Thursday, 3 October 2013

Should you buy a car?

A Checklist.

A) Do you NEED a car?
What do you need the car for? Commuting? Expanding your social horizons? Work (your job requires you to run all over Singapore, and time is of the essence)? Family (you have 4 kids under the age of 12 and your parents are in wheelchairs)?

B) If you don't have a car now, how do you cope with whatever you need the car for in (A)? How do you get to work currently? How do you expand your social horizons? How do you do your work without a car? How do you move your family around?

For example, if your answer to (A) is "commuting to work", and your answer to (B) is "I currently am unemployed because my disability prevents me from using  public transport and I am unable to get to work anywhere." And this is absolutely true - you have tried public transport (including taxis) and you are just unable to make it work.

C) Do you know how much it costs to own (and operate) a car?
An ST article quoted financial advisers who estimated that owning a car could costs between $1300 to $2600 a month, including loans, taxes, fuel, maintenance, other incidental costs (parking, ERP, fines), etc. Do you make $1,300 a month? Congratulations! You can work for a car!

Corollary question: C2) Do you know what you have to give up to own a car?  At $1300 a month, that's about $15,000 a year. You could go for 2 to 3 long holidays a year. More if you go budget.

You could use the money for investment, or for housing, or savings. Sure the interest rates are as good as zero, but spending on a car is a capital loss.

D) Can you afford a car?
Assuming the financial planner is right and it costs a minimum of $1300 a month to own a car, then, if you earn ONLY $1300 a month, you can't afford a car.
Assuming you are very frugal and your other (non-car) expenses total $1000 only, you MIGHT be able to own a car if you earn $2300 a month. But would you really want to do that? Every spare dollar you earn goes to the car. And you have to live frugally. Which means, even if your social horizons can expand, your lack of discretionary income will mean that you cannot take advantage of your expanded social horizons anyway.

Ok, what if you earn $4000 a month?

Then, you might be able to afford a small, basic, cheap car... If you are willing to spend $1300 a month on it, or about 1/3 of your salary... Which you could use to a) buy a flat, b) save for your early retirement, c) go on holidays, d) spend on your family. Your discretionary income (after taking out the car expenses) would be $2,700. You could totally live on that!

So that's the minimum bar - do you make $4000 a month? If you do, you can afford a car. But make sure you don't spend more than $2700 a month and save anything extra. The cost of owning a car will ONLY go up. Petrol? Going up. Insurance? Probably going up. ERP? even if it doesn't go up, it seldom comes down. Car Park charges? There's no free parking in Singapore... except in really ulu places.

Enjoy your car!

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