Bajtelsmit Column – Gasoline Costs

I filled up my gas tank the other day, and for the first time, the total at the pump exceeded $50. This was a huge milestone for me and, as such, seemed a good debut topic for my household finance column (which will run every third Saturday). I can’t think of any other economic change or event that’s had such a large impact on household budgets as rising oil prices. Not budget cuts. Not tax cuts. Not war.  

Just how big a deal is this? Let’s consider the impact of rising gas prices on the household budget of an average household. If this two-car family is now paying $1.50 more per gallon than they were a year ago and driving a total of 25,000 miles per year in cars that average 20 miles per gallon, they’ll spend an extra $1,875 on gasoline this year! If the household’s gross income is $50,000, the extra gas expense will be 4 percent of gross income and a larger percentage of after-tax income – likely more than their wage increase last year.  

If your car gets worse gas mileage, or if you have more cars or you drive more miles per year – like my family – the dollar bite out of your budget will be even more significant. If, like many households in the U.S., you live on the edge (your monthly expenses are pretty close to your take-home pay), you may be wondering where that $1,875 or more will come from. And what happens if gasoline prices rise to levels seen in other countries – maybe $5 a gallon or more? That’s an additional $2,500 for my example family.

What can you do to manage this kind of shock to your household budget? There are only a few solutions to this problem. Given that your income is not likely to rise fast enough to meet your additional expenses, you need to either reduce your usage of gas or reduce some other household expenditure. And don’t be surprised to see rising prices of other consumer goods in the near future as producers pass on their own rising fuel costs. (Notice that I don’t suggest that you increase your use of credit or reduce your household’s net saving and investment.)

In the short run, you’ll have to focus on other ways to trim your budget so you can pay for gas. The long-run solution is that we will all have to become wiser and more efficient consumers of fuel. We can drive less, carpool to work, buy more fuel-efficient cars and figure out how to program the timers on our air conditioning systems. We may  not have previously been willing to consider these alternatives to protect air quality and the ozone layer, but now the direct impact on our pocketbook may be the motivation that gets us going in the right direction.

Nowhere is this more evident than in my own household. In years past, it was not uncommon to find myself, my husband and my two sons each driving separate cars to and from our home in the Foothills to wherever we needed to be during the day – work, school, shopping or whatever. (To my chagrin, we’ve had days when one or more of us did the round trip more than once.) As the round-trip cost has risen, so too has our attention to carpooling. Home last summer from college and responsible for their own car expenses, my two sons suddenly found it much more convenient to let Mom drive.

I’m currently in the market for a car that gets better gas mileage.