How to save money from falling gas prices

The price of gasoline in the U.S. dropped for 97 days straight beginning in late September 2014. According to the American Automobile Association, the gas we buy today costs an average $1.11 per gallon less than this time last year. Averages are great liars, of course. The average cost of gas in Anchorage, Alaska, right now is $2.87 while folks in Columbia, Missouri, are filling up at $1.80 per.

How this all shakes down for you depends on the length of your commute (five miles each way or 50?) and/or the rigidity of your current budget, as well as how long prices stay at these levels. But an article in Business Insider notes that if gas prices remain low, the average American household should save about $42 per month in 2015.

The savings might be considerably higher if your household's driving habits add up to mucho miles. (Hello, Californians!) Yet even that “average” $42 per month could do your budget some good as, say, seed money for an emergency fund savings account.

But only if you know where it is. If you're a driver, ask yourself:

  • What did I pay for gas in 2013? In 2014?
  • How much did I save?
  • Where is that money now?

How often do prices go DOWN?

It's easy to lose track of (relatively) small savings. Maybe the rising costs of other items like food and insurance siphoned those extra dollars from your budget. Or maybe lifestyle creep came a-callin'. A little wiggle room in your budget over the past year meant you could take a fitness class, hit a couple of ballgames with friends, buy slightly nicer holiday gifts, really blow it out on New Year's Eve.

But how often do the prices of any essentials actually go down? This is a golden opportunity to coax extra dollars from your budget over the coming year.

(Hint: Can you name everything you got for Christmas 2013? The folks you treated to big doings in 2014 probably won't be able to remember, either.)

As my daughter (also a blogger) always says, “Save your savings.” Last year she and her husband squirreled away more than $2,200 in this fashion.

Saving the money is only one option for the temporary price break, however. You might also:

  • Pay down any credit card debt
  • Start a college fund for your baby
  • Deposit a little more into retirement (easier now than scrambling to find money at the end of the tax year)
  • Make additional payments against student/auto/mortgage loans
  • Schedule needed maintenance for your car

For more forward-thinking ideas, see “20 ways to spend $20.”

Consider the opportunity cost

It is so tempting to think “Maybe I could go to that concert with my buds” or even “It's been ages since I had a vacation.”

Champagne tastes and a tap-water budget are a frustrating combo. It can be particularly maddening when you are young and longing to experience everything life has to offer, only to have some personal finance buzz-killer drone on about saving for retirement and paying down student loans.

Myself, I think you can have it both ways. But you can't always have everything you want as soon as you want it.

So think about the opportunity cost of that $42 (or whatever it comes to for you) per month. Then make it your business to be intentional when it comes to sinking fuel costs, as well as any other temporary price breaks you are fortunate enough to encounter.

Personal finance author Liz Weston has a great idea about windfalls: Spend 10 percent on something you really want and put the rest toward something more lasting. So check last year's budget to see how many gallons of gas you bought last year, then estimate your possible savings over the next 12 months.

Feel free to spend 10 percent of that. Divide the rest by 12 and automate that amount each month toward a longer-term goal, whether that's a Roth IRA or a pay-cash-for-my-next-car fund.

Just make sure it's a fuel-efficient car. Gas won't stay cheap forever.

Do you have a plan for how to capitalize on lower gas prices? How much do you think you could save?

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Nick | Millionaires Giving Money
Nick | Millionaires Giving Money
5 years ago

I’ve been tracking the price fall and I have noticed a few extra pounds in my pocket. I’m looking at saving about £100 per month thanks to the fall in gasoline prices. I have already (thanks to this post) created an additional £100 automatic transfer into my investment account! Thanks for sharing and hope prices remain low for the foreseeable future. Great post, thanks for sharing.

Beth
Beth
5 years ago

I love the concept of “save your savings” and how this post promotes not changing your lifestyle and banking the extra. I think when gas prices are low people are less careful with this resource. (It still affects the environment, people!)

For me, lower gas prices might save me $10/month with my fuel efficient car. However, I doubt we’ll see savings from retailers and service providers anytime soon. Maybe they’ll catch up on how fuel costs have been eating into their bottom line, or maybe they’ll just enjoy the extra profits?

Donna Freedman
Donna Freedman
5 years ago
Reply to  Beth

“Not changing your lifestyle” — that’s it, in a nutshell.
And saving your savings really can help. Although my daughter and SIL had a painfully expensive year (lots of homeowner issues, a sick pet, finding out that a forgotten payment had wound up in collections), they still were able to set aside $2,200.
Here’s how it all shook down:
http://ipickuppennies.net/2015/01/the-year-in-financial-review/

JoeM
JoeM
5 years ago

The current gas price situation is going to save me $30-50 a month on gas prices, so it’s some pretty significant money. No, I do not drive a gas guzzler, I drive a Focus that gets a combined 30 MPG. I just have a long commute, but $200/month in gas is cheaper than rent close to work.

I’m using the savings from last month and this month to pay for a trip to visit a college friend, as it’s been a very long time. The rest will just get transferred into savings.

Britni @LazyGirlFinance
Britni @LazyGirlFinance
5 years ago
Reply to  JoeM

I’m in a similar boat – my longstanding gas budget is about $200/mo due to my commute (ah, suburbia). Over the last month or two, I’ve had an extra $50/mo sitting in the old checking account. Huzzah! Into the savings account with the lot of it! I am definitely on board with the “save your savings” concept.

I doubt the low gas prices will last much longer; in fact, I am half expecting a 2008-esque spike over the summer. In the mean time, I intend to enjoy the extra savings boost.

Donna Freedman
Donna Freedman
5 years ago

Gotta pick it when it’s ripe, right? When prices go back up, you’ll have more of a cushion for when other things go wrong. If I were commuting that much I’d always be wondering, “Is this the day the car keels over?”

Scondor
Scondor
5 years ago

My guess is that low gas prices will mean lower demand for fuel efficient vehicles, so pretty soon might be a good time to swap out a less efficient car for a more efficient one without paying a premium to do so. When gas prices do go back up, you’ll be riding pretty.

JS
JS
5 years ago

This is another area where having a fairly strict budget can help. Not only do you not spend more than you should, but you are less tempted to spend your unexpected windfalls. Some people are looking for painless ways to cut costs so they can bump up their 401(k) contributions or start an emergency fund. Well, here’s a way that’s just been handed to them. Here in the northeast, you might also be paying a lot less for heating oil this year. Between gas and oil savings, you could easily be talking about $1,500 or more depending on your current… Read more »

Wiggles @ FirstYouGetTheMoney
Wiggles @ FirstYouGetTheMoney
5 years ago

To make it easy, I like the idea of taking the average gas price in your area last year compared to the average price this year. Take that savings multiplied by approximately how many gallons of gas you fill up per month and pay that amount extra on your student loans, car loan, mortgage, etc. For example, if the average price of gas in your area in 2014 was $3.50, and the average price in your area so far this year is $3.00, you have an average savings per gallon of $0.50. If you usually burn around 60 gallons of… Read more »

Nate
Nate
5 years ago

I commute around 600 miles a week. My wife and I can’t afford to get a better mpg car, my Avalon averages 26mpg and I’m mainly on the highway. Anyways I’m saving close to $40 a week and loving it. That’s an $160 we’re putting towards our debt. Some of my relatives don’t like it because they work in the oil boom here and are starting to face lay offs. I kinda feel sorry for them but I’m pocketing the extra money and my opinion is that instead if them buying a new ZO6 corvette with how much you make… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  Nate

I live in Alaska, where the cost of oil is a huge concern. Sure hope that tourism grows enough to make up for the deficit.
Love the fact that you’re putting the extra $160 toward debt. It’s so nice to come in ahead of your payback schedule.

Rail
Rail
5 years ago

The Des Moines Register just had a article on this subject the other day, and most experts in the Midwest are expecting the retail price of gasoline to bottom out another dime and then start to climb back up do to summer blending of fuels. Don’t expect a return to buck a gallon gasoline to ever happen again unless some ungodly HUGE reserve of oil was discovered in a “friendly” part of the world. At best I’m just banking the couple hundred bucks a year windfall cheap fuel has given us and getting ready for the next big spike in… Read more »

Robert
Robert
5 years ago

What JS said.

We keep a strict budget. Any money not spent is savings.

BE Pennypacker
BE Pennypacker
5 years ago

I like saving some of the savings for when gas prices go back up. I try to set aside about 25% of my monthly gas bill, that way I don’t have to stretch my budget too much when prices head back up above 3 or $4.

Abigail
Abigail
5 years ago

Thanks for the shout-out.

Sadly, I’ve heard reports that sales of SUVs have increased. Hopefully, frugal people will take advantage of the opportunity to save.

We just got a new (to us) car. We still fill up every two weeks or so, but it now costs $30 or less. Compared to $50-60.

Hooray!

rosarugosa
rosarugosa
5 years ago

Our electric rates spiked at just about the same time gas dropped, so most of our gas “savings” is going to the electric company.

Donna Freedman
Donna Freedman
5 years ago
Reply to  rosarugosa

Two steps forward, one step back…On the other hand, at least the savings are offsetting the spike.

Debt Hater
Debt Hater
5 years ago

I’ve actually been reading that the sales of SUVs and light trucks have increased! People have extremely short memories and they are going to be the same ones complaining whenever gas prices start to head back up.

I get around 30MPG and did a decent amount of travel last month, so didn’t see any huge savings yet. I am expecting to save $10-15 this month and hoping to put it towards additional savings.

Donna Freedman
Donna Freedman
5 years ago
Reply to  Debt Hater

I was a teenager in the 1970s and remember the mania for getting cars with good mileage. Years went by and people decided they wanted gas-guzzlers once more.
As Mark Twain is alleged to have said, “History doesn’t repeat itself, but it does rhyme.”

Martha
Martha
5 years ago

Unfortunately, due to Obamacare, our monthly health insurance premiums jumped up over $500/month January 1st, so any gas savings is having to go towards that. Thank goodness for gas going down at this time.

Beard Better
Beard Better
5 years ago

As an avid public transportation-ist I can’t really join in the celebrations here, although I am glad that falling gas prices may help a lot of people make a little extra progress on paying off debt. Enjoy it while it lasts, because it will not be for long I think.

Also, I just had to mention this line “So check last year’s budget to see how many gallons of gas you bought last year”. I’m all for budgeting, but come on now.

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