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How Savers and Consumers Differ On Gas Prices
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The price of gasoline divides America into savers and consumers like no other issue.
The biggest differences between savers and consumers come in their attitudes toward energy policy. In his book the Age of Turbulence, Alan Greenspan wrote at the end of the energy chapter: "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."
If it is true, it is a policy: war for oil. I have never had anyone say that to me, nor have I heard any politician or major news service advocate, or try to justify, war as an oil policy.
It does illustrate the contrasts of savers and consumers on policy because it is the ultimate consumer policy: plentiful oil must be available no matter what.
Expanding Energy Supply is a Priority
American policy has been mostly consumption policy because it emphasizes production. Drilling for oil is a production policy, but so are wind energy and solar energy.
Those who advocate off shore oil drilling want to expand supply, but those who want to expand wind energy or solar power also want to expand energy supply.
The oil drillers often argue with the advocates of wind and solar energy, but the argument is over environmental policy and relative cost.
Both sides are saying technology will allow us to have the energy we need or want at reasonable prices.
Savers Limit Gas Usage No Matter the Price
Alan Greenspan suggests a policy of "… significantly higher gasoline prices to wean us off gasoline-powered motor vehicles."
That pressures people to save fuel, but unless savers have some way to cut their consumption by as much as the percentage increase in price, it will cost them much more. That is why savers want to limit the gallons they use no matter the price.
Savers know gas mileage for cars can be much higher and they want to mandate automobile mileage standards so that everyone has the choice to use less energy and save money. They want to expand rail service and have less air travel because rail uses less energy per passenger mile.
Savers look for ways to reorganize physical space so that people can live closer to work and shopping. They look for ways to make it cheaper to move closer to work: a tax deduction for all moving costs, for example.
Notice that Congress has many ways to compromise on policy. A little more off shore drilling can be traded for higher automobile mileage standards.
America needs policies that save energy and money.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Should You Sell Your Gas Guzzler to Save Cash?
I just heard a story on the TV about a guy who wants to sell his gas guzzler and get a high mileage car to cut his gas bill. Trouble is he owes $8,500 on his car loan and all he can get for his guzzler is $3,000.
He loses $5,500.
As all good savers know, he should only sell if he can save a minimum of $5,500 plus interest. According to the United States Department of Transportation, the average passenger car travels 12,400 miles a year and gets 22.4 miles per gallon for gas. That works out to 46 gallons of gas a month with a monthly fuel bill of $184 if we use $4.00 a gallon for the gas.
I regret to say that is probably low, but we will go with it.
Double his gas mileage and he saves $92 a month. Figure a savings of $92 a month for 5 years at 4 percent interest, and the savings is $6,119.84. Sad to say, but the $5,500 he loses would also accumulate interest. If we use the same 4 percent interest over the same 5 years, the total he loses is $6,715.48.
He loses $6,715.48 to save $6,119.84; a net loss.
This particular comparison does not account for the price of the new car, only the loss on the trade. If we assume he is going to own a car, either an old one or a new one, the premature trade represents the loss from not using the remaining life of the old car, which I hypothetically set at 5 years.
Different interest rates or time remaining for the life of the car will affect the result.
However, the most important comparison is the price of gas. Using $5.00 a gallon with the same mileage and interest rate, savings will hit $115 a month with a total of $7,649.80. At $5 a gallon, he can save doubling his mileage. He should trade the car. For those with mileage over the average of 12,400, saving gas money also will be more likely to pay.
I did the calculations on MS Excel using the FV, future value, function. It has a help file. Try it yourself for your exact situation.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Is Chrysler's $2.99 Gas Worth It?
Have you seen Chrysler's ads for 3 years of $2.99 gas when you purchase a new car?
Autoblog has the details:
With gas prices rapidly approaching and exceeding $4 a gallon across the nation, Chrysler is offering up a deal that just might make people who are averse to the looks of cars like the Chrysler Sebring and Jeep Compass think twice. Between now and June 2, anyone who buys any new Chrysler, Dodge or Jeep vehicle will be able to register for a "Let's Refuel America" card. Once the customer registers a credit card with the program, they will receive a new card that they can then use at participating gas stations to fuel up their new car or truck. When the card is used, the credit card that the owner has on file will be billed $2.99 a gallon for either regular gas, E85 or diesel fuel. Chrysler will pay the difference. The best part is the price is locked in for THREE years.
Obviously, this isn't as good as it sounds. Nothing in life is free — everything has a catch. Especially something has "too-good-to-be-true" as this.
Freakonomics weighed in, saying it's a brilliant move by Chrysler because consumers overreact to the price of gas.
I believe consumers systematically exaggerate the importance of gas prices to their budgets. The typical American just doesn’t spend that much money on gas.
The way we buy gas — every week or two, with the prices staring us in the face as we stand at the pump — makes price fluctuations far more visible than for other goods. Someone who signs up for this program will think about Chrysler and how they are paying part of the cost of the gas every time they fill up. I suspect that will increase the brand loyalty of people on the program.
I don't know about you, but I wouldn't be persuaded by this offer. Maybe I'm in a different boat than you, because I work at home and only have one car (that gets great gas mileage).
Would you buy a Chrysler to get $2.99 gas for the next 3 years?
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A Cheaper Car Will Protect Against Increasing Gas Prices
I recently saw an article in the Washington Post titled "Price of Gas Hits 23-Year High."
Not surprising, right?
Except the article was from May 15, 2004, or almost exactly four years ago.
The 23-year high price was cited at $1.95 a gallon. The article had a breathy tone and warned Americans that summer driving was sure to see $2.00/gallon gas.
Since I just paid $3.51 a gallon for my last gallons, the former 23-year high sounds like the kind of bargain I will never see again.
The price increase of $1.56 in 4 years works out to an average increase of $.39 a gallon per year.
Let's take a look at what that means, using the Bureau of Transportation Statistics' reports on annual average miles traveled per passenger car and average miles traveled per gallon of fuel consumed.
Convert to months and divide the miles by miles per gallon and the result equals 46 gallons: the average gallons for the average car for the average month. Use the $.39 a gallon increase on 46 gallons and the average monthly fuel bill went up $17.94.
The depressing part though is that the increase is cumulative; in the second year, it's $35.88 a month and so on. If these extra payments for gas went into the bank each month starting in May 2004 and earned 4% interest, the amount after 4 years comes to $2,283.88. Ouch!
You can think of it as a loss, or if you are a real saver, you will think of it as a challenge. Probably you have thought of driving a more fuel efficient car, or living closer to work, or just driving less. You could also buy a cheaper car.
Suppose you were buying a car in 2004 and you bought a car a year older, or two years older, than you originally planned and saved $1,946.71 on the deal. Let those savings earn 4% interest compounded over the 4 years and you would have the exact money you lost buying that expensive gas: $2,283.88.
There you have it. Save your gas money, buy a cheaper car.
If you want to know how easy that is go to a website like Carmax.com and look at model prices for 2005 and then back up to 2004, 2003 and 2002.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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What Can You Do Without Spending Money?
Since we're in full-on savings mode in preparation for our vacation to California, our weekend was kind of … well, quiet.
Not that that's a bad thing — Debbie was under the weather, but we didn't really have any plans. For us, not having plans is a bad thing.
When we don't have any plans, we tend to do the one thing we definitely do not need to be doing now — spending money. Whether it's going to the mall, going out to eat, or frivolously shopping, we spend money.
So with no major plans but no desire to spend money, what do you do?
Obviously, there's a lot that can be done. We cleaned the house, watched a movie, spent time with family, played some Wii, planned our trip, and more. Yes, it's not that exciting, but it doesn't have to be.
We managed to have an enjoyable weekend without doing any damage to our bank account.
Then next time you're sitting around with nothing to do, think about all the things you could be doing without spending money. Maybe it's going outside for a walk, spending time with your family, blogging, playing a game, taking a nap, cleaning your house …
The list goes on and on.
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Diamond Shopping On a Frugal Budget
I've finally done it. I am now engaged.
All of the trepidation I had about taking this step did not stem from a fear of commitment, but rather from a severe inability to find and purchase a ring. I had a good idea of what she wanted, but the nuances involved in the selection are incredible.
Anyone who has shopped for an engagement ring knows the "four Cs," the major characteristics of a diamond which determine its price. Because these diamonds are not mass-produced, no two are completely alike, and thus comparison is extremely difficult.
So for someone who hates shopping and has no previous knowledge of jewelry, buying an engagement ring is beyond daunting, especially when you don't want to be ripped off. Being frugal, I have a difficult time spending money on something that I consider to be conspicuous consumption.
I guess I don't have the power to change societal customs, though.
In the end, I ended up using a diamond my mother had given to me, and got it set into a new band. Not only did it save me money, but it also has sentimental value.
And I think it saved me from losing my mind completely.
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.
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Why Paying Cash For Everything is a Misnomer
One of the bigger "disagreements" in the personal finance blogosphere is whether or not it's better to pay for everything with cash, use a debit card, or rack up rewards on your credit card (if you pay your balance off each month).
My personal spending habits are to use my debit card for everything. If I purchase something with my debit card, I know that I can see the transaction online, which carries over to my Yodlee monthly spending reports. I rarely carry cash because I rarely go the ATM (or maybe it's the other way around).
Others say that you should only use cash — specifically, what you have in your wallet. Once you see it leaving, you realize you don't have it any more.
The discrepancy in advice doesn't necessarily mean that some folks are wrong and some folks are right — everyone is working toward the same goal: spend less than you earn.
When you spend less than you earn, you're only buying things with money you actually have. That's "cash" in hand, whether it comes on paper or from your debit card.
Your preference — using cash or debit — depends on your ability to manage your spending. You need to figure out what works best for you.
The only wrong answer is spending beyond your means.
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We're Going On Vacation: How We're Saving For It
For the first time since we've been married, Debbie and I are no longer on school vacation schedules. Debbie's new job, while in a preschool, is technically more of a daycare-type position, so she works year-round without spring/winter/summer breaks.
It's different for her, since she has always worked on school schedules — but now she actually accrues vacation days. So, we've been looking to head out of town for a vacation for awhile now, and we finally settled.
At the end of May, we'll be flying across the country to Los Angeles and driving up the California coast.
We love California, so it'll be exciting — but could also get expensive. We got a great deal of flights via Airtran, but we still need places to stay, a rental car, and things to see.
Yahoo! Finance has a great article on last-minute ways to save for vacations — we'll be heeding many of these tips.
1. Start with a spending plan
2. Sacrifice now for fun later
3. Build cash with a 'Pantry Week'
4. Eat out less, save big
5. Make a savings wall chart
6. Sell your stuff
7. Use your tax refund — now
8. Let credit cards pay you backThe biggest thing we'll be doing is cutting back on our spending in April in preparation and trying to put that money aside for the trip. We're also on the lookout for great deals, including hotel stays with included tickets to attractions and cheap rental cars.
It helps that May is one of the two months I'll receive a third paycheck (thanks to three Fridays), but we don't want to count on that entirely for paying for the trip.
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