If you’re a money-wise individual, then you have a good idea of your in-comings and outgoings. If you’re organised and thorough then you may draw up a weekly or monthly budget so that you can record, estimate and reflect on how much you spend on different categories. Budgeting is an essential process, because it shows what you spend but also how much you can save. Your monthly savings are essential to retiring at 50!
Unless one takes an accounting approach to calculating fuel costs, it can be difficult to guess how much one actually spends. This is because we tend to only fill up our car when they’re running low, rather than on a weekly basis. This irregularity means guessing your monthly fuel cost correctly is almost impossible.
Save your receipts and deduct from the cost, the value of any Reward points you’ve earned by spending. If you’re not collecting reward points on petrol then you have no excuse, take out a cash back card or store reward card today! As fuel purchases can be very irregular, try to keep track of 6 months worth of receipts and divide by 6 to give an average monthly spend. This should help to smooth out price blips and one-off trips.
Next, to help with future budgeting and financial planning, divide your monthly fuel spend by the average fuel price during the period. You can get historical prices of petrol and diesel on the web. This calculation will tell you how many miles you drive each month. You can use this figure to estimate the impact of future fuel price increases on your monthly budget. With these ability in hand, you will be able to quickly assess whether a fuel shortage and prices going up to £1.50 will mean you will have to make cut backs elsewhere in your budget.
Sound Decision Making
Petrol and diesel are often seen as ‘unavoidable’ expenses. The prices of both have rocketed in recent times, and their record-breaking prices at the pumps are encouraging people to question whether they need a car in the first place.
Crucially, the price has made people re-evaluate whether taking the car on certain journeys is actually more expensive than getting on a bus. This type of decision making is very uncommon as many just assume that a car’s fuel cost will be cheaper. This is not always the case.
Examples of where public transport is cheaper than a car.
10 mile round trip to the city centre. @£1.30 per litre, 35 mpg.
Fuel Cost: £1.69. Parking cost: £2.00. Total cost = £3.69. It will usually be cheaper to buy a return ticket than drive this journey yourself.
100 mile round trip visiting friends in another city. @£1.30 per litre, 35 mpg.
Fuel Cost: £16.89. Parking cost: nil. Total cost = £16.89. With an 18-25 railcard, train tickets can be as low as £9 return.
To calculate your own fuel costs, use a fuel calculator such as this one. Use this tool for journey planning, but if you have data from your actual spending (above) this will be far more relevant!
It is important that you do not take into account the past costs paid for the car. If these are paid in the past, these are ‘sunk costs’ and should not affect your car/public transport decision. Regardless of whether or not you spent £10,000 last year on a new car, the above journeys WILL save you money if you chose to take the bus.