If you've been paying attention to gas prices of late, you've likely noticed a steady upward creep. After falling to below $2 a gallon in many locations, prices are now inching up toward $2.50. That's still well below the near $4 we were paying little over a year ago. But it could also mean we've already seen the bottom of the most recent era of cheap gas.
This isn't unfamiliar territory either. There have been several episodes of steep declines in gas prices, and each has been followed - often quickly - by a return to higher prices, often to - or near - record levels.
Enjoy cheap gas while it lasts, but don't make the assumption that it will stay this way forever. Here are some ways that you can prepare for a sudden and dramatic increase in the price of gas.
Avoid the Urge to Trade Up to a Gas-guzzler
If you're in the market for a new car, resist the urge to buy a gas guzzler. That decision will be at least partially based on the current low price of gas. But this is one of those times to recognize that energy prices, including gasoline, are notoriously volatile. In fact, they're so volatile that they're often excluded from the calculation of the Consumer Price Index (CPI).
There is an inverse connection between the value of gas guzzlers and the price of gasoline. When gas prices are especially low, gas guzzlers are in demand and often command premium prices. However, when gas prices spike, the value of gas guzzlers drops proportionately faster than other cars. A nightmare scenario would be to buy a gas guzzler during a time of low gas prices, then trying to unload it during an energy crisis, after the car has depreciated at an almost unnatural rate.
Gas prices can rise substantially in a matter of months. But the purchase of a car is a long-term decision. The time to prepare for higher gas prices is when gas is cheap, and when fuel efficient cars can be purchased at relatively low prices due to lower demand. Once gas prices spike, fuel-efficient cars will command premium prices. If you have a gas guzzler when it happens, the transition will be complicated - and costly.
Will that Move Out to the Country Still Make Sense if Gas is $5 a Gallon?
Commuting distances become less important in an era of cheap gas. People are suddenly open the possibility of buying a larger home in a more distant location. But if you buy that nice spread out in the country, and gas prices double shortly after, your commute will suddenly be much more expensive.
It's even possible that the value of your property will drop in response to higher gas prices. After all, high gas prices will reduce the market for more remote locations, and that could depress your property value.
Living Near Public Transportation Will Matter - Eventually
Even during times of cheap gas, living close to public transportation will almost always be an advantage. This is true whether you are buying a house or renting. If you're near public transportation, you'll always have an option to driving in the event that gas prices spike. In addition, locations served by public transportation are often very close to centers of employment. That can give you options in the event that you have a long commute to an area that is not served by public transportation.
There's evidence that this reality is hitting home, too. Many members of the Millennial Generation - those born between 1983 and 2000 - are considering life without owning a car. Instead, many are moving into cities, in neighborhoods that have public transportation available that will minimize their dependence on car ownership.
This may be especially important if you're planning to buy a home. Your house may increase in value faster if it is located close to public transportation, and gas prices take off. When that happens, more people will be looking to buy housing close to public transportation, and your property value will benefit as a result.
Continue to be Energy Efficient With Your Home
When gas prices fall, it often has a ripple effect on energy prices in general. For example, the cost of natural gas and electricity may also drop. When that happens, it's easy to abandon practices that emphasize energy efficiency. You may no longer be so concerned with the amount of heat and air-conditioning that you use. You may even get somewhat lazy in your efforts to keep your home properly sealed to prevent energy loss.
While it's true enough that you can return to these good practices in the event that energy prices suddenly rise, it's also true that we get comfortable with certain habits and routines. This is particularly true of activities that don't require us to make any kind the sacrifices.
Once again, ignore low energy prices with the assumption that they are only temporary. Continue to live an energy efficient lifestyle, especially in your home. Prices will rise again, and when they do, you'll be ready.
Give Serious Thought to Investing in Energy Stocks!
So far we've talked all about maintaining energy efficiency in the face of cheap gas. But there's also an investment opportunity here. For generations, the mantra on Wall Street as been buy low, sell high. With oil and gas prices being as low as they are, now may be the perfect time to buy low in the energy sector. Once prices begin to rise, your investment returns will be as predictable as they will be spectacular.
It will take a long-term vision to take this step. After all, most investors instinctively chase the investments that seem to be the most profitable right now. But the energy sector isn't going away - it's just taking a break. And that could be setting the stage for a once in a decade investment opportunity.
Enjoy all the benefits that come with cheap gas prices. But at the same time, prepare yourself for higher prices later. You'll improve your financial situation on a number of fronts if you do.