However, behind all the glitz and glamour, lies a hefty price tag. One cost often overlooked is opportunity cost, which will be explained below.

Let's address first how much you need to earn to afford a car in Singapore now!

### Total cost of owning a car

You may know that owning a car is not as simple as saving up for the downpayment of the car. You have to pay for petrol. However, this is the only additional cost that pops up in people’s minds.

The list does not stop there. Besides petrol, we have to factor in a myriad of other costs.

**Monthly Instalment— **I will use one of the most common cars in Singapore, a brand new Toyota Altis as my example.

Total cost is $96,000

Open Market Value (OMV) is calculated by Singapore Customs and the OMV for it is $19,700

*Note :*

*For cars with an OMV of >$20,000 you are only entitled to a max loan of 60%*

*For cars with an OMV of <$20,000 you are entitled to a max loan of 70%*

Assuming you take a 70% loan at 2.28% of a brand new Toyata Altis, your monthly instalment payment is worked out to be *$928/month*

**Parking costs— **HDB overnight parking $5 (10.30pm-7am), $12 full day

However if you opt for season parking (depends on location) :

HDB -- approximately $110

Office-- approximately $120

Shopping centre :

fee $2.50/hr and your monthly cost will be (56hours x $2.50 = $140), assuming you visit the mall 2hrs daily.

Total parking cost = *$370/month*

**Road Tax**— A tax that usually renews annually for vehicular ownership. It costs $742*/year *for an Altis.

Which works out to be *$61.83/month*

This chart will help you calculate your road tax, if you ever decide to buy a car.

**Car Insurance Premium— **The cost for insurance varies, age and driving experience are factored in. For example, someone in their 20s with a driving experience of less than 5 years are deemed riskier, as compared to someone is their 40s with years of driving under their belt.

The chart below shows the average annual price of premiums.

If you are a first time driver, you do not have any NCD discount. Hence the cost may work out to be *$180.42/month. *

*I**f you are in your 30s with 50%NCD, then your cost may work out to be $69.54/month.*

**Petrol costs—** On average the annual mileage for cars in Singapore is 17,500Km

Standard 95-octane petrol costs $2.25/L

A Toyota Altis fuel consumption is 15.4Km/L

Hence, it cost you approximately *$200.20/month*

**ERP—** Cost varies for different users, highly dependent on where you work.

The gantries are highly concentrated in the Central Business District Area(CBD)/ Town.

Each time you pass a gantry it will cost you around $2.

Hence assuming you visit town only during the weekends, it will cost you a ballpark figure of *$35/month*

**Car servicing**
**—** Excluding continental cars, the cost of servicing a car cost approximately $550/year

Which works out to be *$45.83/month*

**Depreciation— **Have you heard many financial experts say car is a liability and not an asset? This is because cars depreciate annually. (The most elusive cost amongst all)

The greater the cost of your vehicle, the higher the depreciation.

It is given by the formula :

Annual depreciation = (Total cost of Vehicle - Sale Value of Vehicle) / Number of years in service

The annual depreciation of a Toyota Altis is approximately *$8,000/year*

While depreciation is not something you pay for in case now, the total cost STILL ADDS UP TO $1821.30/month!

### How much to earn to afford a car in Singapore?

After doing the math, it is evident that owning is a car is way more expensive than expected. This is especially so for fresh graduates or young adults.

According to TheStraitsTimes, the median fresh grad pay is around $3700. Post CPF deductions, the take home pay is $2,960.

A monthly payment of $1,821.30 is 61.5% of the total salary!

In many ways, that is not being financially prudent. As a rule of thumb, one should split his income into 3 baskets.

The 50-30-20 rule states that : 50% of income should be allocated to expenses, 30% for investments and 20% for savings.

If you are a young working adult, you should be saving more than 20% since you do not have much liabilities such as mortgage payment and children expenses.

In your 20s you should be saving and investing more aggressively in anticipation of big purchases such as housing, renovation, wedding, etc.

So how much should you be earning before you consider purchase a car?

It is wise to keep your car instalments at most 20% of monthly take home pay.

**Hence, how much to earn to afford a car in singapore, we believe it is approximately $9,106.50/month to afford a Toyota Altis comfortably alone. **

**If it's a family car, then the combined income still needs to be at least $9,106.50/month.**

**If the amount is affordable then check this video we have on electric vehicles coming to Singapore!**

### Opportunity cost

I want to introduce an economic theory : Opportunity cost

In layman terms opportunity cost refers to the value you lose from the next best action you could have taken. For example, the opportunity cost of buying a car is you not being able to benefit from having your money invested.

If you have bought the Toyota Altis, you may think you have incurred a cost of $106,725 ($77,925 total loan with interest + $28,800 downpayment)

However, based on the theory of opportunity cost, you have made a loss of

$351,096! ($106,725 + $244,371)

You must be wondering where did the $244,371 come from?

Let me explain, if you didn’t purchase the car and used the downpayment ($28,800) as your initial sum for investment, and a monthly contribution of $1,821.30 thereafter. You would have accumulated $244,371 after 7 years, assuming 8% return.

### Closing thoughts

As Robert Kiyosaki famously once said, assets put money in your pockets, while liabilities take money from your pockets.

Owning a car is indeed a liability. With a robust and efficient transport system in Singapore, it is unnecessary to own a car, especially if are a young adult.

A car is only justifiable when you have started a family, job requirement (sales), etc. In addition, a car is more affordable when you share the cost with a spouse.

I would like to end off with a quote I once read "Don't go in debt for things that don't go up in value, that's hustling backwards."

**Hope the sharing works and if you are keen to hear more on family expenses, check our video!**

*Source :*

*https://www.sgcarmart.com/services/roadtax_calculator.php*

*https://www.valuechampion.sg/average-cost-car-insurance#Age*

*https://www.sgcarmart.com/services/loan_calculator.php*

*https://www.straitstimes.com/singapore/new-graduates-from-4-local-universities-earned-higher-starting-salaries-but-more-working*

*https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator*