With President Trump’s strikes on Iran and the widening war across the Middle East, a lot of people are understandably nervous about the possible implications.
I’m not a geopolitical expert. I don’t know how long the conflict will last, what could bring about a resolution, or what the wide-ranging political and economic ramifications will be.
Does anyone?
But since more than a quarter of the world’s oil is produced in the Middle East, an immediate economic concern I’ve already heard and read people complain about, is that gas prices are going to rise.
And prices have already increased. According to the AAA, the national average price-per-gallon was $2.97 a couple of weeks ago and is now up to around $3.19.
A 22-cent increase over a couple of weeks seems like a newsworthy move. But is it?
Below is a graph of average U.S. retail gas prices since 1993:
Do you see any period of time where prices were constant? No.
Regardless of the geopolitical climate, on average, you can expect to pay about 30 to 40 cents more per gallon in the summer than in the winter. Every year, prices typically fluctuate from their lowest in January to their peak in May and June. The price of gas goes up and down all the time.
And even with all the variance, prices have essentially remained between $2 and $4 per gallon over the past 20 years.
From a personal finance point of view, how much of an impact does rising gas prices have on household budgets?
Nowhere close to what people make it out to be.
Here’s some simple math.
Let’s say you’re the average person who fills up a 12-gallon tank twice a month, and instead of a $0.22 increase, gas prices grew by a whopping $0.50 per gallon. A $0.50-per-gallon price increase would raise your monthly expenses by $12.
Average household spending in America is about $6,500 a month. So that $12 represents a miniscule 0.1% increase to the average American’s monthly expenditures.
You can’t even buy a full Chick-fil-A 12-piece nugget meal for $12.
No one likes to see their expenses go up. But these small increases are largely meaningless in the grand scheme of things.
Which reminds me of one of my favorite sketches from Carl Richards:
I don’t personally know anyone who can control the price of gas.
I also don’t think fluctuating gas prices are going to have an enormous impact on your retirement projections.
So remind me again why we spend so much mental capital worrying about gas?
Thanks for reading!
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.