Price of gas a budget-buster?
The price of gas is way higher than we’re accustomed to, so we feel it’s high. We’re used to gas being cheap and plentiful in the U.S. We all get very cranky when it’s not cheap and plentiful. Right now, we have enough gas to go around, but it’s comparatively expensive. We have a problem when our addiction is being tampered with. And yes, we Americans are addicted to oil.
Many today are too young to remember the oil crisis and long lines to the gas pumps in the 1970’s. Gas was both expensive and scarce. The price of gas in 1970 was $0.34/gal before the oil shortage. After the economic beating we took throughout the 70’s the price of gas in 1980 was $1.23. That’s 3.6 times higher than the price just a decade before. The price of gas in 1990 was $1.09, and in 2000 it was $1.66. Last night, in 2008, I paid $3.66/gal. That’s only 2.2 times higher than in 2000. Source: California Energy Commission.
Price of gas in 2007 dollars
The above numbers are a bit deceiving because the value of a dollar has declined since 1970 due to inflation of about 3%/year on average. If we look at past gas prices using 2007 dollars here’s what we get:
- 1970 $0.34 = $1.46 in 2007 dollars
- 1980 $1.23 = $2.72
- 1990 $1.09 = $1.60
- 2000 $1.66 = $2.06
- 2007 $3.08 = $3.08
- 2008 $3.66 = $3.55
The price of gas is 2.1 times higher today than it was in 1970, and 1.3 times higher than in 1980. If you look closely at 2007 and 2008, gas has gone up by more than inflation in one year. If the price only increased by the rate of inflation, today it would cost $3.17/gal. But it costs $3.66/gal, $0.49 higher than from inflation alone. Still, how many things can you say have only doubled in price in the last 38 years? Not many.
We also listen to the news and we know that the Saudi’s have reduced the amount of crude oil they pump out of the ground per day and ship to us, inflating prices. The extra $0.49/gal we’re paying is because we are at the mercy of another country in an unstable part of the world who can decide how much oil they want to pump out of the ground. They can decrease the supply and the price will go up because the demand will still be the same or it will increase as China and other countries industrialize quickly. That’s exactly what’s happened. The Middle East, Saudi Arabia in particular, has us under their oil-producing thumb. What could and should be done about that will have to be another post.
We complain about it so much because we have to buy gas no matter what the price, or we have to drastically change out lifestyles to depend on other forms of transportation, also a topic for another post. If cable goes up, we can go down to a lesser package to offset it. We can even drop cable entirely. But we need gas to get to work and school, and to perform some of the necessary functions of daily living.
Let’s get some perspective:
Comparisons with some of today’s most popular products:
In 1970, we didn’t buy bottled water in the U.S. If we needed to bring water with us somewhere, we put it in a thermos or cooler or other reusable container and carried it.
Today, people buy small and large bottles of water. Some of us need to keep bottled water for emergencies like hurricanes and flooding because our water supply could easily be contaminated. But for the rest of the country and during seasons of the year that flooding and hurricanes are less likely to happen, people still empty the store shelves of bottled water on a regular basis.
Let’s say you grab a 20 oz bottle of water from the cooler in the check-out line at the grocery store for $1.29 (plus tax). That water costs 6.5 cents/oz or $8.26/gallon!
Water from your tap at home costs about $12/month. If you don’t like the taste of your water, buy a filter system. It’s very cheap compared to the price of bottled water.
In 1970, Starbucks and all the other coffee houses didn’t exist, and we didn’t even have the word “latte” in the dictionary. It wasn’t in the dictionary in 1989 either.
Here’s another comparison we can all relate to today. This is a quote from the Dave Ramsey Newsletter:
Earlier this month, an algebra teacher in Michigan sent me a great email that I read on the radio show. She wrote:
Dave, I often give my math students this calculation to figure out. A typical latte costs $3.59 for 16 oz. That’s 22 cents per ounce or $28.72 a gallon! Ask your listeners if they’ve drunk a gallon of latte lately!
For those of us who don’t remember all our English units so well, there are 128 ounces in one gallon (when will we finally adopt the metric system???).
Here’s a calculation that translates more directly to gasoline:
If you bought one 16 oz. latte 5 days a week, you would buy 80 oz in a week. That costs $17.60/week.
There are 4 1/3 weeks on average per month (take 52 weeks and divide by 12 months to get the average number of weeks per month in a year). Those lattes are running $76.27/month. I don’t know about you, but that will fill my Honda up with gasoline twice at today’s prices.
If you calculate the cost of lattes over a year you would be spending $915.24/year!
I seldom buy bottled water. I save large containers and fill them with water when we need bottled water. I may buy a case of bottled water if we have to be ready to evacuate. I never got in the habit of buying lattes. I like my coffee plain and black; no cream, no milk, no sugar or sweetener of any kind; and I brew it at home. If I’m going somewhere I put it in a thermos and take it with me.
Gas prices are pinching my budget a little. The other thing that’s pinching my budget are the increases in prices of food and utilities because of the increased price of oil and natural gas. I hate paying more than I’m used to as well. But the big-picture conclusion is that gas prices really aren’t a budget-buster.
So dear readers, I have a question for you. How much is the price of gasoline pinching your budget? Please speak your mind by leaving comments.
Trying to keep it real,
Sherri
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