Sunday, 31 March 2019

Renew Car COE 5 years or 10 years?


Over the last 15 years, I had several different cars registered under my name. They are either new or used-cars from 1.5L to 2.5L, from Japanese to continental cars and from sedan to MPV. No posh cars though. Cannot afford. I had also rented cars for few months, and even had experience of selling cars in the old days. That said, the one experience I do not have, until recently, is the renewal of car COE. Last week, I renewed COE of my Toyota Estima.

Initially I opted 5 years, but a friend of mine gave the rationale why 10 years is better if you can afford the COE upfront. I will explain why but before that you need to understand how COE works, what is Minimum PARF value, and what is Prevailing Quota Premiums (PQP). You can also find out more information @ www.onemotoring.com.sg.

COE
Basically, if COE is 30K for 10 years, if you decided to deregister your car at year 5, you get back 15K and at year 6 you get back 12K. So, it is a pro-rata basis costing 3K p.a.

PARF vs COE cars
If your car is still within 10 years, it is a PARF car. If it is more than 10 years, it is a COE car. You can read here what is the difference between PARF and COE car. E.g. a car has a PARF of 15K, if you decide not to renew COE, you take 15K back. If you decide to renew COE, you will have to forsake this 15K.

PQP
PQP is the moving average of the COE prices in the last 3 months and varies from month to month. Below is the table showing PQP of COE. My car 10 year period expires in mid-May, so I am allow to choose either PQP for March, April or May. You can see that there are differences in pricing. I am lazy to wait for May PQP (Cat B) to be out and quite sure it is going to be >35K, hence I chose the cheaper PQP in March which is 33K compared to April one which is 35.4K.


Source : LTA

So, 5 years or 10 years?

I opted for 10 years COE. Let’s see the advantages and disadvantages.

Advantage : Cheaper Annual Depreciation

Using my car 2.4L Toyota Estima as an example, i.e. PARF 17.6K, PQP 33K.

If 10 year COE
I am paying 17.6 + 33 = 50.6K for 10 years.
This means that annual depreciation is about 5K for the car.

If 5 year COE
I am paying 17.6 + (33/2) = 34.1K for 5 years.
This means that annual depreciation is about 6.8K for the car.

So we can see that 10 year has cheaper annual depreciation of 1.8K. This is because the PARF is spread over 10 years rather than 5 years.

Disadvantage : More expensive road tax and higher insurance and maintenance cost

Of course, you have to take into account road tax and insurance of older cars are more expensive. Basically, there is an annual road tax surcharge for COE car as per table below. And also, the maintenance cost for an older car is usually more expensive due to wear and tear.


Source : LTA



E. g. PARF car of my model, road tax will be S$1,682 pa. COE car road tax will be with additional of surcharge. Using road tax calculator here,
10-11 year = 1,682 + 170 = 1852
11-12 year = 1,682 + 338 = 2020
12-13 year = 1,682 + 506 = 2188
13-14 year = 1,682 + 674 = 2356
14-15 year = 1,682 + 842 = 2,524
5 years surcharge is 2,530. P.a. = 506.

15-19th year = 1,682 + 842 = 2,524.
5 years surcharge is 4,210. P.a. = 842.
Therefore road tax difference of S$336 p.a, if you continue to drive the car after 5th year.

Advantage : 5 year cannot renew to 10 years thereafter

If you opt to renew COE for 5 years, once it expires, you any time you decide to de-register your car and get back the COE pro-rata rebate, you can!

Advantage : Easier to sell half way through  

This is the reason where my friend explained to me and why I decided to renew for 10 years. For 5 year COE car, let’s say I driven for 2.5 years and sick of the car, I decide to sell. The car is only left with 2.5 years COE. It will be very difficult to sell, because buyer will go for newer COE car which depreciation p.a. is almost the same price. And also poorer family may want a COE car that they can drives longer years with a lower annual depreciation.
 This means that you will likely need to de-register your car rather than sell your COE car. Then the PARF you forsake will be more pricey because you only spread it over a period of 2.5 years other than 5 years.

If your COE is 10 years, then after 2.5 years, your car still have a life span of 7.5 years.

Using my car as example,
5 year COE : 34.1K
10 year COE : 50.6K.

After 2.5 years Deregister,

5 yr COE : take back ½ COE value i.e. 8.25K. So (17.6+8.25K) / 2.5 years = 10.3K
Hence, depreciation is 10.3K p.a for the first 2 years if you de-register.

If you try to sell, it is quite likely that you will not find a buyer, because it is left with 2.5 years and depreciation is impossible to be cheaper than 6.8K where we initially calculated.

In retrospect, for the 10 year COE, after 2.5 years, I am likely able to sell because the COE still have a 7.5 year life span and the depreciation is cheaper at 5K plus.  

Conclusion

I opted for 10 year COE for the reason that lower p.a. depreciation if I were to drive more than 5 years. And also possibility of selling is higher if I were to sell it mid-way.

The only disadvantage is I need to have 16.5K more upfront. But at any point of time, if I de-register my car, the amount of COE I take back is always pro-rata.

So renew COE for 10 year if you can afford it!






Saturday, 23 March 2019

Start My Own, or Stay with Current Job


Prompted by another blogger SI, I wrote this article. Addressing the question, there are always the push the and the pull factors. Let’s evaluate both sides of the coins.

PUSH


Current job is shitty. Lousy pay, lousy boss, lousy colleagues, low satisfaction etc. Time to move on to start my own. To take control of our own destiny where we are not answerable to our boss, and create something that can impact the world with abundance of self-satisfaction.


PULL


Excellent idea awaiting to explode. A good partner or investor already knocking at the door. Too good to resist because it’s going to be something even bigger than Apple, facebook or Alibaba...?


REALITY CHECK


Good to think big, but also need to embrace reality. Both hand in hand.


Ask: In work, why is everyone or everything is so lousy? Or why is every job so shitty even I changed several? Often times, we should also reflect about ourselves. Are problems from us too? This is what we meant by “do not escape”!


Maybe starting your own is even worst when we are not ready. You are no longer answerable to your boss, but you are answerable to your clients who may even be more detesting.


No income, no more colleagues to help, and if you are unlucky, an untrustworthy partner (over time). You may spend tremendous amount of time and effort, but still low return of income during the starting years. Worst of all, all the investment savings are all down to drain eventually due to immaturity and lack of wisdom.


I am a super positive person as friends know me. I myself aspire to start my own. Hence I am not being negative but pragmatic and evaluating both sides of the coin.


REAL LIFE EXAMPLE


I had a business associate in his later year of life and career. Let’s call him Mr. S. He started his own business close to 40 years ago. Mr. S is experienced in his field, work very hard and has good integrity and name in the business. Few years ago, he told me to start my own because he started his own, and that is the best thing that ever happened to him. His business grew over the decades with good revenue and clientele list. During its peak, workers of close to 200. Things took a turn due to the sustained market crisis in the last few years, he is now facing bankruptcy, high debts accumulated and having re-pumped in all his personal monies into the company. Worst of all, I see the stress and despair.


What makes you think you will do better than Mr. S and not fall into the same situation?

It is not about the money anymore! It’s about the sweat and blood put in for 4 decades and the ending is “emptiness!” and opportunity cost of not having enough time with family and friends.


Of course, I also know many success stories. My very own sister is a businesswoman. My ex-boss who sold his business eventually leading to loads of millions.  


All I want to advocate is: THINK carefully and do the necessary checks before impulse come into play! Especially for those who have family burden.


HOW TO EVALUATE SHOULD I STAY OR LEAVE THEN?


I cannot advise for you. Different people different situation. But what I can do here is to share my own experience based on the circumstances.


Aside from the basis of “WHY”, “HOW”, “WHAT”, “WHERE” and “WHEN” to start which you need to decide for yourself, I also delve into several detail checks. Hopefully it can help  you and me. J


Check 1 –  Check if you do well in your current job?

If you cannot even do well in your current job, what makes you think you will do well if you start your own, which is essentially tougher. One person I will like to make reference to is John Lim of ARA. He was doing really well as a corporate employee when Lee Kah Shing spotted him. He took a leap of faith at the age of 45 to start ARA.



Gauge for me: Yes, I am doing well in my current job. At least for my standard, or at least my boss, colleagues and people within my market are telling me that. I have been in the same market since 15-20 years ago. Know the products well and know many people within the industry all over the world. SO YES, I pass this check!


Check 2 – Financial Health

A friend of mine quit his job when market is still down and tell me how excited he is because he is starting his business, because he is getting out of the shit in his current job. Then I asked him if he is financially ready? He said yes, because he is without kids and have some savings and at most can sell his car. 3 months later, he panicked because of no income and lots of work expenses! He is still without a job after more than 1 year and savings are all draining and worst of all, he is straining with stress.


It is important not to just consider savings as our lifeline for starting a new business, unless your savings is so huge. But then again, if your savings is really that huge, why start your own when you can possibly invest. Anyway, my point is, it is better to have a transition of income reduction. E.g. your salary is your 100% income. To start your own, you will suddenly start with $0. This is “No No” for me. At least my income reduces to 50% or to a stage where my expenses can still be paid for from other source of income. E.g. rental income, investment income, freelancing income etc.


More important for me is, I will start in a business which is without huge cash outlay upfront and able to generate cashflow for even during the initial part. Most cafĂ© owners invested heavily upfront and find out that cashflow is not coming in reference to invested and operating expenses, that soon they folded.  


Gauge for me : If I were to start a new business, it will definitely be something I am good at for already many years. E.g only... perhaps I can first become a consultant (sign a 1-2 year contract) for a foreign company I know well working 2-3days a week, or they know me well within the market I am familiar in. This will keep cashflow coming in, and yet, I have excess time to work on developing my own business bit by bit. First being an intermediary, then developing my own product etc. Then I also have my property rental income to sustain some of my expenses. Wife is still working to also sustain burden. And possibly investment returns. Only in desperate measures, I will allow to drain my savings. But this is already very serious


Actually, I been approached a few times in such situation from foreign company who knows me well, but time is not ripe because I wanted my financial situation to be even more stronger. Remember: Savings will always deplete faster than you think. Better to have a transition reduction in income when you resign from job and start your own!

So NO, I am not comfortable. Check failed.


Check 3 – Family Burden

This is for those who are married with kids. If you are having young kids, and cherish the time with them, then it is quite unlikely you are able to juggle between time of starting your own and time spent on them. Opportunity cost! Most will want to think that “who says I cannot have enough time for my kids when I start my own”. Yes you can, but for sure you will not do as well for both areas. You are creating a “LIE” for yourself. Starting your own is always most difficult in the first few years. So it is certain that family time will be sacrificed. Are you willing to do that? Is your wife ready to take the family burden?


Check 5 – Right Ideas + Right partners

Fantastic ideas are always essential for good business. But that said, we often always start with crappy ideas, and learn from there to develop better ideas as we have more experience. So unlike many people who think right ideas are all important, perhaps a right partner is even more important for a start.


Ideas are not as ideal without fantastic partners. Finding the right partners are not easy. Recently a friend of mine split with his business partners because of “trust” issues. My brother in law had been doing his own business for ~25 years, and his best partner is my sister (his wife)!


In my work experiences, I also see success in partners who one is commercial and the other one is technically inclined. I also know 2 partners who are best friends and both have equal share in the company. I asked them, “what if Mr. A say “YES” and Mr. B say “NO” to a proposal, so what’s the decision? They told me if one disagree, then “NO GO”! They will only go ahead with decision when both agrees. And because they know each other as best friends, so far it works for them for the last 15 years.


John Lim and Lee Kah Shing started ARA. To Lee, it is an investment he has no problem losing if it fails, relative to his net worth. For John Lim, it is a must win, because he depended on it. And Lee trusted Lim because of his capability as Lee already had a working relationship with Lim. Hence Lim (capability + hard work + cannot fail) + Lee (wealth + connections + experiences) = success!


Gauge for me : No partner identified for now. I will probably start myself first, then start finding partner later. “Trust”, “friendships”, “loyalty” and being different from skill-set I have is important criteria me to find a partner.


Check 5 – Timing

Is it the right timing? This links to almost all of the above points discussed.


Gauge for me : I still love my job travelling and meeting people and making deals, despite the politics which I manage reasonably well. My priority is to serve the Lord as I work. I am able to do that in my present job. So no complains. I prefer to have my mortgage cleared within next 5 years. Should be able to do that in 5 years time, hopefully. I have children who are still young, with the youngest at 2 years old. I prefer to spend more time with them in the next couple of years. To start my own now, its huge opportunity cost not having sufficient time with my family.


John Lim started ARA at the age of 45. It’s not too late for me then. And as my blog wrote, its better late than never! I reckon I still need couple of years ahead before I start my own! I have to be patient and sensible now to be successful in a godly manner later!