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A different perspective on gas prices
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25,000 miles per year…25 miles per gallon…$2.25 per gallon vs. $1.75… At one time or another we have probably all gone through this calculation in our heads. With gas hovering around $2.25 per gallon this mathematical equation might be occurring more frequently then in the past. It is hard to go a few hours without hearing about how higher gas prices could hurt the economy and completely change our lifestyles.
According to a survey by ABCNews.com, oil prices would have to climb above $90 per barrel to meet the inflation adjusted peak set in 1980. When this column was penned, oil was around $54 per barrel. In other words, gas would have to climb to almost $3 per gallon to catch up with inflation. The $1.40-$1.80 gas for the past 10 years may have contributed to the fury over current prices. If the price of gas increased 5 cents per year instead of all at once, we may not have so much mayhem. I can just imagine the outrage that would ensue if the price of cable TV stayed at $15 for 25 years and then jumped to $45.
So how does the increase in the price of gas compare to other items that we use on a daily basis? In a study performed by KPCNews.net, since 1980 the cost of milk has increased 47%, bread 75% and eggs 30%. Over this same time period, according to the U.S. Department of Labor, inflation has increased over 100%. Paying $2.25 for a gallon of gas now vs. $1.35 in 1980 means that after filling up you have more of your paycheck left for other goods.
The price of gas compares favorably to many other items.
Item Price Per Gallon
Gas $2.25
Milk $2.50
Auto Antifreeze $4.19
Budweiser Beer $8.88
Red Bull Energy Drink $30.69
Contact Lens Solution $82.00
Vanilla Extract $127.84
If it hurts to put 15 gallons of unleaded gas in your car at $2.25 per gallon, can you imagine the pain if you had to fill up with vanilla extract? Your car might smell nice but it would probably never leave the garage.
While higher gas prices might be here to stay we can reduce the effect it has on our lives. If the average driver travels 15,000 miles per year and achieves 25 miles per gallon, a 75 cent increase in the price of gas would cost the average family $450 more per year. If you are not a fan of shelling out an extra $450 try living by the "Rule of One".
" Save 1 dollar per day on lunch.
" Turn the heat down 1 degree.
" Go out to dinner 1 less time per year.
" Drive 1 mile per hour slower.
" Turn the refrigerator 1 degree warmer.
" Buy 1 less magazine each month.
" Turn on only 1 light when entering a room.
" Get 1 book out of the library instead of buying it.
" Save 1 cent per minute on your long distance phone rates.
" Buy 1 used item instead of new.
" Rent 1 video instead of going to the movies.
Unless you drive an 18-wheeler across country for a living, it is easy to minimize the effect of higher prices on your bank account. In the mean time if you are really worried about gas going to $10 per gallon you could always spend some of your free time developing a car that runs on milk.
Spencer Corzine is a Financial Advisor affiliated with Anderson-VanHorne Associates, Inc. Securities offered through Wall Street Financial Group, Member NASD/SIPC. 118 West Main Street, Victor, NY 14564
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