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Fuel Economy
Three Gas Price Myths
How To Budget Fuel Costs To Beat High Gas Prices
By Philip Reed, Senior Consumer Advice Editor
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Date Posted 09-02-2008
Close up on a man's face as he stands near a gas pump.
"With gas prices goin' through the roof like this, I can't afford to drive to work anymore." He falters and seems close to tears. "We cancelled our vacation, we parked the truck...and we still can't make ends meet."
That's the steady diet of pain at the pump we are fed by the media when gas prices jump. But this man, and others who cry foul over gas prices, are actually exaggerating the effect of the cost of gas on their household budgets. In many cases, if you look at the actual figures, a different story is revealed.
What are those misconceptions? And what — if any — changes should you make to your lifestyle?
Gas Price Myths
There are several misconceptions surrounding gas prices that consumers buy into. We are going to explore three of those myths in this article:
- Rising gas prices are forcing families into bankruptcy.
- Trading in an SUV for a Prius will save a lot of money.
- If 25 mpg is good, 50 mpg is twice as good.
Before we address these fallacies, let's look at a typical two-car household and see exactly what their driving habits are and the fuel costs that they pay.
The Two-Car Household
Many households have two cars: an around-town family hauler and a commuter car for getting back and forth to work. Let's look first at the around-town car.
The around-town vehicle is usually a large SUV or a minivan used for transporting kids and recreational equipment to school and athletic practices or other activities. Let's say this vehicle gets 15 mpg and is driven about 20 miles a day, which adds up to about 7,300 miles a year.
In the "good old days" of $3/gallon gas, the yearly fuel bill would be about $1,460. At $4/gallon for gas, the fuel bill rises to about $1,950. That is an increase of $490 a year. That might sound like a lot but it is only $9.40 more per week.
Now let's look at the commuter car. This vehicle is driven 60 miles a day, 5 days a week, for 50 weeks. That's a grand total of 15,000 miles per year. Luckily, this car gets 25 mpg, so at $3 per gallon the yearly fuel bill would be $1,800. With gas climbing to $4/gallon, that figure climbs to $2,400, an increase of $600 a year or $11.50 more per week.
To summarize, this family was paying $3,260 a year at $3 per gallon of gas. At $4/gallon for gas they are now paying $4,350. The jump from $3 to $4/gallon for gas has increased their yearly fuel bill by $1,090. That seems like a lot, but on a weekly basis it is only $21 more for the entire household.
Gas Myth #1: Rising gas prices are forcing families into bankruptcy.
As you can see from the above scenario, this family's yearly fuel bill climbed by a total of $1,090 when gas prices went from $3/gallon to $4/gallon. While this might sound like a lot, in relation to their total budget it is relatively small. Say this family earns $50,000 a year. This means that their annual fuel costs went from being about 7 percent of their gross income to being about 9 percent of their gross income.
For a family making $75,000 a year, the percent is lower. It means that gasoline costs went from being around 4 percent of their gross income to around 6 percent.
Also, keep in mind that this example also assumes that the commuter car is being driven 15,000 miles a year and the family car is driven 7,300 miles a year. That's a fair number of miles. And the SUV we mention here gets only 15 mpg, which is pretty low. So it's important to see that we are probably overestimating the impact of gas prices in our example.
In some cases, a family may be living very close to the edge of financial solvency and when gas prices rise, it's the final straw that breaks the bank. Gas prices are blamed, when in fact it was a number of factors. Another problem is that people budget based on current gas prices, not fully taking into account how fuel prices have fluctuated wildly in recent years.
Gas Myth #2: Trading in an SUV for a Prius will save a lot of money.
Because of the hysteria surrounding gas price increases, many people think they should dump their SUV for a Prius or other hybrid. They swing from one extreme to the other.
This knee-jerk reaction would be a huge financial misstep. First of all, it is the worst possible time to trade in or sell an SUV and also a bad time to buy a Prius. While the SUV might only bring $10,000 as a trade-in, the Prius will typically cost about $25,000, meaning that this vehicle change has cost $15,000. How long will it take for the savings in gas cost to pay for this $15,000 balance? Well, it depends on how many miles you drive. But it could easily take eight years or more before you actually begin saving money.
If you want to run the numbers with your own vehicles, use our Gas Guzzler Trade-in Calculator.
What you begin to realize is that switching vehicles is almost always costly, particularly when you factor in the cost of sales tax and registration fees, which are significant in many states. However, the less you spend to make the transition from a gas-guzzler to a fuel-sipper, the faster you begin saving money.
Gas Myth #3: If 25 mpg is good, 50 mpg is twice as good.
In recent years, consumers have focused on the miles per gallon (mpg) that a vehicle gets. While this is a handy way to compare cars, it doesn't show a clear picture of what is really important: how much fuel you may save.
To understand this better, consider this question: Which is better — to trade a car that gets 25 mpg for one that gets 50 mpg? Or to trade a car that gets 12.5 mpg for one that gets 25 mpg?
The answer isn't what you might think. It is far better to go from 12.5 mpg to 25 mpg. The answer is revealed when you look at the cars in terms of how many gallons it takes to drive 100 miles. So if you drove the three cars we mentioned here, the results would be as follows:
12.5 mpg = 8 gallons to drive 100 miles
25 mpg = 4 gallons to drive 100 miles
50 mpg = 2 gallons to drive 100 miles
In other words, the savings when going from 12.5 to 25 mpg is 4 gallons. When going from 25 to 50 mpg, only 2 gallons of gas is saved.
What this means is that if a family owns two vehicles, they should trade the low-mpg vehicle for one that gets even average fuel economy. Put another way: forget the Prius.
Another way of looking at this is that vehicles whose average fuel economy is in the low teens are poor. Any vehicle that gets an average of 25 mpg is pretty good, and replacing it isn't usually beneficial.
Tips for Fuel-Conscious Families
- Know your auto-related expenses. If you want to cut your fuel bill, you need to know the fuel economy you are currently getting. Then you can work to improve your fuel economy with your existing cars. Keep track of auto-related expenses for at least a month before you consider making drastic changes such as trading a low-mpg car for a more fuel-efficient car.
- Look at the big picture, not just the price at the pump. Any time you change vehicles, you will be spending a lot of money on taxes and fees. For example, sales tax is above 8 percent in 19 U.S. states. This means that buying a $20,000 car will cost at least $1,600 just in sales tax. That will pay for 400 gallons of gas (at $4/gallon) that could take you 8,000 miles (based on 20 mpg). If you're tempted to switch vehicles, run the numbers first through the Gas Guzzler Trade-in Calculator.
- When gas prices are out of control, learn to control the way you use your vehicle. You can't control gas prices and that makes many people panicky. But you can do more than you think to control the way you drive, how far you drive and how often you drive. Some people have become more informed about rising oil prices so they can save money on gas.
- Changes caused by high gas prices aren't all bad. Many families have found that making changes to their busy lifestyles has actually been beneficial. One mother decided to walk to swimming practice with her children and enjoyed the extra opportunity to bond with them. Other people have taken to walking or bike riding and lost weight as a result.
While gas prices rise and fall, the long-term trend is definitely upward. Understanding fuel prices and how to manage rising costs will become increasingly important. If you begin to think analytically about these expenses now, you will be better prepared to cope with an uncertain future.
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