[Update] I wrote this article a few years ago as average national gas prices were approaching $5 per gallon. That seemed preposterous then. Fast forward a few years and $5 seems mild now as we may see $8 gas in some states as inflation spikes and supply constraints worsen due to Russia’s invasion of Ukraine.
With global oil prices rising every other day and most projections forecasting the average national price of regular gas to rise to well above $5 (a gallon) by mid-summer; it is time to accept the fact that high gas prices are here to stay.
Some states like California and New York may even see $8 p/gallon in certain areas. This is despite gas tax stimulus breaks enacted in several states.
So start revising your budgeting to mitigate the impact from these higher prices down the road. Based on national averages, the average number of times a car is refueled in a month is 1.86, which equates to twice a month for most people.
The current national average price of gas is around $5.00 (regular) and a normal family car has a 15 gallon capacity.
So if gas prices rise to $8 a gallon within the next year, the impact to your budget will be ($8-$5)x15 gallons x 2 times a month x12 months = $1080 a year after tax.
If you have a longer commute and deal with more traffic like most people in larger cities, you will probably need to refill more often and this number could approach $1500 on an annual basis – not small change for most of us.
Will your budget be in a position to handle a $100 p/month increase?
The numbers will most likely vary by location, car type and driving needs. But you get the point. The higher prices are significant and you need to start budgeting like you are paying those costs now, to avoid feeling the sting of higher gas prices to your future outgoings.
Any savings from your gas/driving budget to actual spend should be added to your emergency fund or invested.
You may want to adopt a similar approach to your grocery budget which will most likely be 10-20% higher in a years time given commodity related inflationary pressures.
Given the aim is to avoid excessive debt and unforeseen financial surprises, it is better to over budget for rising prices now and under spend today, rather than the other way around.