Annual Cost of Gasoline

With gasoline hitting or exceeding $4 per gallon in many parts of the country, it is important to consider your annual cost of gas when purchasing a new or used car. In 2009 gas was less than $2 per gallon, and it seems that we have gotten used to the current costs. With the price of groceries and healthcare steeply increasing over the past several years, the average American’s budget is really being stretched. Throw on a doubling of gas prices, and there is little room for many extras, making vehicle purchase decisions that much more important.

The chart below illustrates that it is easy to spend thousands of dollars each year on gas; however, it might not seem that big a deal to some people. But if you add it up for 5 years, the difference in cost between a full-sized SUV averaging 15 miles per gallon and a small or medium-sized one averaging 25 mpg is $5,333. Upgrading from a sedan averaging 25 miles per gallon to an ultra-efficient hybrid averaging 50 miles per gallon could save $4,000.

Many people react to this and wonder if they should buy a hybrid to get better gas mileage. However, the cost of the hybrid model sometimes is more than the gasoline cost savings. Anyone considering purchasing a hybrid should factor in expected savings based on the yearly mileage, as well as the additional cost to purchase the hybrid vehicle. Caution, don’t totally rely on the published MPG ratings on the sticker. Consider the number of miles you drive on the highway and in the city, and then take a conservative approach by rounding down that number by at least 10%.

Using some of this methodology may help you make important calculations when considering a new car purchase. In a couple of prior blogs I mentioned used cars to avoid and an evaluation of the potential cost savings of a newer, more fuel efficient car with monthly payments. If you are in the market for a car, these articles might also be good to read.

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