Start Budgeting Now For Higher Petrol Prices
With crude oil reaching US$120 a barrel last week, and petrol prices here in Australia reaching as high as $1.45 per litre, it might be time to start budgeting for further possible petrol price rises.
I don’t own a car, and for a very good reason: they are money-munches. Yes, sometimes I miss the freedom of owning a car, but most of the time I love the freedom of having money because I don’t own one.
But for those of you who do own a car (and I am sure that would be most of you) it might be time to think about factoring in the rising cost of petrol into your budgets now, rather than just waiting and suffering later.
The first thing you need to do is to figure out how much you spend on petrol now. If you don’t have any idea, for the next two week record every cent you spend on petrol. This is a simple thing to do and it will give you a better idea of how much you will need to put aside now for future petrol price rises.
Two quick and easy ways to record how much you spend on petrol is to write down how much you spend each time you go to the petrol station (on petrol, not on drinks or chocolates), or simply keep your receipts when you pay for your petrol - you can just stick them in the glove compartment until you need them.
Once you know how much you spend, you will need to figure out how much petrol will rise over the next year or two. But unless you have a crystal ball you won’t know exactly, but you can figure out rough estimates based on what has happened over previous years.
Petrol prices over the last few years have, despite the doom and gloom of media reports, fluctuated a fair bit. In May of 2006 the average price was $1.35/litre, while in May of 2007, the price had dropped to $1.30 a litre. And as you are probably aware, in May of 2008, the price of petrol has increased to around $1.45 a litre.
You can see from this data that the price of petrol has increased by 10% over this time last year. But had decreased by 4% from 2006 to 2007. So what will it be May of 2009?
Like I stated before, no-one is absolutely sure but if you have a look at the historical data from the last 7 years you will see that there has been a 32% increase in petrol prices over that time, which comes out at a 5% increase each year over the 7 years. (The maths isn’t as simple as dividing 32 into 7, that’s why the 5% figure is different).
Looking at the figures in the long-run it seems likely that petrol prices will continue to rise but not as dramatically as they are at present. Although in the short-term that may not be the case.
Also, other factors are at work now that were not around in the past: the increasing demand from China and India, troubles in the Middle East, and a shortness in long-term supply.
So how much more should you factor in when working out your budget? Based on the data available, I would say between 5-10% more. This will give you a nice cushion against any future price-rises.
The next thing to do is to re-write your budget to factor in this extra 5-10% increase. Say you spend $50 per week on petrol now and you decide to play it real safe and factor in a 10% increase. If you start putting aside $55 per week now (and saving any left over money) you will have built up a nice buffer (as in extra cash) if the price does increase by another 10% over time. And if the price drops for a while, keep budgeting $55 for petrol per week and you will not be stung in the future if prices rise again.
Also, you may look at using your car less, but that is a whole other post.
How are you handling the rising cost of petrol?
Image credits: Maccanti and Zimpenfish
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