Shocking news out today from multiple sources suggests us poor motorists are already paying over 120.9p/litre and could be paying upwards of 150.9p/litre by the summer. Taking average family consumption of 200 litres a month for a 2 car household (2 fill ups for each car a month), that’s an annual bill of £3,620 compared to £2,900 today at 120.9p, or an additional £60 a month.

Depending on how your financial situation is, this will either go largely unnoticed in your spending, or could land you and your family in a world of hurt.

There are essentially 3 kinds of drivers in the UK: Those who couldn’t care less what the price of petrol is as their income permits them to absorb it without batting an eyelid; those, like myself, who can absorb it but object to doing so because it impacts on other personal financial goals; and those that simply cannot in any way shape or form find an extra £6 a month, let alone £60.

If prices do go that high (and given the reasoned argument for the prediction, I see no reason why they won’t), then some of the earlier frugal driving tips I posted about simply won’t cut it. Yes, they will help, but even if you implement all of them and achieve a 20% efficiency saving, it still won’t absorb the entire increase.

So what can you do?

Firstly, despite the paragraph above, do read over the tips and implement them. Just reading them and agreeing they are a good idea won’t actually save you any money! Get off your butt and away from the computer screen for a few minutes with the list in hand and go do them.

Secondly, if you have a gas-guzzling monster, it might be time to consider downsizing. My 2003 Ford Focus 115bhp TDCi diesel motor lends itself to fun and frugality in a heartbeat. Push the pedal to the floor and you’re launched off into the distance, but use a light foot and she will gladly carry you along at the national speed limit and cover 65 miles a gallon. Some smaller newer petrol and diesel vehicles claim upwards of 70-80mpg, but without the “get out of dodge” punch when you put your foot down. And given the desire to save money, downsizing to a 2003-2005 vehicle is more financially astute than shelling out for a brand new slightly more mpg-friendly vehicle.

Thirdly, it’s seriously time to start looking into lift-sharing. If like me you work a distance from where you live (and moving isn’t presently an option – see my earlier post!), then see if you can lift share with other colleagues. I work 30 miles from where I live, resulting in a 60 mile round trip every day. However, less than 6 miles from me lives another colleague who I will be hooking up with to share the burden of driving to work. After all, even with the additional weight of another passenger, driving 12 miles is more fuel efficient than driving 60.

Lastly, use the car less. This doesn’t necessarily mean inconveniencing yourself by having to use other modes of transport – of course, if you don’t mind walking or cycling, this is a great motivator! – but simply taking the time to plan out your miles. I kicked myself the other week when I drove the 2 miles into town, did a thing at the bank, drove back, then found a letter I had meant to post recorded delivery. This involved driving another 4 miles back down town to do so. Had I taken a minute, I could have shaved 4 miles off that day. If I’d had the time and energy, I could have walked down the town and saved 8! It might not sound worth the additional effort, but if you do that 3 or 4 times a month that’s 144 unnecessary miles travelled a year.

Do you have other ways to beat the rise? Share them in the comments!

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.