How Much Does It Cost To Own A Car In Singapore?

Buying a car in Singapore is a dream for many. The problem is cars are getting more expensive in Singapore with the cheapest new car at around $75,000 now. Recently, I've been pondering on the idea to own a car and still meet my financial targets for retirement. Can this be done? 

Its a fine line between planning for retirement and owning a car. It took me awhile to finally pend down my thoughts and perhaps finally be able to plan to own a car while still achieving my financial goals. In this post, I will list down the cost of owning a car and how it is still possible to plan for retirement. 

My initial financial target was that by the age of 48, I will be able to save up a million dollars in cash excluding CPF. With owning a car, the financial target will be pushed back by about 5 years to 53 years old. Doesn't sound that bad isn't it? Let's get straight to the numbers.

Cost of car in Singapore (2021 May)

The first thing is the cost of the car itself. Looking through several websites, the few lowest price cars you can get are probably the Mitsubishi Attrage at $74,000 and Honda Fit at about $75,000. These prices are inclusive of COE. If you look at other models such as Hyundai Avante, Honda Vezel or Toyota Vios, these will cost about $85,000 to $95,000. Any other higher end models will cost you close to or above $100,000 easily. 

If you have the cash to pay for it, then it will decrease your savings by one lump sum but you don't have to incur a monthly instalment cost. Let's say you don't have the cash and have to take a loan:

Car cost: $91,000

Loan amount: $63,699 (70% max loan)

Interest rate: 2.78%

Loan term: 7 years

Monthly loan installment: $906

If you decide to buy a lower price car at $74,000, the monthly loan installment will then be $737.

Monthly loan installment for car: $737-$906 per month

Road Tax

The next cost is the cost of road tax. For a car with 1500cc and age of car is less than 10 years, the road tax is $686 per year. If the car is 1600cc, the road tax will be $744 per year.

Road Tax: $686-$744 per year 

Car Insurance

Insurance is important for a car to protect you against liability for any accidents. If you've not met any accidents before and never claimed from any car insurance and have more than 3 years of driving experience, insurance cost will be lower at $800+. It can go up to $1600 if you're a young driver with less than 3 years of experience or have claimed from car insurance before. 

Insurance cost: $800-$1600 per year 

Petrol, Parking & ERP

The daily running cost will include petrol, parking and ERP. For HDB season parking, it is priced at $110. If you go to your parents or in laws house often, you might have to buy another family season parking at $55 x 2. Total cost of season parking will be about $220. Other miscellaneous parking cost such as when you drive out for meals or outings will probably cost another $50 per month. For petrol, let's say your car fuel efficiency is about 20km/litre and you drive about 40km/day, with average pump price at $2.40/litre, petrol cost will be about $144. For ERP, let's put it at around $40 per month. 

Petrol cost: $144

Parking: $270

ERP: $40

Total: $454 per month

Maintenance cost

The general recommendation is to send your car for servicing every 10,000km driven or every 6 months which every is early. This will set you up for a cost of about $600 per year. 

Maintenance cost: $600 per year

Summary of cost to own a car in Singapore

After listing out all the different cost, we are now finally able to add it all up. 

	Cost per month
Car Loan	$737
Road Tax	$57
Insurance	$67
Petrol, Parking & ERP	$454
Maintenance	$50
Total	$1,365

If the car is paid in full without any loan, then the monthly cost for car will be about $628/month.

Can you afford to own a car? How does it affect your retirement planning?

Now, we come to the tough question of can we afford to own a car? If owning a car causes you to have little to no monthly savings from your income, then its definitely a no. If after deducting the expenses to own a car and you still have savings, then it may be a yes. Question is, how much savings you should have in order to retire in Singapore? 

The amount required for retirement in Singapore is always increasing. Some say its $1 million, some say its $2 million, others can afford to retire with just a few hundred thousand or some just totally give up and rely on their kids in the future to give them allowance. Let me put this forward, retirement planning is hard. I've struggled through it a lot the past few years finding a balance towards spending and planning for retirement to the extend I can be pretty stressed up. Its no wonder people do give up planning for retirement. 

To make things easier, let's set the retirement amount to be $1 million. We have the below profile of person to see if he can afford to own a car:

Person A

Salary: $5000/month

Salary increment: 3% annually

Salary Bonus: 3.5 months

Monthly expenses: $2500 (without car), $3100 (with car)

Monthly expenses increase: 3% per year

Savings: $100,000

Investment returns: 5%

For person A with $5000 monthly salary and the above expenses, he still can save up $1 Million in 16 years without a car, 21 years with a car. Owning a car pushes back retirement by 5 years so it doesn't seem that bad. This is assuming the person does not buy another car after 10 years which is the end of life for cars in Singapore. 

Using the same parameters, if we bring down the salary to $4000 per month, this person will take 21 years to save up $1 Million without a car and 26 years with a car. Do take note the above parameters assumes the monthly expenses per household member and probably will be for a person without kids. For a couple, the expenses will be higher but if your spouse is also working and contributing to household expenses, then its still affordable. In the 2018 household expenditure survey, it was stated that Singaporeans with a family of 4 spends an average of $4906 per month. This may have included owning a car but the figures here are still quite high.

If you're a single income earner supporting a family of 4, you definitely need to earn above $7000 to afford a car and still have enough for retirement. 

Can you afford to own a car in Singapore? Its better to work out your own financial plan before committing to buying a car. If your income is relatively high above $5000 and don't have much other commitments, you might be able own a car without affecting your future retirement plan. 

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How To Achieve Your Toughest Financial Goals - $100K dividends is it achievable?

In the financial blogging space, many new bloggers set their financial goals as achieving their first 100K by the age of XX. This age is getting younger from 30 to 28 to even below 25. Many years back, I also set this similar goal and achieved it at the age of 28. 

Something miraculous happens when we start to set goals. When you set a goal, your brain first evaluates the goal and start to plan how to reach there. Somehow or another, you'll realise if you're focused on your goals, your subconscious mind will think of new ideas and strategies to achieve it. When I was a secondary 4 student about to take my O levels, the school sent us on a motivational camp in a spur to help us achieve better results. I was from a neighborhood school (which surprisingly is no longer there now due to school merger in a short 10+ years), my results were average and often failed in many of my subjects. The worse thing is while I failed some of my subjects, I sometimes could still be the top 5 in my class. That's how bad all my classmates results were too. 

I had low self confidence and didn't think I would achieve much in life, same for the friends around me who are all just happy with average results. We didn't even think if we would have a future. 

During the motivational camp, the instructor asked everyone what all of us want to do for our future. He specifically went round each one of us to ask what's our ambition. One by one, each of us shared what we wanted to do. There are people who say they want to be admin staff, teachers, security officers, police officers etc.. Each one of the ambition, he challenged us to aim higher. For example, when someone says he wants to be a security officer, then he'll say why not you aim to be a security supervisor. When it was my turn, I said I just want to be a technician. He looked at me and said, "why not an engineer?" This sentenced changed the way I think. It triggered a response in my brain to think higher. Eventually, I passed all my subjects and went on to be an engineer for 6 years. I may have been just a technician if not for that challenge. 

The key to success is opening up our minds to greater things. If you've watched Bling Empire on Netflix, you'll realise the 2nd generation kids, who have rich and successful parents, are also very good in earning money themselves. They have seen their parents make a lot of money and believed they too could make a lot of money themselves. On the contrary, a child from a poor family may be limited by their thinking as they see their parents struggling to make ends meets. They would think they can only make a limited amount of money in life. But, the good news is this can be changed by changing the way we think and conditioning our mind to see greater things. 

Failure is not when we set too high goals and can't achieve it but it is when we set too low goals and achieve it. This phrase changed the way I think into believing greater things. Setting higher goals can really propel us to reach it even if it seems impossible. 

How To Set Goals To Achieve What You Want?

1. Think about what you want to achieve

This first step may seem like common sense but it is critical as this is the stage you should open up your mind and imagine the impossible. There are many advise out there which recommend setting realistic goals but this will again limit our minds. 

If you want to set a goal to achieve $1 Million in your 40s, put this in your mind first and don't think about how it is impossible or how tough it is to achieve it. Just put in on paper first and start imagining the possibilities.

2. Make your mind believe it can happen

When you set a goal and make your mind believe it can happen, your subconscious mind will start to think of ways to achieve it. The best way to make your mind believe it can happen is to look at other real life people who have done it before. Source from the internet those who have become millionaires at a young age and this will make your mind believe it is possible as others have done it before. 

3. Set milestones to know you are on track

The next crucial step is to set in between milestones so that you can review every 3-5 years to see if you are on track. Setting a goal of 1 Million by your 40s can have $100K, $300K, $500K in your 20s, 30s as milestones. For example, you can set $100K by age 28, $300K by age 33, $500K by age 38 before hitting $1 Million in your 40s. This is just an example of financial goals setting but the same principle can be applied for any other personal goals which you can to achieve. If you want to be healthier, you can set a goal to lose 10kg in 5 years and achieve 2kg in year 2, 5kg in year 3, 7kg in year 4. 

4. Make it specific to visualise how it can be achieved

Achieving goals now lies in the details of the specific ways to achieve it. Let's go back to the example of achieving $1 Million in your 40s. You'll need to know exactly how much income, how much you need to save and invest to actually reach this target. Without this visualisation, you will not know what to do. If you look at my financial goals, I break it down into specifics of how much income I should be earning, how much I can spend, how much I should save and how much investment returns I should be getting. 

Once you write down the specifics, for example, earning $5K income, your subconscious mind will think of ways to achieve it and go along that path. In the midst of your journey, your mind will let you know which is realistic and which is not. For example, if you put an investment return of 15%, then along the way you may realise that it is not sustainable and focus on earning more income or controlling some spending instead which is more attainable. Your specific steps on how to achieve your goals will change along the way and that's ok because your end goal is still the same, just the strategy changed. 

Setting a goal of $100K annual dividends. Is it achievable?

I now have a dividend income target set for myself below. The dividend income goal should reach $60,000 per year, equivalent to $5000 per month when I reach the age of 50. If I continue working till my 60s, I would be able to achieve a more than $100K dividend income. Is this achievable? Yes it is as I've seen many people who have achieved it and I've also put it in a spreadsheet on how much I need to earn, how much I can spend and how much investment returns I need to get to achieve it. The dividend yield is based on 5% to achieve what I have set out below. 

Anything is possible as long as we set the goal to achieve it. It may be a long journey and many people will give up halfway. The one who persevere till the end will reap the rewards of achieving that goal. 

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Building a 5 figure dividend portfolio

7 years ago when I started this blog, I wrote about the start of my financial journey towards financial freedom. Being consistent is not easy, painstakingly building up my net worth and investing in boring stocks throughout the years. The financial goals I set for myself in my financial goals page were met surprisingly even without me actively tracking it. As I approach age 33 this year, I am thankful for all the knowledge I've learnt through other blogs, friends and learning while writing too. 

Back in 2013, I was inspired by financial bloggers who manage to have 5 and 6 figure dividends from stocks annually. While most people just save enough money for retirement in their old age and start to draw down their savings during their retirement years which can probably last about 10-20 years only, this group of bloggers were able to retire earlier with 6 figure ($100K+) annual dividend income which can last for a lifetime. I thought this was a good method to journey towards financial freedom. It is easy to visualise and plan for the future with dividend income method. After 7 years, I managed to finally achieve a 5 figure dividend portfolio from stocks although this is still many years away from the financial freedom target. 

While this 5 figure dividend income may seem like its a lot for many people, it is actually just a basic requirement for financial planning. Moving forward, I expect most of my savings to come from dividend income as expenses will take up almost all of my monthly net take home pay. I can imagine people who do not invest will have problems reaching their retirement goals in the future as inflation continues to kick in and cost of daily living goes up even higher.

My dividend income from stocks is projected to surpass $10K for the year 2021. This is done base on conservative estimates as most stocks have cut dividends starting from 2020. The dividends may come in higher if economic recovery happens this year and beyond. Let me share how is it possible to build a 5 figure dividend portfolio.

Build up your investment capital

When we first started out investing in stocks, the dividends from stocks will definitely be low. On a conservative basis, most investors should aim for around 5-6% dividend yield for your portfolio. Higher yield doesn't mean its always good as there is risk investing in high yield stocks too. 

With 5-6% dividend yield, a $100K portfolio will give you $5000-$6000 in dividends annually. To build up a 5 figure dividend portfolio, you need $200K and more. It is therefore important to set goals to build up a sizeable investment capital when you first start your financial freedom journey. This can be done through finding ways to increase your income, saving up more and investing in growth stocks to compound your money. 

At the start, my dividends from stocks was only $1K+. It steadily increased to $2K, $3K, $4K before hitting more than $10K. Dividends from stocks can only go up with more investment capital. This is why it is important to focus on building up a sizeable investment capital for dividend investing. 

Invest in good dividend stocks

After you have a sizeable investment capital, you can look to invest in good dividend stocks. Take note that a dividend portfolio is built up over the years and not when you have a lot of money then you start to invest in stocks. The reason is that when you have the money, stocks may be at high valuations and thus dividend yields may be lower too. It is important to invest consistently to build up our dividend portfolio as stocks valuations become depressed. 

Most investors looking to build a dividend portfolio will invest in REITs or business trusts. The more common ones are shopping malls, commercial offices and industrial buildings. REITs need to payout at least 90% of the rental they collect from tenants to shareholders. A good dividend stock should be able to grow distribution per unit (DPU) consistently. For REITs, they can do so through asset enhancement initiatives (AEI) or DPU accreditive acquisitions. REITs also grow their DPU is their rental reversion is positive. This means they are able to increase the rent charged to their tenants when renewal comes. REITs which have properties at good locations are able to command higher rents over the years. 

Besides REITs, we can also invest in other stocks too. Some big companies do pay good dividends too with growth potential also. Stocks such as Comfort Delgro and Jardine Cycle & Carriage are currently trading at low prices due to the COVID-19 pandemic. Comfort Delgro has dividend yield of 6.5% whil Jardine C&C has dividend yield of 5.5% based on their 2019 dividend payout. If we believe that their stock price and dividend will recover back to 2019 levels after the COVID-19 pandemic, then these are good opportunities to accumulate such stocks to have both good dividend yields and capital gains as well. 

Manage risks by diversifying

Some investors may not believe in diversifying into multiple stocks to manage risks for a dividend portfolio. For me, I would think this is important as without diversification, the dividend portfolio may be destroyed in future. 

There are some dividend stocks like Eagle Hospitality Trust and Lippo Mall Trust which had their value depressed to point of no return. These stocks were trading at impressive yields of 8-10% at a point in time. But their stock value decreased by more than 50%-80% which negated all the dividends collected for many years. Eagle Hospitality Trust was even halted. If we had heavily invested into the wrong dividend stocks, the dividend portfolio would be destroyed. 

We would want our dividend portfolio to be as stable and as sustainable as possible for the longest time possible. Ultimately, the dividend portfolio is suppose to supplement our income for financial independence and the end goal is to achieve financial freedom living on a substantial 5-6 figure dividend income for the rest of our life. 

Final words - Don't just focus on dividend investing only

While dividend investing is a slow and steady way to build wealth with about 5-6% yields, we should not focus on dividend investing only when we are younger and do not have a sizeable investment capital. We should also include a mixture of growth stocks in our portfolio to compound our money faster. With a combination of dividend and growth stocks, we should be able to aim for 8% or more investment returns on a sustainable basis. This will enable us to build wealth faster through investing. 

I have done many projection before and have proven that without investing, it is very hard for many of us to build wealth enough for retirement unless we earn an extremely high income of more than $10K per month and save enough of it. Investing is an important part of wealth building and so is increasing our income. With an extremely low income, it is also hard to accumulate enough for retirement even if we are very good in investing. We need to have a balance of both.

If you're looking to build a sustainable investment portfolio, patience is key and staying invested in the market will enable us to build wealth and compound it over the years. In this way, we will definitely have enough for retirement and even more for financial freedom. The journey towards financial freedom continues.... 

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