Sushi Money

For most of us in the U.S. prices at the gas pump are ridiculously high.  It would almost be funny if it wasn’t such a crucial issue for the national economy and consumers.  When I filled the tank the other day it was staggering to see the difference in cost from just months ago.  We don’t know if gas prices will remain high or continue higher in the years ahead, but global demand is still growing which makes it likely. These prices are almost inconceivable in some ways, and when you’ve got to make a long commute each day it’s hard to reconcile paying a larger chunk of the monthly budget to get the same amount of miles out of a vehicle.  Those chunks of the monthly budget add up to real dollars over time- dollars that we are giving up in saving for our future retirement security.

Many people in Europe or other nations have little empathy for U.S. drivers, but our country is so large that many of us routinely drive for an hour or more one-way to work each morning. It’s not uncommon for many of us to put over 75 or 100 miles on the car each day.  It’s a fact of life based on our geography that many of our own citizens often forget.  Those of you living in the city or suburbs of a large metropolitan area may not commuite or drive quite as far.  But many other people live in rural areas far from any metropolitan city and must not only drive long distances to work, but also to see a doctor, receive medical care or simply shop for groceries.

Obviously some of us drive vehicles that use a lot more gas, and it’s dawning on a lot more people that the money we spend for gas is simply being wasted on gas fumes.  Sure we love our big cars and trucks, but at what point are we willing to give up our future retirement security by driving a comfortable car?  Do we really need such a big car?  Maybe. But I believe that more Americans will give up the luxury of a larger car for the convenience and economic bonus of driving a smaller car. 

Most of us will never really understand the reasons for the runup of oil prices.  Demand is obviously a huge issue worldwide and speculation is being looked at more closely for the impact to high prices.    It is somewhat amazing that large investment banks can control enormous trading positions in oil and gas reserves.  Even billionaire George Soros sees much of the energy price runup due to “craze-following” behavior by financial institutions.

But regardless of the cause, the energy crisis is here and is causing a major shift in U.S. consumer behavior.  The media has begun reporting on the extinction of gas guzzlers in the U.S. as well as how American companies are reeling from energy costs.   U.S. consumers have cut back on gasoline use for the third month in a row, and the airlines are struggling as never before as corporate costs will continue to be passed to consumers. 

“Pressure from higher energy costs is already being felt, with Kimberly-Clark announcing it intends to raise prices on its consumer goods products 6 percent to 8 percent in the third quarter. The maker of Kleenex tissues and Huggies diapers said higher energy and raw materials costs were to blame for the price increases.”

We’re seeing price increases all around with food, energy and a greater number of retail goods.  The point is simply that high gas prices and the related impact on the family budget are a very real personal financial planning and retirement issue.  In what way?  Based on the cost of ownership of various vehicles, including how much it costs to put gas in the tank.  Don’t get me wrong, this is a free country and I love a big vehicle to move people and stuff around when I need it.  But when I need it is the important part of that sentence.  Most of us are realizing that we don’t really need quite as much car or truck as we thought we did. 

The New York Times describes how we’re staggering under the cost of $4 gas while examining the cost of ownership of various vehicles, and why consumers are changing their minds about what they’ll buy and drive these days:

“While the F-250 costs $100,000 and a fully loaded F-150 — the better-known, smaller Ford pickup — costs about $70,000, a Ford Focus still costs less than $40,000 over five years. A Honda Civic Hybrid does, too. A Toyota Prius costs only a little more. A Subaru Outback station wagon runs $50,000 or so.”

“To put this in perspective, the difference between a Focus and an F-250 over five years is $60,000. The annual pretax income of a typical family in this country is also about $60,000. So choosing a F-250 over a Focus is like volunteering for a 20 percent pay cut. The relative resale values might cushion the blow a little, but not much.”

“That’s why more people are deciding that towing capacity and the other benefits of pickup trucks and S.U.V.’s are not worth the costs. The F-250 may still make sense for some business owners. But, as Mr. Fisher says, on those few occasions when the rest of us need to move some horses, we can rent a truck. “The new economics of car buying is, ‘Don’t overbuy,’ ” he told me. “Buy something you’re going to need most of the time.”

That’s a great example for the impact of gas prices based on the type of vehicle we drive (it’s still somehwat incredible to me that U.S. automakers have been so ill-prepared to deal with this shift in need and demand!).  

But sky-high gas prices affect everything, including retirement security for you and me.  What are we giving up in future dollars and earnings simply to drive that big truck around town?  If I were to run the numbers it would be staggering.  Think of  the tremendous amount of money over time and it’s not hard to see how $30,000 to $40,000 over five years can become an incredible sum of money.  So what we drive each day and how much money we spend on it can make an enormous difference in our ability to save discretionary income for retirement. 

It’s not all about gas prices either.  While we continue to see price increases at the grocery store, it’s only a matter of time before wage increases won’t keep up.   The fact that wage inflation is under control right now may be more due to widespread economic challenges rather than anything else.  As the business cycle heats up again in the years ahead I have to believe we’ll see stronger inflationary pressures and rising interest rates all around. Fuel prices may be even higher.  If it costs more to live in the years ahead we need to think hard about how much money we’re willing to give up from savings right now.   Every dollar we save by driving a higher mileage vehicle means more dollars saved in the years ahead.

With that said, it’s a pretty good time to re-think the monthly budget, and and how much we’re willing to spend each year on fuel costs.  I’m not willing to sacrifice my future retirement security by spending so much money on gas.  Like many people I’m just not sure what I’ll do about it yet.  But I suspect a better mileage vehicle may be in our future.

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