For the first time in years, gas here went under three dollars a gallon. It was cause for a minor celebration. There’s just something nice about seeing that $2.98 on the marquee. It’s only psychological, but it was comforting. Of course, after my minor celebration I realized that there was no point in getting overly excited. The long term trend for gasoline is up, up, and up. (Here it’ll happen soon rather than later since our state is increasing the tax after the first of the year and the ethanol subsidy is ending.) It’s a resource with limited availability and as it becomes scarcer, the price will go higher. This little dip is a nice respite, but the higher prices will come again.
I see many people who don’t seem to understand this (or care). They are celebrating the lower gas prices as though it will be forever. They seem to think that they will always have this extra breathing space in their budgets and they are spending that extra money on new trucks, bigger cars, and other stuff. They’re trading in the fuel efficient cars they bought two years ago when gas was over $4.00/gallon and going back to their big SUV’s. While I understand the desire to believe that gas prices will remain low, history shows that it’s just not the case. There have been dips before but those dips have been followed by increases. Sadly, when gas rises again it usually rises even higher than the last increase.
The smarter approach is to enjoy these prices while they last but to prepare for them to go higher. Here are some suggestions.
Keep the fuel efficient car
If you have one, don’t give in to the temptation to trade it for a truck or SUV. You may want the extra room, but when gas prices rise again you’ll hate yourself. Trading cars all the time costs money and trading down again in a year or so will cost you. Just keep what you have.
The time to get a smaller car is now
If you’ve been thinking about getting rid of a bigger vehicle and getting something more fuel efficient, now is the time. When gas prices are up, hybrids and smaller cars are hard to find because everyone else is trying to trade down, too. The used market becomes especially scarce. If you do find something small and fuel efficient, you’ll have no negotiating room because the dealer knows he can sell it for full price. Now that gas prices are down, availability of these cars is up. You’ll also have more room to negotiate price since the competition isn’t as fierce.
The time to sell the gas guzzler is now
Aside from finding and buying a smaller car, your other problem when gas prices are high is unloading your gas guzzler. The dealers don’t want your big car and you’ll get a low trade-in price. Selling a big vehicle yourself won’t bring in much money, either, because no one wants them when gas prices are high. If you sell your bi car when gas prices are lower, you’ll have better luck unloading it at a price that doesn’t feel like robbery.
Save the money
Instead of blowing all of your new found wealth on other things, keep banking it for the day when gas prices increase again. Act like prices are still high and don’t adjust your budget. If you put the money away now, you’ll have it when prices increase and you won’t be so flustered as you try to figure out how to accommodate the hit to your budget.
Pay down debt (the exception to number four)
If you want to put your extra money toward something, use it to pay down your debt. At least that way, when gas prices go up again, you’ll have fewer debt payments competing for your gas money. Your budget will be better able to absorb the gas price increase if you’re not saddled with extra debt.
Lower gas prices are not here to stay, so don’t get used to it. Use this time to prepare for the next upswing. You’ll be better able to weather the next increase if you have extra money stashed away and you’ve already made the move to a smaller car.
(Photo courtesy of David Reber)