeep and your salary is barely enough to put food on the table, the number should be zero.

I own my first car at 50%. At that time I know nuts about financial planning. Why I buy? Simple. I was an ex regular. So job security is not a problem for me. And before I buy, I secured a handful of colleagues willing to carpool my car. I have it all thought out. But yet what happened? Petrol prices went up. My colleagues sometimes they take my car sometimes they don't. My forecasts are all upside down. But I am still stucked with the car and the monthly liability. I wanted to take up part time course but no $ to do so. I was lucky it was a 9 yr old car. My agony lasted 13mths only. First time car buyers today do not have such luxury anymore because 9 yr old car are almost non-existent in Singapore. So once they commit, minimum they are stucked with it for 5~10 years. 5~10 years of continued job security and good prospects for singapore economy. I am not a soothsayer. I can't guarantee that will happen. Can you? That is why I prefer to give my advices here on a very cautious note. The guidelines are there. You like my justifications then try to follow it. I am not saying you can't own a car till you hit it. You can still afford a car; question is how much sacrifices will you be making in order to maintain it?