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I Made A Bad Financial Decision… And Bought A Car

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Owning a car is one of the most expensive “consumption good” in Singapore with the certificate of entitlement (COE) for car ownership at approximately $60,000. For example, this makes a typical Toyota Corrolla Altis being priced at a whooping price of S$120,888 (US$86,4000). (Note: Figures as of November 2015)

Despite my self-proclaimed mantra of “saving more”, I fell prey to the inner desires of owning a car, and tried justifying the choice with reasons like “family transport”, “for the kids”, “convenience”, “intangibles”, “having the chance to explore parts of the country that we would not have checked out if we have to take a public transport”, etc. Post making the decision, I feel some regret at making this wrong financial choice that would set back my financial freedom goal by another few years (where the money could have been put to use for investments and get compounded over the next few decades).

Final self-justification : YOLO.

However, given that I have made the choice to purchase a car, some of my key considerations during the purchase includes:

1) Price of the car – I guess this will be the starting point for most as part of the budgeting exercise, and will influence whether one goes for a new car from the dealer with a fresh 10-year COE or a pre-owned car with a shorter COE.

2) Paying in full vs taking up a car loan – In addition, the Car budget will also determine if you can pay for the price in cash vs taking up a partial car loan. Typical car loan has a quoted interest rate of approximately 2.2% (effective interest rate of about 5%), so my decision on whether to take up the car loan or not was decided by my current cash flow and whether I have better use of funds that can generate better returns than 5%. Some of the financial planning experts (e.g. Todd Tressidder of Financialmentor.com) have advised against “consumption debt”, and I would agree as this would typically fall under the category of “debts to be avoided” together with credit card debt.

3) Depreciation cost per year – which is the cost of the car less the value that I can get when I de-register the car at the end of the COE, divided by the number of years left for the COE. The calculations showed that whilst it may appear cheaper on absolute basis to purchase a pre-owned car, if one’s budget permits, then a new car may typically have a lower depreciation cost per year. However, it is also commonly true that the actual resale value of the car doesn’t “depreciate” on the straight-line basis, in fact, the resale value drops massively the moment the key is passed over from the dealer to your hand (which is why we all acknowledged that a car is a consumption item and not an asset…)

4) All other intangibles – you know, all the excuses that I used to justify for my purchase of the car. 😛

Happy to hear thoughts of others on how the car purchase decision has impacted your financial freedom plans.


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