Bad Math,  Bad Thinking,  Saving Money,  Stop Being Broke

Do This Now That Gas Prices Are Up.

You may have heard the big news about gas prices on Monday after Saudi Arabia having their oil supply attacked. As expected, oil prices shot up 15% for the largest one day gain in history. Now that gas prices are up, what should you do? Should you trade in the gas-guzzling car for a new hybrid car? Start taking a bike to work and bike the 20 miles to work every day? If you want to avoid being broke you should do….

Absolutely Nothing.

Yeah, sounds crazy right? Actually not really. Here are 3 things to consider when you are dealing with price hikes.

1. Despite a historic day increase, the amount is still historically low. 

Average gas prices are forecasted to increase 10 – 25 cents.  With average gas prices at $2.52 at the time of writing of this article, at most, the average gas price will get to $2.77. This is clearly a big nothing burger. When you consider that earlier this year the average gas price was at $2.90. As a matter of fact, last year at this time, gas prices were $2.91. Unless you decide to budget less, the attack should have little effect on your wallet. Barring a situation where several more oil-producing areas are attacked, gas prices will remain fairly reasonable. Why you might ask? That brings us to our second point. 

2. The U.S. is fairly oil independent

At this time, the U.S. is about 86-91% oil independent. To the average American this means nothing, but its impact means great things for your wallet. Oil independence means that when an oil-producing country has an issue, it doesn’t impact the U.S. oil prices as greatly. The opposite is true with oil dependence. Take for example in 2006 when the U.S. was the most dependent on foreign oil in recent history. Gas prices were at one of the highest averages at $3.52. By having oil independence, gas prices are less likely to have major jumps in prices like we saw in 2006. So does this mean that you should still go out and buy a new hybrid?

3. Buying a new hybrid is not worth your money. 

If you recall this was the time period that everyone and their moms were trading their cars in for a Prius. The problem, even for that time period, it didn’t make sense for people to buy hybrids for gas savings. To illustrate, we used the average miles driven Americans (13,476). Then calculated the average yearly gas prices for a 2006 truck F-150 or Dodge Ram (averaging 15 mpg), a 2006 4 door sedan like a Honda Accord (averaging 28 mpg), and 2006 Prius to see how much money you could save on gas yearly with a Prius. 

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Now let’s convert those numbers into the number of years you would need to have a Prius to make the buy worth it. We assumed that you bought the 2006 Prius at full price ($21,725) or did a traded-in worth $5000 when buying($16,725).

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That’s right. Buying a hybrid doesn’t make sense if you own a 4 car sedan. Even in the best circumstances it would take 20 years for the purchase to be worth it. Gas mileage has gotten even better from 2006; it make even less sense to even own a hybrid. Even in the absolute worst circumstances in, doesn’t make sense unless you own a truck. Though, let’s be honest, you’re not owning a truck because of gas mileage reasons in the first place.

BoNUs POiNt: WhAt AbOuT a TesLA?

No. Even a Tesla which runs solely on electricity it doesn’t make sense. It would take only 18 years if you have a 4 door sedan or 10 years with a truck (assuming gas is $4). The point is this: Unless you are planning to change cars soon, under NO CIRCUMSTANCES should you change your vehicle.

A Minor Change From The Earlier Suggestion to Doing Nothing.

As pointed out, gas prices will foreseeably have little impact on your life. However, even if does continue to increase, don’t run out and buy a new car. Keep calm and carry on. It is best to budget a little bit more money toward gas if you haven’t done that yet. I personally budget using the assumption of $4 gas when creating my yearly budgets. That way, even if the absolute worst situation happens, I still have money. Any extra money saved gets put towards savings. The best financial choices made are by listening to your feelings not logically reasoning and calculating your numbers.

If you would like to read more, please subscribe. If you have any questions, please reach out to us at mrandmrshops@bunnyhopstowealth.com and read our story here.

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