Tan Kin Lian's Blog: $1 million or a car?

Saturday, January 26, 2008

$1 million or a car?

Someone told me that he has to spend about $1,500 a month towards the cost of his car. It comprises of the following:

Loan installment: $800
Petrol: $300
Insurance and repairs: $150
ERP and parking charges: $250

If he spends $150 a month on public transport (including the occasional use of taxi) and save the remaining $1,350 a month in an investment fund to earn 5% per annum over the next 30 years, how much will be get?

Be ready for a shock.

It is $1 million dollars!

11 comments:

Anonymous said...: Cool! Explained very nicely indeed!! Short and sweet message..; November 22, 2007 4:27 PM
Unknown said...: Why does 1 need a car in space constrain Singapore? It jus makes no sense with an efficient transport system..; November 22, 2007 5:42 PM
Anonymous said...: In Singapore is it realistic to assume 5 % throughout 30 years without some kind of investment with risks? And for investment how many have the knowledge to do it consistent and well and to take the ups and downs over 30 years? And how many can be consistent in saving the amount for 30 years given uncertainties of job (income)and life events? And inflation?; November 22, 2007 8:24 PM
Tan Kin Lian said...: Here is my reply to anonymous 8:24 pm.

If you are investing in equities for 30 years, the average return is likely to be at least 5% per annum.

This is based on historical record over the past 100 years. Why should it be different over the next 100 years?

If you give up your car, you will save $1,350 a month, even if you do not have a job.

Even if you stop saving for 1 or 2 years (due to temporary unemployment), the impact on your savings is not significant.; November 23, 2007 6:51 AM
Tan Kin Lian said...: I mentioned this posting to several senior executives and civil servants at a dinner last night.

They expressed surprise. They did not realise that it could amount to 1 million dollars.

They asked me to publicise it more actively, in the media. This will get more people to consider public transport.

I need to add a note of caution. One million dollars in 30 years time is worth about half in today's terms (assuming inflation at 2% per annum).; November 23, 2007 2:25 PM
eng60340 said...: sometimes, we get car because got baby....
1) to ferry pregnant wife to work
2) for gyni visits
3) for ferrying to parents to take care
4) when need to go out w baby..need pram...

coe is high. parking is high. erp is high. petrol is expensive.
but what to do ? :(; November 23, 2007 8:32 PM
Unknown said...: Well said Mr Tan..these ppl with big job titles jus have no financial sense,they jus further add to e noise,smog & congestion on e roads.It is a waste of financial resources which could be put to better use..; November 23, 2007 9:45 PM
Judhi said...: I don't know if I will still be around 30 years from now. I don't even know if I'll still be breathing tomorrow. Why don't I just enjoy and provide quality life for my family today, when I still can afford to do so.; December 13, 2007 12:07 AM
Anonymous said...: the calculation is too simplistic and not correct!
The instalment of $800 is not for thr next 30 years. It represents the cost of instalment payments. At some point in the car ownership, one does not pay instalments once the instalments are fully paid and yet one enjoys the car. So that's the logic why Tan Kin Lian does not agree to own a car???; January 28, 2008 12:53 PM
Anonymous said...: If one has $10,000 a month, splurge that $1350 and invest part of the $8650.

Well, this means enjoy when you can afford it.

What good is it for a man to have $10 million and never get to enjoy with that $1 million?; January 28, 2008 8:30 PM
Anonymous said...: To anonymous (who commented on the length of car ownership and simplicity of the $1m calculation)

It was reported in the papers recently that an average driver changes their car once every 5 years. I believe this calculation has taken into account of this "evergreen" effect, i.e. that the driver will continue to service his on-going loan for the next 30 years.

Separately, i also think it is ok for the calculation to be simple. It served it purpose and there is no need to have a complicated solution.

Thanks.; February 04, 2008 4:25 PM