How much does that gallon of gas cost?

This has been a long time coming. It's the first in my series of posts on gas prices, hopefully the next post won't be so long coming. Please post any ideas/questions about gas prices and I'll do my best to research and address them and give my opinion.

First, I wanted to ask, what does that gallon of gas really cost? My thought was this, we've had high gas prices before, are they really high now? Well the intelligent answer is "DUH! Have you paid $4 for a gallon?"

I'm not that old, but I remember when I first started driving that gasoline was only about 50cents/gallon. So we've gone up 8x. But inflation is a factor also, and I remember the gas prices of the 1980's. In fact, 1981 was (until recently) the highest ever price of gasoline (when adjusted for inflation) In 2008 dollars, 1981 gas was $3.17/gallon, higher than last year's prices, higher than post-Katrina prices. (See this report for details)

But the truth is, 1981 gasoline was still cheaper than what we have today. I recently paid over $4 in Washington DC. But how much is that gas taking out of the average budget? I asked two young couples how much gas they use. Both couples said they average 80-100 gallons/month. Call it 20-25 gallons per week. If we look at national averages, WikiAnswers says the average person drives about 12,000 miles/year, and the average car gets about 24 mpg. That works out to 12 gallons per week per individual. Looks like our couples are right about average.

So the average person is paying about $48 per week for gas now. A year ago, gas was around $3 per gallon, so that's about $12 more per week, $144 per year. Our average couples are getting hit for $288 more than a year ago.

Bankrate.com says that the median family income is about $1137/week, so our average couples (assuming they have median income) are paying about 8% of their income for gas, versus about 6% a year ago. This change of 2% doesn't seem like an awful lot.

While 2% may not seem like a lot, the facts are that gas prices in the 1990's were at all time lows. The last five years have seen continous increases and that's what is driving the current discussion over gas prices. When Katrina hit in 2005, gas prices sky rocketed and everyone talked about ways to save gas. Hybrid vehicles fetched a premium and there were waiting lists for the cars. SUV's stopped selling. (See this article from October 2005). There was even a "What Would Jesus Drive" movement in the country.

But just a year after Katrina, sales of SUV's picked back up. This 2006 article ranked overall fuel economy 21 among features customers looked for, two slots BEHIND cup holders. Yep, cup holders were more important than gas mileage.

So, my prediction is that a year from now (after elections and our new president is installed), the subject of gas prices will be quiet again. Cup holders will rise in importance.

This doesn't change the facts, you still need to do everything you can to reduce your gas consumption or you're going to pay more of your budget for gas.

My next post will discuss selling your current car for a newer, more fuel efficient vehicle.