If you haven’t started hedging yet, now really is the time to start. Even if you only manage to hedge one tank-full, you’ll be relatively better off than if you don’t. Here’s why:

From next Tuesday (September 1st) the government’s 2p/litre rise in fuel duty announced in the last budget comes into force. Analysts are saying fuel prices will rise far beyond that initial rise due to the renewed increases in the price of oil, partly thanks to world economies picking up again as the recession eases worldwide.

Get Hedging – If you haven’t read my ‘Part 1′ on doing it, now is the time to do so.

Give Some Love – Your vehicle is a complex piece of machinery that works at its best when well cared for. Clean out or change that air filter, give it an oil change, or drop it in a little early for that annual service. A well-serviced vehicle can improve your MPG by up to 15%.

Clear the Crap – Is your vehicle used like a secondary storage cupboard? Do you have a boot filled with ’stuff’? Every time you accelerate your car down the road, you’re using fuel unnecessarily by having to accelerate that ’stuff’ as well as you and the vehicle itself. Take 5 minutes today and assess what is in your car. Do you need it? If the answer is no, take it out.

Inflation is Good – When it comes to your tyres, anyway. Dig out the owners manual for your vehicle and find out what tyre pressures you should have, then check them. If you don’t have any method of doing this at home, next time you’re passing a Shell petrol station, dive in. They offer free Water & Air at every garage. If you do a lot of high milage high speed driving, consider pumping 1 PSI above the recommended level for a little bit more of an efficiency edge. Check them monthly to keep your edge.

Kill Your Speed – Speeding might hurt your pocket in obvious ways, i.e. 3 points on your license and a £60 fine in your wallet. But it hurts in less obvious ways as well. If you get caught, you lose time. An average traffic stop consumes around 30 minutes. Your insurance premium may well go up if you get points on your license, which will keep costing you for up to 4 years. But going faster also consumes more fuel as well; Slowing down and keeping to the limit will keep the police off your tail, and more miles traveled between tanks.

Drive Smoothly – Harsh acceleration drinks fuel. Harsh braking eats brakes. Cut your maintenance costs and fueling costs by anticipating further ahead than you might be accustomed to by training yourself to look to the horizon. Anticipating events that appear to be brewing ahead (traffic lights, queues, junctions etc) and laying off the accelerator 20 seconds earlier will reduce your speed, and cut the amount of petrol you burn. As an added benefit, your passengers will enjoy being in the car with you as they no longer feel like they’re in an Exocet missile.

Idle Waste – It happens, and yes it is annoying, but it doesn’t have to cost your wallet as well as your timepiece. The gates come down at the level crossing just as you approach. Kill your engine: chances are you’re going to be there for at least 5 minutes. In a modern engine, 1 minute of idling is the same as driving 1km. Save yourself 5km’s of road driving, and switch off while you wait. You’ll also help cut emissions and noise pollution at the same time.

Find Cheap Fuel – A little forward planning goes a long way. Don’t wait until your car is complaining you’ve got less than 2 minutes to find it some fuel or it’ll dump you on the side of the motorway. While I advocate only buying half a tank at a time (remember – extra weight costs money to shift, and fuel is heavy!), I recommend doing your homework first before pulling in to any random garage. Today, the prices range from 110.9 in my area, to 100.9 for a litre of diesel! That’s a whole 10p per litre difference. If you’re buying 50 litres, that’s a whopping £5 difference! Sign up at PetrolPrices.com and you can see what stations near you are charging right now. A few minutes work here will save you potentially hundreds of pounds over the course of a year with minimal effort.

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It’s no secret I drive a lot in my commute to work and back. A good day sees me traveling about 60 miles round trip. If I go elsewhere, have to use my car to go someplace else, and factor in personal millage, this can easily be 100 miles a day. I work 6 days out of every 10 (ignoring overtime for the moment), and therefore tot up – for the sake of argument – about 1,500 miles a month. Even though I have a super-efficient car even by today’s standards, this equates to a lot of money spent on fueling the beast.

My trip computer reckons I get about 65.7 mpg, averaged out over the last 400 miles. It’s been at or around this figure ever since I adjusted my driving style to maximum frugality, without dawdling everywhere at 15mph. At current pump prices of around 106.9p/litre (£4.85/gallon for my US visitors), that’s a monthly cost of about £92.15. Factor in personal millage, and I come out to about £115/mo.

Except, on paper, I now spend £125/mo on fuel.

Why? Hedging.

I calculate what it would have cost me to buy the fuel if the price had been 115.9p a litre (£5.27/gal), and then save the difference in a high interest bank account. Taking into account compound interest, this covers me currently should prices reach 116.9p without actually touching capital funds for about 2 months. As time goes by and fuel prices hopefully stay the same or reduce, then this buffer will increase in length of serviceable time, or cover higher short-term fluctuations without reducing my spending power. I also continue to hedge on fuel even when I’m not driving, such as annual leave, or when I’m being put up in a hotel for a week in the course of my work.

A little example:

Yesterday, I purchased 18.7 litres of diesel (£20 on the pump) at 106.9p/litre. I had a 3p/L off voucher, so this took my actual purchase down to £19.44, saving me 56p. Hedge charge is currently 115.9p/L, so I transferred £2.25 into my hedge fund. This only actually ‘cost’ me £1.69 to do, courtesy of the money-off coupon.

British and American drivers can do this alike with ease – an ING Direct ’sub-account’ can be used to segregate your fuel hedge fund. Or, if you don’t use ING, then just account for it on paper in your own financial planning. As an added bonus, certainly here, every time I park down town I get a 3p/litre off voucher on the back of my meter ticket. The difference is also hedged!

By making minor alterations to how you spend, you can prepare to ride out the inevitable short-term price hikes in gas prices. When times are good, keep your spending the same to build up your hedge fund. When times are lean, use your resources to make up the difference. Review your hedged bets every 12 months. Does your current per-month spend equate to reality? Dip-Check your receipts for a month. Have gas prices moved on since you set up the initial spend figure? Has your cost-of-living wage increase come in? You can use this effectively here because gas prices are a real, every day, ‘in your face’ “cost” of living.

The beauty of hedging is it isn’t limited to fueling your car. You can do exactly the same again for electricity, mains natural gas, water and other utilities. Yes, this involves being disciplined with yourself – no one likes spending more than they have to; but overspending by a little every time can help to mitigate or entirely absorb price fluctuations down the road that otherwise really would affect your bottom line.

Good luck! Share your thoughts in the comments. Part 2 on effective withdrawals will follow shortly.

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