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Coping with Petrol Price Increases.

Coping With Petrol Price Rises.

price_rise.jpgIn September 2008 we were all in shock – petrol had just risen to $2.00 per litre and we wondered how on earth we would cope with the increased cost!  A little over two years later and the price has decreased marginally but we seem to have adjusted and now hardly even think about the price we pay.

Things are about to change again, however. The price of oil is increasing and so is the level of taxes associated with petrol.  These factors have pushed the price of petrol up by 28c a litre in the past four months so that it is once again very close to the $2.00 a litre mark – and expected to rise even further. Some in the industry are predicting it to reach $2.20 per litre.

When we look at the cost of petrol over a year, the amount spent can be quite staggering. Until recently, the cost was $1.87c per litre and, during that time our FORTIfi Consultants discovered, as they interviewed clients, that the average family’s spending on petrol was around $100 per week. So, what do the price rises do to the yearly living costs of those average families? 
Check out the table below:

  If a litre of petrol costs: A year's worth will be:
(average FORTIfi client usage)		 That means you'll pay this much extra per year - above what the price was in Sept 2010.  
  $1.87 $5,200 -  
  $2.00 $5,561 $361  
  $2.10 $5,840 $640  
  $2.20 $6,118 $918  
The challenge:
If the price of petrol does go to $2.20 a litre, the average family will need to do one of two things;
  1. Find an extra $918 per year for petrol
  2. Or cut back their petrol consumption by 10%.
The reality of the challenge:
The reality is, however, most New Zealanders are not very proactive about matters to do with their finances. As prices increase we tend to continue to live how we always have and, as we do so, increase the likelihood of slipping into debt – usually credit card debt.

The challenge is obvious – we must not think we can simply absorb expense increases. We need to give serious thought to how we will cope with these likely price rises.

We must not think we can simply absorb expense increases.  We need to give serious thought to how we will cope with price rises.
The danger - prices are increasing across the board:
Because, percentage wise, petrol price rises are often fairly high, and because they appear to come out of the blue and unannounced, they get a lot of media publicity and consumers react to them with intense dismay. The danger is, we often don’t notice other commodities that are increasing in price and have an even greater effect on our cash-flow – in particular I'm thinking of our grocery bills.

The average family that our FORTIfi consultants visit say they spend about $250 a week on groceries. That equates to $13,000 a year. Last year (2010) groceries increased in price by 4%. That means the average family needs to find an extra $520 to cover their food bill for the year.

Add that to the $918 for petrol and the average New Zealand family need to find an extra $1,438 in 2011 in order to pay for the same amount of petrol and food as they did in 2010.

But, the news this week (February 1 2011) is that food prices are expected to increase by about 6.5% in 2011. 
Here's another table:

Year Amount spent on groceries per week Amount spent per year Dollar increase since 2009
2009 $250 $13,000 -
2010 $260
(taking the 4.0% increase into account)		 $13,520 $520
2011 $277
(assuming predicted 6.50% increase)		 $14,404 $1,404
Here's an interesting point to consider - because the rise in petrol is quick and pronounced we notice it but we often don't notice the increase in grocery spending - even though it equates to a greater value than the petrol increase.

Of course, the frightening thing is when we add together the increased petrol costs to the increased food cost!  If things are as predicted, by the end of 2011 the average New Zealand family will have to find an extra $2,322 to pay for the same amount of petrol and groceries as what they were consuming in September 2009.

► The Challange:
Once again, the challenge is to be proactive in the way we spend our money. The typical New Zealand way tends to be "she'll be right," and we keep spending until it is too late and we find ourselves in debt.  Give some thought to this - think about how you can save in one area or another so that you can cope with these price rises without adding to your debt.

By the way, in these calculations, we have not taken into account the tax cuts in last year's budget.  To read more about last year's tax cuts and how they affected you, check out our Resource Centre articles: Will the New Tax Scales Mean More Money for You?  and What to do with That Extra Tax Money.

Some interesting facts about petrol prices:
  • of the money you spend on a litre of petrol, about 62 cents is tax. You then pay tax on that tax because you are charged GST on the entire litre worth of petrol. If the GST was removed from the tax paid on petrol, the cost would drop by 9c per litre. The AA and other motorist groups have been calling on the Government to rectify this situation and help relieve the financial burden on New Zealanders.
  • It is possible to reduce fuel consumption by up to 30 per cent by doing such things as;

• checking tyre pressure regularly,
• keep windows closed when driving,
• remove roof racks when they are not needed,
• accelerate slowly and smoothly.

To find out more practical ways of saving on petrol costs, refer to the FORTIfi website Resource Centre article; Ten ways to save money on petrol.  Click here

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