First off, I’ve written just recently about gas prices, and how low they have gone. A recent post on $2 gas discussed the topic of these prices that are low relative to recent historical gas prices, and how we might want to keep that history in mind when making big financial commitments going forward.
In other words, be careful when putting your budget together, and don’t make the assumption that gas prices will remain low. I say it’s best to assume they’ll go back up, and if they stay low we can consider it a pleasant surprise. Kind of a bonus, if you will.
Picking up on this theme, I came across an interesting article on Time’s Money site that discussed the concept of locking in gas prices at a fixed rate. This allows a consumer to hedge against the potential that gas will go up.
There were a couple of services mentioned, but one that caught my eye was a small regional group of stations that apparently has a plan like this. In looking at the site, it appears that you can pre-pay locked-in prices at around $1 or so above the current at-the-pump prices. Obviously there are additional details to the program, but this is a high-level summary of what saw.
The way I understand it is this: If gas is $2 per gallon, and you lock in prices at $3 per gallon, you could potentially come out ahead if prices surge back up over $3 as we has seen for quite some time.
It’s an intriguing concept, and it reminds me of the “Forever Stamp” model. Perhaps it’s not quite the same thing, but the idea that you can lock in prices is one that seems like an interesting option for consumers and a novel idea in commerce.
It also seems like one is paying a premium – like an “insurance” premium of sorts – to protect against risk of loss. In this case, loss of money when gas prices skyrocket.
This is something I’d have to really think about before deciding on whether or not to do that. I’m not aware of any local companies offering this sort of option anyway, at least at this time.
Could this idea be applied to other expenditures in our budget?
When it comes to one big ticket expense, housing, we can lock in prices by getting out of the renting cycle and buying a property. Though property taxes could always change, even if your mortgage payment stays the same.
But how about things such as coffee, produce, perhaps even heating oil? It would be fun to be able to “lock in” the price of a cup of coffee that normally costs $1.50 by paying $2.50. Maybe years down the line, when coffee is well over $2.50, we’ll come out ahead : )
Okay, that last example is a bit much. But you get the idea!
My Questions for You
What do you think of the idea of prepaying for gas?
Can you think of any other expenses that would be nice to have a pre-paid, locked-in price option?