Gas prices are crazy high these days. I live in California and the recent gas price here was $3.51 a gallon (for 87 octane). Not everyone of us is close enough to work that we can walk, so every cent of gas price increase automatically means every cent lost in our pockets. I’m sure you have seen the examples of our savings illustrating the power of compound interest, but what if we use this and see how much we are losing from gas expenses through the years?
This example shows the money that could have been in our bank account after X numbers of years. I kept the interest earned at 8% (which is moderate) and about 200 dollars a month.
| After Year | Dollars |
| 1 | $2,489.98 |
| 2 | $5,186.63 |
| 3 | 8107.11 |
| 4 | $11,269.98 |
| 5 | $14,695.37 |
| 10 | $36,589.2 |
| 20 | 117804.08 |
| 40 | $698,201.56 |
| 45 | $1,054,907.97 |
Okay, I thought to myself. One hundred thousand dollars should get their attention. But as I was adding the commas on the numbers to make it more clear, I noticed that it is not a hundred thousand but over one million dollars! Geeze. Really? Yes. One million dollars for yourself and fifty thousand dollars for spares. That’s the opportunity cost of us using our gas every month. We are actually giving up a hundred thousand dollars for every twenty dollars more we spend on gas. Oh my god, I think I’m going to faint.
No wonder many people in Asian countries have more savings on average than Americans. I know I just made a controversial comment, but here my thought process. Many Asian countries are so crowded that the middle class uses public transportation. My sister lives in Hong Kong, and her salary would qualify her as the upper end of middle class (ahh how I wish I was her, okay stop day dreaming). However, she would never buy a car there, since the upkeep of a car in Hong Kong is very high. So even though she never thought of this, she actually saved one million dollars just on gas! (One million dollars comes from the fact that gas in Hong Kong is 4 times as expensive, so it’s safe to say that she would spend at least $400 dollars per month on gas if we had a car, $200 more than my sample).
Wherever you live, if you have a car and decided you need a car, there is only one thing to do. Let me try to help by trying to find us some ways to save more gas. Stay tuned for my findings.
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{ 8 comments… read them below or add one }
Geeze… 1 million??? I don’t believe this!
8% is not easily achieved unless you are investing wisely. 5% would be more fruitful since those rates are easily achieved using CD’s (little risk).
Mutual Funds/Stocks can fluctuate and you can lose $$ if you’re not paying attention.
I think that’s another point that people should understand. In the long run, we should be focusing our attention on long term captial growth. If our horizon is really that long term, we should put our money into low cost index funds since it will get us the 8% per year in the long term.
Gas prices are insane! It’s a good reason to buy cars with good gas mileage and take the bus when you can.
It might also be a good idea to invest in energy stocks
The three things you mentioned, I have done
Good gas mileage – I drive a Acura RSX, so maybe half a point for that?
Take the bus – Can’t since I live in Orange County, California and there isn’t that many buses
Energy Stocks – I own Exxon Mobil (XOM) and Diamond Offshore Drilling (DO), so definitely a big check there.
I drive a TSX but then again my work is 1 mile from home!
Your situation is so similar to mine (RSX and 1.5 mile from work).
I have always wonder how much bad it is for my car since we are driving such short distances everyday.
This article is foolish. You’re calculation a future value and then expressing it in present value. That $1M is actually worth a lot less right now in this moment.
Also, if you’re going to do such an outrageous analysis, why single out gas? People make trade offs with every buying decision.
A coke is worth $1 to me. Driving to get the coke is worth $1 to me. Why single out the gas to get there and not the soda as well?
If you’ve taken an economics class you know there’s no free lunch. Money now can be turned into a lot of money later because money now is more satisfying and has a higher rate of utility per dollar for most people. There’s no 100% correct answer between spending now and saving for later, it’s a utility balance just like any other decision.
This is drivel.