The Simple Dollar

In this file photo, a couple strolls past shop windows in downtown Portsmouth, England. Your retirement saving plan should vary, depending on what you see yourself doing later in life. (Melanie Stetson Freeman/The Christian Science Monitor/File )

How to find a retirement saving plan that works for you

By Trent Hamm, Guest blogger / 02.13.12

My parents and Sarah’s parents are roughly the same age. Their retirement-age experieces are much different than each other.

My parents are both retired in the traditional sense. They have a limited fixed income made up of Social Security and some pension money. Their house and vehicles are long since paid for, and since their house is relatively small and older, insurance and property taxes are low.

Sarah’s parents are a completely different story. Her father will probably work until he can’t, partially for income reasons and partially because I think he deeply enjoys his work on many levels. Her mother had a “pseudo-retirement” but couldn’t stand it, so she returned to work. Thus, their income level is significantly higher, but their expenses are higher, too. They have nicer cars and travel regularly.

My own “retirement” plans involve a mixture of working on my own side projects and doing volunteer work. Much like my in-laws, I don’t feel happy unless I’m working on large projects. When I find myself without such large projects, I tend to drift and feel depressed.

As for Sarah, I expect her to very oriented toward volunteerism and any grandchildren we might have to take care of.

It’s pretty clear from just a simple survey of my own life that everyone has a different life plan for their 60s and 70s. Some people intend to enjoy leisure and volunteer work. Other people are wired to be productive in various ways.

Think about it for a minute. What do you plan to be doing in your 60s and 70s? Is it the same thing that you expect all the people around you to be doing?

Given how varied the plans people have for their later life are, why is it reasonable to think that everyone should plan for retirement in the exact same way? 

For example, let’s say my dream is to switch to a career path as a novel writer as soon as I possibly can, living off of my investment income starting at the youngest possible age. This means that I’d be choosing to live very lean in my 40s and 50s while I get some novels published, then enjoy more income from the combination of investments and book income in my 60s and 70s.

In that scenario, traditional retirement savings would serve a relatively small role. I might want to fund a Roth IRA or something to guarantee a bit more late-in-life income if needed, but most of my saving for the future wouldn’t be in retirement investments. I would focus instead on investing outside of retirement accounts to fund my dream.

On the other hand, a person like my father-in-law, who fully intends to work until he’s unable to do so, won’t need to live for twenty five years off of his retirement accounts. Much like my earlier scenario, the “traditional” use of a retirement saving plan doesn’t really fit his plans. It’s worthwhile for him to have some money in his retirement savings, but does he need to save for twenty five years of retirement?

I don’t have the ultimate answer as to how the people in the two above scenarios should be saving for retirement. However, it’s pretty clear that these scenarios don’t simply follow the “save 15% for retirement each year” plans that are often simply prescribed for people.

So, what does this mean for you?

First of all, thinking about your plan for your whole life pays off. We don’t always know exactly where our life is going to lead, but I’ll say that the general idea I had for my life when I was in my early twenties is more or less coming to pass. I envisioned having children and having a career that I had creative control over.

Naturally, big unexpected things can always derail those plans. I could get sick. Something else unforeseen could happen. In the vast majority of those scenarios, though, I’m not helped by having a lot of retirement savings, though I am helped by having assets on hand.

Second, understanding how to translate those plans into a financial plan is key. This might involve the aid of a financial planner, but at the very least, it involves some significant time studying investing options and knowing in what situations they’re most useful.

Finally, and this is key, just because you’re not saving for retirement doesn’t mean you’re not saving. If you have a future, it’s valuable to spend less than you earn and save for that future. No matter what your future self will be doing, he or she will be better off if he or she has money in the bank.

Retirement savings, in the form of a 401(k) or a Roth IRA, has certain advantages. However, those advantages only really matter if the direction of your life allows you to take advantage of them. Your life is not dictated by your retirement investment plans. Your retirement investment plans, if they’re needed at all, are dictated by how you live your life.

Spend less than you earn. Use retirement plans to help you for whatever you’ve got planned for your 60s, 70s, and later. Don’t assume that’s enough, particularly if you have a plan for your future.

Justin Smith, fills up his van at a gas station in west Los Angeles in this file photo. Keeping a consistent speed and using your breaks sparingly are good ways to save on gas. (Nick Ut/AP/File)

Good gas conservation habits pay off

By Trent Hamm, Guest blogger / 02.13.12

One of the fun things about my wife’s car is that it has a constant readout of the miles per gallon on the dashboard. It lets you know what your miles per gallon over the last five minutes is, the mpg of your entire trip, as well as your estimated miles per gallon right at that moment.

The data it produces is really accurate. We’ve measured this ourselves by checking the gas mileage manually by calculating it from the odometer and gas receipts and comparing it to the data in the car.

It’s often a competition between Sarah and myself to see who can get the best gas mileage over a given trip. Not only is it a bit of friendly competition, the reward for it is that we save money over the course of that trip.

For example, I managed to drive an entire three hour car trip while keeping the fuel economy average over 50 miles per gallon. I did this by utilizing lots of little tricks along the way, and doing so saved us several dollars in gas while only eating up a few more minutes of driving.

Sarah, on the other hand, managed to drive about fifteen miles while keeping the fuel economy average over sixty miles per gallon. She was aided by wind, which was blowing strongly in almost the perfect direction for her route, but it was still quite impressive. It added maybe thirty seconds to the drive but saved her about $0.50 in gas.

If this sounds like hypermiling, you’d be right. Although we don’t go to the extreme measures often advocated by hardcore hypermilers, we do try out the techniques.

The real impact of doing it is that several techniques for improving our fuel economy have become completely second nature for our driving. Here are some of those techniques that you can easily translate to your own driving. They might add a minute or two to your drive, but they’ll save you enough money along the way to make up for it.

Stick close to 55 miles per hour on the open road. This seems to be the sweet spot in terms of speed. If you go much faster than 55, your fuel efficiency starts to decrease. If you get much above 65, it decreases rapidly, somewhere in the realm of about 1% fuel efficiency lost for every mile per hour you’re going over 65.

When going through stoplights, accelerate slowly and coast. Rather than accelerating strongly out of a light, racing up to the next light, and then hitting the brakes, instead accelerate slowly out of a light and when you see the light turning red half a block in front of you, let off the accelerator and just coast until you need to stop. This minimizes your gas usage and gets you to the stoplight with plenty of time to spare.

When going down a hill, lay off the brake. Let your car accelerate a bit naturally, then use that extra acceleration to coast for a while when you get to the bottom of the hill.

When going up a hill, lay off the accelerator. Many people hit the accelerator when going up a hill. Don’t do it. Instead, let your speed go down as you’re climbing the hill, then slowly bring it back up when you get to the top. Often, hills link into each other, so you’ll often use the speed from the previous hill to climb the next one or get your speed back from the previous climb when going down the other side of a hill.

Things I don’t recommend that you might see as gas mileage tips include rolling through stop signs and overinflating your tires. The former is simply begging to get into an accident, while the latter tactic makes it very easy to blow out a tire.

Making a few little changes to how you drive can save you a surprising amount of fuel without adding much time at all to your trip. I’ll happily arrive a few minutes later if I’m saving a few bucks in gas.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.

Once it thaws out, using a bike for short trips will help you save money and lose calories. (Leif R Jansson/AP/FIle)

For short trips, use a bike

By Trent Hamm, Guest blogger / 02.12.12

The winter is easily my least favorite season. It is very difficult to be outside for a long period of time when the temperature is approaching 0 F, as it often is in Iowa during the winter. You can put on a lot of clothes and do okay out there, but you’ve eliminated the possibility of doing anything that requires significant agility.

But spring, oh, the glorious spring.

One of the first things I do when the weather starts to turn warmer in March is get out my bicycle, oil up the chains a bit, air up the bicycle tires, and go for a ride. I’ve had this bike for a dozen years now and I expect to have it for at least a dozen more.

I’ll be wearing a backpack with some mail in it that needs to be mailed at the post office. I’ll stop by the small general store in our town if I need anything. I’ll ride out near the new construction in town just to see what’s going on.

I’ll get home, finding my legs just a bit sore and my lungs full of fresh air. Considering that I also usually spend that first really nice day mixing compost into the garden and playing soccer in the yard with the kids, the combination of fresh air and lots of exercise leads me straight into a deep and refreshing night of sleep.

I get exercise, I got fresh air, I got some errands completed, and it costs me virtually nothing. It’s something that I try to repeat as often as possible during the months of pleasant weather.

The thing to notice here is that I’m not using my car to get to the post office or the general store. I’m using my bicycle. Rather than using gas and putting more mileage on my vehicle (contributing to depreciation and maintenance), I’m simply using my trusty old bicycle to get the job done.

To make a trip to the post office and the store is just shy of three miles, round trip, on the roads. I could do the driving portion of that trip in about eight or nine minutes (the speed limit is about 35, after all, and there are several stop signs I have to go through, and there are always things like pedestrians and bicyclists and other cars that further reduce my speed).

On my bicycle, the distance of the full round trip is about a mile and a half, because I can cut through a park and also utilize a trail that connects a street to the lot on the back side of the post office. I can do this round trip in … about ten minutes.

So, I save about a minute using the car. However, every mile I drive in that car costs me at least $0.50 in fuel, depreciation, and maintenance, giving me a total of $1.50 for the trip.

Add in the fact that the bicycle trip gives me some moderate aerobic exercise (improving my health and my life span) and the bicycle trip is an enormous win.

What’s the message here? It’s simple. Use a bicycle instead of a car for short trips. If you’re just going a mile or two from your home, bicycle there and back, provided the weather is good. Used bicycles can be found at very low rates if you look around and the maintenance cost of a bike is nonexistent. Meanwhile, every mile you drive in a car eats up $0.50 and does nothing to help your health.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

Traffic stacks up on the highway south of Atlanta in this file photo. Hamm estimates that carpooling can save you $1600 a year. (Ric Feld/AP/File)

Why carpooling is cool again

By Trent Hamm, Guest blogger / 02.11.12

Yesterday, I wrote about how taking public transportation can save you money even if you just let a car sit in the driveway while taking the bus.

For quite a lot of us, though, public transportation isn’t an option. Even those who have a public transportation line near their home often find themselves without a place to depart that’s anywhere close to their place of work.

That leaves the door wide open to another option: carpooling. It’s one Sarah used for several years with great success.

When we moved to our current home, both Sarah and I had about a thirty minute commute to our respective jobs. The house we selected was pretty close to a midway point between our places of employment.

Both of us looked for coworkers who lived near us that we could carpool with to save money. I didn’t find one. Sarah did.

Sarah started carpooling with a much older fellow who was very close to retirement, and they carpooled together almost every day for the last two years of his working career.

After the first year, Sarah sat down and calculated how much money she saved due to carpooling. According to her best estimates, she saved about $1,200 a year.

Not only that, carpooling saved her time, too. She would spend a significant portion of most of the rides doing additional work, which would free her to spend more time with the family at home. Every other day, she could get an hour of work done that she would otherwise be doing at home.

That time would often result in better meals prepared at home, preparation of leftovers for lunch the following day, more effective creation of grocery lists, and other such little things that would save us additional money beyond mere carpooling.

If you can find three or four people to carpool with, even better. That reduces your driving time (and wear on your vehicle) even more and adds more “backup driver” redundancy to your carpool.

How much can this save you? It depends on how you calculate this, but when you add up all of the little costs, every mile you drive costs you at least $0.50 in fuel, maintenance, wear and tear, depreciation, tolls, and other such factors. If you’re commuting 10 miles each way every day, for example, that’s $10 a day, whether you directly see it or not.

Carpooling spreads out that cost. If you’re carpooling with two other people, that cuts your annual commuting days down from 240 to 80 (approximately). If you’re commuting that ten mile stretch mentioned above, you’re saving $1,600 a year just by carpooling.

That can be an enormous savings. That’s half a year’s worth of car payments on a reliable used car.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Making a goal of good personal finance will help you achieve other dreams, Hamm argues. (Cheryl Ravelo/Reuters/File)

The real importance of good personal finance

By Trent Hamm, Guest blogger / 02.10.12

Whenever I spend time thinking about my life, I get caught up in a lot of ideals. I think about writing a great novel. I think about some volunteer projects I’d like to work on. I think about the house I’d like to build and the great travel I’d love to do in the next ten or fifteen years. I think about my own physical fitness and I think about riding in RAGBRAI.

These are wonderful dreams. I enjoy taking little steps toward them because, honestly, I usually enjoy the process.

Yet, when I step back and look at the broader scope of my life, that’s not what’s really important to me.

First and foremost, my family (and I consider my closest friends a part of that) is the single most important thing in my life. Bar none. Secondary to that is learning new things and, hand in hand with that, sharing what I’ve learned.

Almost every other interest and passion I have in my life is secondary to those things.

I’ll give you some examples to illustrate what I mean. Anyone who has read the site for very long knows that one of my favorite pastimes is playing board games and card games. I love playing games with other people across the table from me.

Yet, when I dig deep into it, it’s not really about the games. I do enjoy them, don’t get me wrong, but what I love about them is that it gets people I care about around a table engaging in a shared experience.

If you asked me what my favorite memories of board gaming are, they revolve around people. I think of playing Old Maid with my children. I think of playing Risk Legacy with my wife and three of my closest friends in the world. I think of sitting in my friend John’s living room, playing Descent with him and another of my closest friends.

Another great example comes from reading. If a friend or family member really enjoys a book, I’ll almost always give it a read. Why? Beyond merely being a good book, it becomes a shared experience with that person.

So let’s bring this home: what does this have to do with personal finance?

Personal finance is all about goals. If you’re not selecting a goal – whether it be freedom from debt, saving for an abundant retirement at age 70, or something else entirely – you’re either already incredibly rich (and you probably got there due to goals) or you’re spinning your wheels. Progressing toward a better and more secure financial state is something that pretty much every reader of The Simple Dollar shares.

However, goals are useless if you don’t feel completely motivated to move forward with them. You might desire a change in your life, but unless you’ve reached a point where that change feels vital to your future existence, it’s not going to happen. If you’re not getting out of bed with the feeling that today you’re going to move toward that goal, you’re probably not going to move toward that goal.

So, what is it that’s truly important to you? There is no right or wrong answer. It’s a matter of simply figuring out what’s truly important to you.

Here’s an example. I have a friend who dreams of being a sports announcer. He talks about it a fair amount. However, he also has a wife and a child at home. Recently, he told me that he thinks his sports announcing dreams are going to go on hold for a while. I asked him why, and he told me that chasing that dream requires a level of time and commitment that he can’t give to it right now. He had realized that his family was more important to him and he was sticking with the things that motivated him deeply every single day.

Does that mean that he’s abandoning the dream? Not entirely. Instead, he’s finding new ways to channel that passion that’s more in line with the rest of his family. He’s gotten involved with youth sports, assisting with the production of videos and other materials for other parents. This allows him to follow his passion while also being involved with his children. In fact, he’s starting a small video production company as a side business, where he creates professional videos highlighting a team and sells them for a reasonable fee. Several youth sports leagues are going to partner with him, so all he has to do is hire a few people to film the games, then edit them at home. He can film his own child’s games himself and involve the family in the production process at home.

Spending time with his family is the most important thing to him. Because of this activity, he’s spending time with them, earning some money on the side, and showing his children an entrepreneurial spirit along the way.

I can tell a very similar story about The Simple Dollar. My motivation to change my financial habits came from my oldest son. My motivation to write about it was many-fold: I enjoyed writing (value #2), I wanted to share some ideas with my friends and family (value #1), and I hoped to earn some money on the side to make our financial journey better (value #1), plus I would be able to involve my wife and my children in the process (value #1).

My dreams of making a living from writing didn’t start happening until I oriented them around what truly mattered to me. The same thing is true of my sports announcing friend.

So, what’s important to you? I think the easiest way to identify those core things that are important to you is to evaluate what you actually do over a long period of time. I’d focus on activities outside of the workplace, because we all need to earn a living, unless you’re already doing a job that’s key to what you value.

What do you spend your spare time on? I spend mine with my family and close friends as much as I can, and when I’m alone, I read and learn things. I bridge the two by finding ways to express what I’ve learned. This is what I enjoy doing.

My personal finance success came entirely from those things. My family inspired me to make changes with my money. My desire to read and learn educated me on how to do it. My desire to share what I learned launched The Simple Dollar.

You can follow a similar path with what you value the most. The key thing is to always remember that, no matter what your goals are, a solid personal finance foundation makes it all much, much easier to achieve.

A man enters a New York City subway in New York's Times Square. The transportation system is operated by the Metropolitan Transportation Authority (MTA). Hamm argues that using public transport in lieu of your car could save you hundreds of dollars per month. (Mark Lennihan/AP)

Use public transportation. Save hundreds.

By Trent Hamm, Guest blogger / 02.09.12

When I was in college – and for the first several months of my post-college career – I was an avid user of public transportation. I would ride the bus to work every day like clockwork.

For many semesters, I would catch a bus at about 7:48 AM or so. It deposited me right in front of one of the buildings where I would have a class at 8 AM at between 7:55 and 7:58 AM, giving me just enough time to stroll into the classroom, sit down, and open my notebook just as the professor began talking.

Later on, I would stand outside of that apartment building to catch the 7:37 AM bus, which would deposit me about two blocks from my work at about 7:55 AM or so, causing me to walk in the door about 8 AM. On days where I got an early start, I would catch the 7:07 AM bus (getting me there at 7:30) or even, on occasion, the 6:37 AM bus (getting me there at 7:00).

The best part was that the bus ride enabled me to do things like read a book or listen to NPR or an audiobook on my way to school or work. I did this virtually every morning and evening. I’d just carry a book in my bag and when I got to the bus stop, I’d pull out the book and start reading. When I got on the bus, I’d stick my finger in place just long enough to show the driver my pass, then I’d keep reading until it was time to pull the “stop” cord and get off at my destination.

On my way home, the bus stopped right by a grocery store, so I could stop there and pick up food. The bus ran roughly every fifteen minutes in the afternoon, so I would return to the bus stop and there’d be a bus along pretty quickly to get me if I made such a stop.

It was also far cheaper than driving myself to school/work. I paid about $79 for a six month bus pass that covered all rides, which is less than I would have paid just for the insurance on a car.

Time passed, though, and when I found myself making a good income, I convinced myself I needed a good car, too. I “bought” a truck (I no longer really think of it as “buying” something if you’re carrying a big debt on it) and, soon after, moved to an apartment outside of the range of the bus system.

Suddenly, I was free. I could go to work whenever I wanted! I could come home whenever I wanted! Freedom!

That freedom cost me about $250 a month in car payments, about $40 a month following the vehicle’s maintenance schedule, about $50 a month in gas, about $70 a month for auto insurance, and another $12 a month for parking.

$422 a month, down the tubes. Compare that to the $79 every six months I was paying for that bus pass.

Even if I just bought the vehicle and let it sit there, driving it rarely, I would still have about $335 a month in extra spending. In other words, it would have been cheaper to buy the vehicle, let it sit in the parking lot, and ride the bus to work than it would have been to drive the vehicle to work.

Unless you’re in a very unusual situation, where the cost of public transportation is really high or the price of gas and parking is really low, riding public transportation to work is going to be saving you money over driving to work.

That’s not to say that you must take public transportation every day. Ride it four days a week, then take your car the other day and do all of your lunchtime and after-work errands on the day you take your car. That way, you save money from the public transportation on the days when you’re just commuting, but have the flexibility of the automobile on the other days.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

No matter how cute, hauling extra cargo in your car will cost you at the pump. (Nader Daoud/AP/File)

Want to save gas? Clean out your car.

By Trent Hamm, Guest blogger / 02.08.12

Depending on the specific model, your car loses 1-2% fuel efficiency for every 100 pounds of extra weight in the car. That’s a surprising amount that can really add up.

For example, let’s say you’re matching the extra weight that a friend of mine (who we’ll call Cathy) carries in her car. She consistently carries (mostly) unused car seats in the back seat of your car, plus she hauls around a box of books in the trunk along with a few other excess items. The sum total of that extra load is about 70 pounds.

That means, depending on the model, Cathy is burning an extra 0.7 to 1.4% in gas just due to this extra weight. Let’s say it’s 1%.

If her car gets 20 miles to the gallon with the weight in it and she commutes, putting 20,000 miles on it per year, she’s burning 9.9 extra gallons of gas per year just due to carrying the extra junk.

Say goodbye to $33 or so a year in just fuel costs, Cathy, never mind the additional wear on all of your car’s components.

Even a slight difference of just ten pounds can have a real financial impact. Let’s say you’re driving the same car Cathy is, where you’re getting 20 miles to the gallon and you’re driving 20,000 miles per year. That 0.15% in additional weight is eating up 1.5 gallons in gas per year, costing you about $5 in additional fuel along with slight additional wear on your car.

The message here is clear: get the excess weight out of your car.

How can you do that? Simply make sure that you’re not carrying anything unnecessary in your trunk or your backseat. Evaluate what’s in there and get rid of the things that you don’t need to be carrying back and forth.

I’m constantly amazed at the things people carry in their trunk, from huge assortments of shoes to large gun cases. These things add weight to the car and you pay for that weight directly at the fuel pump and indirectly whenever you get maintenance work done on your car or need a repair done.

There’s only one exception to this rule that I’ve found. If you’re seeing any chance of icy roads, it’s worthwhile to have extra weight in your car because it improves your traction and keeps you safe. I often carry that extra weight in the form of sand bags or rock salt, both of which can help you in a rough winter situation. The extra safety is well worth losing a few percent in fuel efficiency for a season.

Aside from that, you’re only saving money and helping your automobile’s lifespan by reducing the load you’re carrying. If you’re not hauling it around for a purpose, don’t haul it around.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Skipping the 3,000 mile oil change for a 5,000 mile change can save you money and keep you in line with the rest of your car's maintenance schedule. (Don Ryan/AP/File)

Skip the 3,000 mile oil change

By Trent Hamm, Guest blogger / 02.06.12

Whenever I go get an oil change (often, whenever I find myself with a good coupon to a local oil change service provider), I always notice that little sticker in the corner of my windshield that they affix during the oil change.

Usually, it lists the mileage at which I should get my next oil change (according to them) and often lists the approximate date at which I should reach that mileage.

The only problem is that, without fail, that mileage revolves around getting an oil change every 3,000 miles. An oil change that often just isn’t necessary. It’s akin to getting an annual checkup at the doctor every six months.

Let’s just say I tear that sticker off.

We’ve all heard the mantra of getting your oil changed every 3,000 miles. It gets repeated to us every time there’s an ad for motor oil or oil change services.

That actually might have been true thirty or more years ago, when engines were built very differently than they are today.

However, the reality is that most of today’s car models require oil changes every 5,000 miles, and some models require it even less frequently than that.

The information you need is (again) in the owner’s manual for your car. It tells you the exact number of miles recommended for your car between oil changes. For most modern models, it’s 5,000 miles between a change.

So, how much does that save you? 

Let’s look at a 120,000 mile life span for your car. I have a pile of coupons for a Jiffy Lube oil change (including oil) for $29.95, so we’ll use $30 as a base price.

With an oil change every 3,000 miles, you’ll have to change the oil 40 times. That’s a total cost of $1,200 over the car’s lifespan just for oil changes.

With an oil change every 5,000 miles, you’ll have to change the oil only 24 times. That’s a total cost of $720 over the car’s lifespan just for oil changes.

That’s a savings of $480 just by cutting out unnecessary oil changes.

Not only that, oil changes every 5,000 miles put you in line with the rest of the maintenance schedule (also found in your car’s manual) in most modern cars. If you have an oil change every 3,000 miles, you’re going to be very out of whack with that schedule, causing you to either delay other maintenance (risky) or get oil changes even earlier (expensive).

Take a peek at your car’s manual and see what it says about oil changes. You might just find yourself ripping that little sticker off, too.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

This file photo shows service station in Kailua, Hawaii, near a sign listing gasoline prices. (Ronen Ziberman/AP/File)

Go ahead, buy the cheapest gas

By Trent Hamm, Guest blogger / 02.05.12

I’ve turned the regular fluctuation of gas prices at the gas station fairly near our home (the one mentioned yesterday) into a game of sorts with my oldest son.

Simply put, we’ve started tracking the data.

We watch for the price of gas on that sign each time we drive by it, then we mention whether it has gone up or down recently.

We remember the record prices we’ve seen (sadly, he’s so young that the lowest price he can ever remember is $2.97 a gallon – I remember my parents getting almost hysterical when prices inched vaguely near a dollar a gallon).

We also talk about whether or not the price is low enough right now to stop in and fill up.

We’ve even started tracking and recording this data a bit.

We do the same thing when we see gas stations in other towns, comparing them to the prices at home.

It’s a fun little economics game, but it has some real value, too. I’m cluing him in on many of the things he needs to know in order to maximize his value at the gas pump when he’s old enough.

If you can save $0.10 per gallon of gas, filling up a typical sixteen gallon tank saves you $1.60. Do that consistently and you’re talking about a significant difference in your annual fuel bill.

So, how do you shave off that $0.10? There are a few things you can do to make sure that you’re putting the least expensive fuel option into your tank.

For starters, know what your car needs. Very few cars need the premium fuel or can even utilize it to any degree of effectiveness. Take a peek in your car manual (see, there it is again – your manual is really useful) and see what type of gas is suggested. Most modern cars simply suggest using 87 octane gasoline, which is the “cheap” stuff at the pump in many states. Choose the gas type that’s cheapest at your pump that meets the minimum suggestion from the manual.

Never drive significantly out of your way to get cheaper gas. My rule of thumb is that I have to be saving at least a dollar in my tank for every mile out of my way that I drive. Since my vehicle has a sixteen gallon tank, I’m looking for a savings of at least $0.07 a gallon for every mile out of my way that I drive. Why? Even in perfect traffic, that’s still two miles (one each way) of driving in town, which will take at least five minutes with the risk of significantly more time, plus the gas you use to make that extra jaunt, just to save $1. You’re quickly getting below a rate of $10 per hour in savings.

Don’t be brand loyal until you’re familiar with the prices in your area. For the most part, the gas stations in your area are going to be pretty consistent with each other. If there are one or two stations that are a bit lower, they’re going to consistently be a bit lower. Spend some time studying the prices in your area, particularly along your commute, so that you know what the prices are, and consistently visit the station with the lowest prices.

After a while, you’re going to regularly find yourself using a single station or two, so get a rewards credit card associated with that station. Use it only for gas there. Typically, rewards cards associated with gas stations have really nice rewards, but only on gas bought at the stations in that chain. So, don’t use the card for anything but gas, and pay the balance in full each month. This will often get you a very nice price on gasoline.

You should also check your local warehouse club for gas offerings. The local Sam’s Club in our area offers gas prices substantially below other chains if you’re a member. Since we are, we often utilize Sam’s Club for gasoline.

If you’re a commuter, shaving a bit off of the price of a gallon of gas can help a surprising amount over the long haul. It’s one of those little changes you forget about until you find yourself breathing easier with regards to your finances.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

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