You will compare the yearly cost of owning a car with your realistic alternatives.
The question most people ask about a car is "can I afford the instalment?" The more useful question is "what does a car cost me each year, compared with getting around without one?" Arjun now has the first half of the answer. This exercise builds the second half, and then puts both in one sheet so the decision is made on numbers rather than on a showroom visit, and it takes about thirty minutes.
Open a sheet with two columns, one for the car and one for not having one. In the car column, enter three figures from the earlier lessons in this module.
Depreciation per year comes from lesson 5.2, Depreciation is the biggest cost you never see on a bill. Lesson 5.3, Financing and running costs add up faster than the instalment, gives the financing cost per year: the total interest divided by the loan years. If you would pay in cash, put zero, or a cautious figure for the interest the cash would have earned. Running costs per year, line by line, also come from lesson 5.3.
Add them. Arjun's figures, all made up for the example, are depreciation S$12,000, financing S$1,716 and running costs S$8,400, for a total of S$22,116 a year.
Now list the trips the car would be used for, and price each one the other way. Only count trips that would change. If you would take the MRT to work whether or not you had a car, your commute belongs in neither column.
For each trip, choose the realistic alternative: public transport, ride-hailing, car-sharing by the hour, or renting a car for a day or a weekend. Use real fares and prices from the apps or websites you would use, for the routes you actually travel, and multiply by how often you would make the trip in a year.
Arjun's list, again with made-up figures:
Sunday visits to his parents in Jurong and other weekend trips by MRT and bus, S$1,800 a year Ride-hailing when the trip is late, he's carrying shopping or his parents come along, S$3,600 a year Renting a car for about twelve weekends a year for family outings and the occasional trip to Malaysia, S$1,800 a year
That comes to S$7,200 a year without a car.
The car costs S$22,116 a year. The alternatives cost S$7,200. The difference is S$14,916 a year, about S$1,243 a month.
Put that figure into a sentence you can test against your life: "Owning a car would cost me about S$1,243 a month more than getting around without one." Then ask whether what the car gives you is worth that much each month. Some people answer yes straight away, and others drop the idea once the figure is in front of them.
Some of the strongest reasons for owning a car don't fit in either column, so write them down honestly beside the figures.
Children are one: a car seat, nap times and nursery pick-ups make public transport harder at some ages. Elderly parents are another, especially with frequent medical appointments or limited mobility. Work hours matter, particularly shifts that end after public transport stops. So does time: a trip that takes 80 minutes each way by MRT and 35 by car gives you back about an hour and a half every Sunday.
For Arjun, the main non-money factor is his parents. His father has started needing regular hospital visits, and a car would make those easier. Against that, he notes that ride-hailing already covers those trips at a fraction of the cost.
Last, write the decision. Write one paragraph that states both yearly figures, the difference, the non-money factors, and what you've decided. Arjun's reads:
"A new car would cost me about S$22,100 a year, against about S$7,200 for MRT, ride-hailing and weekend rentals, a difference of about S$14,900 a year. The car would save me time on Sundays and make my father's appointments easier, but ride-hailing already handles those, so I won't buy now. I'll look again in a year, or sooner if my parents need more frequent trips."
If you decide to buy, the cash you need upfront becomes a dated goal. For Arjun's new car, that is the S$54,000 not covered by the loan, plus the first year's insurance and any other costs due on collection. Add it to your goals sheet from lesson 1.4 with a date, and recheck the COE figure behind it every six months, as lesson 1.2 recommended.
A finished comparison shows the car's yearly cost split into depreciation, financing and running costs, the yearly cost of your realistic alternatives, the difference, a short list of non-money factors, and a paragraph with your decision. If the decision is to buy, the upfront cash appears in your goals sheet. Your own comparison is the activity.
Complete the comparison sheet and write a one-paragraph decision with the yearly figure for each option.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).