I got lucky: I decided to leave my job, and the associated daily commute, around the time gas prices started rising faster. Now, with more unrest in northern Africa, a gallon of gasoline at the pump costs more than $3.50 on average, with some location sporting a price north of $4.00. High gas prices, though they may be more equitable compared with prices in other locations around the world, could stall our economy as we still are trying to find our way out of a recession. The best options for dealing with high prices involve changing our own habits and decisions.
Here are some suggestions for softening the effect of increasing gasoline prices.
1. Work from home more often. A good rule of thumb is to try to add an additional day outside of the office for every 20% gas price increase. This may not be practical depending on the type of job you have, but if working remotely is an option, taking advantage of the opportunity will help save a significant amount of money over the course of a year.
2. Invest in oil as a hedge. It may not be perfect, but for the most part, gas prices increase along with the price of crude oil, while gas prices eventually decrease when crude oil gets significantly cheaper. Investing in an oil fund like the Vanguard Energy ETF will help your net worth increase to offset your loss of cash flow. If you gas expenses are fixed on a volume basis — always a similar number of gallons consumed each week — then you can modify your investment to match.
3. Buy a better car. If you already have a vehicle that’s considered energy efficient, it may not pay off to replace that car with one that’s slightly more efficient. The difference between 15 mpg and 20 mpg and the difference between 35 mpg and 40 mpg are both 5 mpg, but the former example has a much stronger energy-saving effect than the latter. To reduce your gas expenses significantly, look beyond these incremental changes and consider a paradigm shift. It may mean that you’re spending more money up front for newer technology, and you may never reclaim that cost through savings on fuel, but for alternative energy to make an impact, it will take long-term thinking and an expensive initial outlay.
4. Move closer to your office. Another way of reducing your commute is finding a way to live closer to where you work. When I worked for a non-profit organization in 2000 and 2001, at the same time gas prices started spiking, I had just realized my finances would not be able to handle the commute much longer. I decided to move to be ten minutes from my office rather than ninety minutes away. It was certainly a sacrifice, because my living conditions changed significantly, but it was a necessary decision at the time.
5. Car pool. You can cut your fuel expense by 80% by sharing a ride with four other people who both live and work near you. Car pooling is not always possible, but with some creative approaches, sharing a ride can still be a way to save some money.
6. Take public transportation. This isn’t possible in most areas of the country, unfortunately. Even in New Jersey, where we have an extensive train system, not every community is services by trains or buses. Public transportation is also subject to the cost of fuel through increased fares. While I took the train to my office during the period of time I functioned without a car, our fares increased several times. There were discount programs available, and my office even offered a commutation reimbursement benefit, but the effect of increased gas prices still hit me.
7. Buy using a gas rewards credit card. The main argument against using a credit card is that people generally spend more than they would with cash. I don’t see that as a problem if you have a card that you use only for gas purchases. The amount of gas you buy is a fixed amount based on your driving habits, which are unlikely to change. If you can afford the gas you buy, you might as well get some cash back for buying the fuel your car needs. The most obvious choices are the TrueEarnings Card from Costco and American Express and the PenFed Platinum Rewards Visa Card, both offering cash back on your gas purchases. Terms and restrictions apply. Read more about these cards and other choices here.
What are your suggestions for reducing the effect of high gas prices?
Photo: Robb North
Updated March 11, 2014 and originally published March 9, 2011.