Should You Buy a Car For Social Status?

Just the other day, I come across this thought-provoking discussion thread started by an anonymous member on Seedly.

Whoever it is who posted this question.

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.

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I feel you.

The pressure of keeping up with the Joneses in a materialistic society like Singapore is strong.

But, since you asked, let me break it down to see if it makes sense to buy a car in Singapore even if you can afford it.

TL;DR: Singapore Car Price — Should You Own a Car in Singapore Even if You Can Afford It?

• Owning a car in Singapore is expensive. Getting an expensive car like the Audi A5 Sportback as an ‘indicator’ of wealth and status is a liability can set you back $228,000 after 10 years!
• Spending money on cars has an opportunity cost as well.

  • Amount Invested	Rate of Return	Amount After 10 Years*
    $1,900 monthly	2%	$249,650
    	4%	$273,740
    	6%	$300,522
    	8%	$330,294

• There are good reasons to own a car in Singapore but getting a car to elevate your social status is not one of them.

A Car Is a Status Symbol in Singapore

But first, I would like to explore the claim that having a car in Singapore is a reflection of your social status.

This is largely true in Singapore as the cost of owning and maintaining a car in Singapore is prohibitively expensive. This means that only the richer folk in Singapore who are higher ‘Socio-economic status (SES)’ so to speak can afford a car comfortably.

Thus, a car is a status symbol to show that you have ‘made it’ in terms of wealth.

But not just any car.

To show that you have ‘made it’ in Singapore, you should be owning a car from a luxury brand.

Ordinary and reasonably priced Toyotas won’t cut it.

Audi A5 Sportback Cost [Mild Hybrid 2.0 TFSI S tronic (110 KW)]

For this illustration, we will be looking at Audi’s new Audi A5 Sportback Mild Hybrid 2.0 TFSI S tronic (will refer to the car as the Audi A5 Sportback from here on out): a luxurious car that matches the sporty look of a coupe with the practicality of a hatchback.

The car is also come equipped with mild-hybrid technology. This means that although it is not a fully electric car that relies on a battery to drive the wheels, fuel efficiency is slightly better than your standard petrol and diesel cars.

I mean just look at how sleek the car is.

To estimate the cost of this car, I used this Car Additional Registration Fee (ARF) Calculator tool and information from OneMotorist about the Audi A5 Sportback.

Audi A5 Sportback On The Road (OTR) Price

Audi A5 Sportback Variable Cost

Here are a few of my assumptions about the variable cost, so feel free to adjust them based on your own personal needs:

• Third-Party Only Vehicle Insurance Quote from Etiqa (One Year): $1642.38 
  • Single
  • Male
  • 29 years of age
  • 2 years driving experience
  • No demerit points
  • 0% no claim discount
  • No claims or additional drivers
  • TEIF Promo Code
• Annual Fuel Cost (Using OneMotorist’s fuel cost calculator): $2,822.40
  • According to the latest data from LTA, the average annual private vehicle owner in Singapore drives 17,500km a year
  • Cheapest 95 Grade Petrol which goes for $2.52 per litre
• Annual HDB Season Parking Cost: $1,140
  • Season parking for HDB car parks (average) is $95 per month
• Annual Nett Road Tax (30 Jul 2021 – 29 Jul 2022): $1,017
• Annual Maintenance and Repair Work: ~$660
  • Audi Singapore recommends that ‘your Audi needs to be serviced every 12 months or 15,000km (whichever comes first) with a tolerance of 30 days or 1,000 kilometres (whichever comes first).’
    This works out to about $600 a year.

To just buy the car alone, you will have to fork out about $154,956 initially.

Annualised, this works out $15,500 a year assuming a 10-year Certificate of Entitlement (COE) period.

And to drive and maintain it in Singapore, you will have to spend another $7,281 a year.

This means that you will have to spend about $1,900 ($22,782/12) a month to be able to afford the car.

This will provide a good estimation of how much it costs to own the Audi A5 Sportback each year.

But your mileage (pun intended) may vary.

How Much Do I Need To Earn Per Month Before I Can Afford A Car?

To be able to afford this comfortably, I refer to my colleague’s breakdown of how much you need to be earning to own a car in Singapore. and filling in the numbers for the Audi A5 Sportback.

You might have seen your peers or know of people around you who earn a gross monthly income to the tune of $3,000 but are cruising around in their rides.

Deep down, you’re wondering, “Can meh? How they afford sia…”

Erm… They can’t. And we are quite surprised at how they can do it as well.

Remember the 50% expenses, 30% wealth building, 20% savings rule where we pay ourselves first before spending anything?

Let’s break it down:

• Gross monthly: $3,000
• After CPF contribution (20%): $3,000 – $600 = S$2,400
• After 30% wealth building: $2,400 – S$720 = S$1,680
• After 20% savings: $1,680 – $480 = $1,200

Even if we assume that you pour everything you have left of your “Expenditure” fund into your car (meaning you’re effectively surviving on air).

You’re still short of $700 in order to own that Audi A5 Sportback.

Yeah… Your friends are over-leveraged.

Meaning they’re not saving enough or they’re not investing for their future.

So let’s be realistic about this and work backwards.

We’ll keep the “Expenditure” fund at 50%, and give you at least $1,500 for food, insurance, parents’ allowance etc. so you can live like a well-adjusted human being. We’ll also need to add the $1,900 monthly car payment, which brings our total “Expenditure” fund to $3,400.

This means that your total monthly income, before CPF deduction, should ideally be $6,800.

Or a gross monthly income of about $8,500.

Owning a Car in Singapore is a Liability

At the risk of sounding basic, we are blessed to be living in Singapore where the public transport system has been ranked second in the world by McKinsey.

Even if you don’t take public transport, you can easily hire a private hire vehicle or taxi to get around Singapore if you don’t want to take public transport.

As such, owning a car is a want as it is a good-to-have kind of thing because you just want to avoid having to squeeze with everyone on public transport.

Or perhaps you want a car as an ‘indicator’ of wealth and status.

Also, you need to remember that the value of the car will start depreciating rapidly after you buy it.

Then owning an expensive car is clearly a liability as this is money you cannot get back.

Also, if you are looking to buy your own home in the future, you need to ensure that you do not commit your entire income to your car because you won’t have enough debt allowance to take up a mortgage loan…

#justsaying

Opportunity Cost of Owning a Car in Singapore

But what if you earned a gross monthly income of $8,500 and could comfortably afford the Audi A5 Sportback.

Is buying a car still a good idea?

Well, you have to look at the opportunity cost of buying the Audi A5 Sportback

FYI: Opportunity cost is the potential profit lost when one alternative is selected over another.

Instead of buying the Audi A5 Sportback, you put aside the money and used it to invest.

*Figures are rounded up with the assumption that the investment compounds annually.

Even if you didn’t invest, you would have saved $228,000 after 10 years!

But just a disclaimer, when you invest, you bear the risk of losing your capital. As such we would recommend that you read up and fully understand what you are getting into before you start investing.

These guides should help:

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice to buy or sell any investment product. ​Readers should always do their own due diligence and consider their financial goals before investing.

But, There Are Good Reasons to Buy a Car in Singapore

Although buying a car in Singapore is generally a liability,

We think that there are good reasons to buy a car as well.

If you rely on your car for your livelihood or for your day-to-day living the cost may be worth it for you.

A good example would be a property agent who needs the speed and convenience of a car to meet potential leads and ferry clients around for viewings.

Or perhaps you need to ferry your family of young kids around for their day to day activities.

Or maybe your need to bring your ailing parents or grandparents to regular checkups and etc.

A car is still a liability, but also a necessary asset in some sense as you can get quite a bit of utility from it.

Although the pressure to keep up with the Joneses is strong.

In my opinion, buying an expensive car as an ‘indicator’ of wealth and status is not a good financial move.

If your friends and the people around you look down on you for not owning a car.

Remember the wise words of Sir Mark Aitchison Young who served as the Governor of Hong Kong back in the 1940s:

Those who mind don’t matter and those who matter don’t mind.

You might also want to reconsider who you surround yourself with.