Maria | Never the Same River Twice

Interesting. I’m saving ~$10 per week right now in my diesel Jetta, so that’s $40 per month.

Our natural gas bill fluctuates from $25 in the summer to as high as $130 in the winter, but this is offset a bit by electric bill increases when the air is on. However, we have the golden months of April, May & September when we usually have neither heat nor air on, so that would equal about $50 in utilities instead of $150 or more. Let’s call this $300 annually for the “hedge fund.”

Announcing the Save $1,000 in 30 Days Challenge | I Will Teach You To Be Rich

[...] Tip #4: Involve your friends in your savings challenge Tip #5: Optimize your cellphone bill Tip #6: Use gas prices to become your own hedge fund (36 votes, average: 3.25 out of 5)  Loading [...]

Amanda

I am setting up the transfer now.

Juergs

Ramit – Great Tip
I have a Diesel Golf that I run on Biodiesel. The funny this is… I get a shipment of 50 gallons of Bio to my house when the price is low and use that when prices are high. A bit nerdy and more complicated then your easy to do post.

I also try to work from home at least one week out of the month.

Savings from hedging fuel: $20 to $40 per month
Saving from working from home: $40 to $80 per month
Total saving: $60 to $120 per month

Ryan

I really love this idea. I kind of do it, in a sense, with my utilities in that I always pay $100 a month towards my electric and gas regardless of the price (it simply carries over as a balance.) However, storing that extra money in an account that earns 2-3.5% will actually earn me money.

I do not have an ING account yet but will apply for one tonight. This is the best tip yet as it can be applied to so many different facets of life… love it.

kat

(I posted this comment on the discussion group on Wesabe (http://www.wesabe.com/groups/4-saving-up/discussions/2703-save-1000-in-30-days-can-you-do-it), but it seemed worth reposting.)

Okay, I don’t know how I feel about Tip #6. I don’t own a car, so fuel hedging doesn’t apply to me. But hedging as it applies to other stuff, like utility prices? Heat is part of our rent, but we cool with window A/C units in the summer. So for the summer months, our electricity cost goes way up, and in the winter, way down. I suppose I *could* continue “paying” three times as much to Con Edison, and put the overage into a savings account. It seems kind of pointless, though, when the alternative use of that money is paying down debt. Maybe Ramit’s just not thinking in terms of someone with debt?

I’m not sure I’m getting this one, though. I thought “fuel hedging”, as the airlines did it, meant that they bought a lot of fuel when it was cheap, and that tided them over when it got more expensive. This is different — it’s not like I can buy extra electricity from ConEd at the cheaper rates right now, and use it when the rates go up. I’m stuck paying whatever their monthly rate is, regardless. All this “hedging” is really doing is “saving up money for when things get more expensive”, and I have an emergency fund for that (not to mention that I will just budget for the more expensive months when they get here).

What am I missing?

Chris

To clarify a bit more, Kat has it right above. When you _pretend_ that your heating costs are $100 all year long, you don’t actually save more money. That would only happen if you somehow entered into a binding contract with your heating company to lock in your heating costs at $50 per month, and then heating costs increased for everyone else except you. This is what real fuel hedging is, and why Southwest has been so successful with it.

Jane

And the UK fuel prices haven’t come down at all, so no use to me, I’m afraid…..

Kenny

At first like the other, I didn’t understand how this is saving you money. But I think people are getting hung up on the word hedging because it’s not hedging at all. If you ignore the word hedging this tip is saying when your gas/utility bill is low instead of spending the “extra” money on frivolous items save the money in a high interest checking account so you have it when the bill goes up.

Laura Forrest

Here’s how to open multiple savings accounts with ING (not sure if it’s still 100% accurate since ING has updated their UI a bit, but still should help a lot).

http://www.thesimpledollar.com/2007/07/18/how-to-set-up-multiple-savings-account-funds-within-ing/

~Laura

stefanie

the only thing i like here is the advice on how to sub accounts on ING – thats really cool and I’ll do that soon. But I while i get the idea behind this, some of us are so poor, that we really do need to use the money saved on gas for other things. like, you know, food and rent. also, obviously this is a personal issue, but perhaps instead of saving for a wedding, working to fight bigotry and homophobia with a donate to no on same-sex marriage bans fund would be a better category for me (and others?).

Nate

Sweet tip on the ING sub accounts. I have an ING account, but this never dawned on me. I’ve been using an excel file to track my “sub accounts” manually. This is a feature that I have been longing for in MINT, and now that MINT is tracking all of my ING sub accounts – I have it. Now if MINT , I think I might finally be able to get rid of my manual tracking excel file!

Bartek

Wow this is a great tip! I drive to work in the winter (can’t bike, Ontario winters are cold, wet and annoying) so I’ll definitely use this

F

I’m also with Derek et al.

@Breck: Yes it is possible to hedge your future fuel needs, and companies do it all the time. They call their bank’s dealing room, who buy the needed volumes in the financial markets in the form of standard contracts (’futures’). However, these volumes are huge (e.g. crude oil: per thousand barrels). The traders at your bank generally won’t bother with smaller volumes (due to the contract size).

Mike B.

It’s not really “hedging”… it’s “averaging”.

You’re dollar-cost averaging the price paid for the fuel over a longer term. The problem here is that you have no idea what the average price of gas should be. Therefore, you’re speculating that you won’t end up paying more overall — you would fail to “hedge” if the price of gas kept going up.

“Hedging” requires that you lock in a lower price using derivatives. Maybe you should purchase call options for gas at lower prices than today (which is near impossible for the average investor). That would guarantee the price you pay over the course of the year.

Matt

Allow me to summarize this tip in a single sentence: If something costs you less today than what you are used to paying, set the money aside somewhere instead of blowing it.

JACK

Sorry, but this tip doesn’t qualify for the challenge, Ramit. The point was to show people how they could create 1000 dollars of new savings in a month. This doesn’t create any savings, unless you assume that the money was going to be spent on something frivolous otherwise. All you are doing is telling people that if the price of something goes down, save the difference. It’s the same basic principle that’s recommended when you pay off a debt: start saving what previously was your debt payment. But this isn’t a way to create new savings. At most, it is a “jedi mind trick” to proving that you had more flex in your budget than you thought. The success of the tip is entirely dependent on a change in gas prices for the better and not on an action the person can actually do. If the tip was, don’t drive your car for a week and save the gas money, it would fit the theme better.

While not a bad bit advice, it doesn’t fit with the theme.

Stop Getting Cheated

Excellent tip, Ramit. Too bad you have to take a bunch of arrows from disgruntled readers. I’m with you…if some of these whiners are so insightful, they should post an even better suggestion or start their own blog and show us how it’s done.

Daniel

Guys, I know this has been said but you’re over thinking this. Any time you have to spend money on a necessity (like gas) you just do it regardless of the price. While you are spending the higher amount you still eat and stuff so if you are serious about saving money you can continue to “spend” the higher amount (by saving the difference) when the price comes down.

This is a good tip, it’s all about getting into a “saving money” mindset which has been the point of every post so far.

Thanks Ramit.

Green Panda

Wow, I really enjoyed this tip Ramit! I think it’s a great way to take advantage of this ING feature.

Sean

You may be “hedging” in terms of your budget on paper, but unless you’re actually able to buy the fuel at the lower price, it’s just a mental exercise at best. Diesel stores well, but gasoline doesn’t.

The ING sub-accounts can be good for budgeting purposes, if you don’t use a chart-of-accounts within your personal budget.

As for actual ways to save money whilst driving:

1) Get rid of all the extra crap you keep in the car. Extra weight = extra $ spent to haul it.

2) Keep the tire pressures up. This alone can save you up to 10% on fuel costs.

3) Keep your car well-maintained. Dirty oil, clogged air filters, sloppy transmissions, dragging brakes all eat away at your fuel economy.

4) Don’t drive like an a**hole. Tailgating and weaving in and out of traffic wastes huge amounts of fuel. Every time you have to tap the brakes, you’re effectively throwing out money that you spent to accelerate the car in the first place!

5) See #4. And admit you do it. We all drive this way at some point.

6) If you car has an MPG meter, great! Use it when you drive. Turn it into a game and see how high you can get it on your regular route by backing off the gas at various times and taking advantage of your route’s natural hills & dips.

6a) If you don’t have an MPG meter, at least keep track of how many gallons of gas you’re putting in your car vs. how many miles driven (use the trip odometer that every car comes with) and calculate out MPG.

7) If you keep good logs of MPG per tank, you’ll be able to spot when something’s wrong with your car long before it becomes a costly problem.

Find a better way to work. Traffic lights are designed to do one thing — stop traffic. The longer the light, the worse your MPG will be. The more lights per route = even bigger hit. So, find a less-congested way to work. Are there any side streets or back roads you can use? You may be able to “only” go 35-45mph on these smaller streets, but that’s actually faster than most main roads over the duration of the trip. Also, can you avoid the traffic crunch? Maybe work earlier/later? Sometimes this just isn’t possible.

Figure out where your car’s MPG sweet spots are. My luxo-barge’s 4.5L V8 guzzles gas at slower speeds and also when starting from a dead stop. At 25mph I get 16mpg. At 35mph I get 22mpg. At 48mph, I can get 40+mpg. At 55mph that drops down to 25mpg. At 75mph that goes up slightly to 28mpg. Each car’s transmission gearing and engine is different, so you’re just going to have to experiment to find out where your car’s sweet spot is. I’m willing to bet money it’s not the magical 55 mph the gov’t’s been preaching since the 1970’s (hey Uncle Sam — it’s been 30 years, cars have changed drastically, get with the program!)

9) Use the ‘net… find websites about “hypermiling” where people try all sorts of crazy things just to get an extra MPG. Let them try all the crazy things for you and see what actually works.

Aja

This makes perfect sense to me. The challenge is not called how to “earn” $1000 in 30 days, it’s about SAVING. And, correct me if I’m wrong, but putting money that would normally stay in your checking account into a savings account instead counts as saving, right? Beccause if it was in my checking account, it would definitely get spent

I love this tip! I recently started working on a budget (within the past 3 months) and I think it’s a great idea to save the money that is planned but not required by my budgeted items. Keep it up Ramit!

Matt

I do this with housing. A typical limit for the maximum you should spend on your monthly rent is 25% of your monthly income. So for a person making $30,000 per year, or $2,500 per month, they can spend $625 on rent. But some people, especially single persons, will spend less than that. Invest the difference in a Roth IRA and use it for a down payment on a house.

HollyS

This makes sense to me. Getting smart about money = saving money, even if it’s not immediately recognizable, like if you were to quit smoking or give up lattes.

Chris

For all of you saying that this is a good tip because it tricks you into saving money, then why don’t we just reduce the entire 30-day challenge into one tip:
“Go to ING right now and set up an automatic transfer of $33.33 from your checking into your savings account to occur every day.”

The fact is that we need to *increase* our income and *decrease* our spending in order to actually make more money. If a tip like #6 here or even the above statement to set up and automatic transfer works for you, then that’s great – but the fact is that many people wouldn’t be able to do that because the daily transfer would eventually empty their checking accounts.

JimE

The concept of saving money that was already allocated in your mind rather than splurging it as free money is important. Thats what I get out of this tip, it requires a subtle shift if you’re already budgeting. If your not that far long yet then your not going to be able to take advantage of it. On a side note I see your planning a trip to china, I’ve been there several times (as an american who speaks no chinese whatsoever) so if your curious about tips feel free to contact me. I’ve been to all the big big cities as well as out in the countryside. I enjoy your blog and would enjoy a chance to reciprocate if possible.

bizimunda

Great tip man, I have been doing this last 2 months and its really helpful .
http://www.bizimunda.net

laura

seconded on the hsbc- is there a way to do sub accounts with hsbc’s online account? currently i have like 3 set up and nicknamed but i’d love to divide them further cause i’m ocd like that…

Danny

Isn’t this more like the hedging previous comments refer to?
http://mygallons.com/

They let you pre-purchase gas at somewhat market prices and then fill up by the gallon. I wasn’t convinced that it was worth the $30-40 annual fee, so I never started a card, but it seems more like actual hedging rather than “jedi mind trick” saving. It looks a lot more tempting now that gas is down to under $2/gal

(although for this month of saving, it would more likely increase spending)

F

Ramit,
Although I initially didn’t see much value in this ‘mind trick’, I acknowledge now that it makes sense given your assumption that any unbudgeted money tends to ‘vanish’. So if the hint itself was good, was it maybe its presentation that provoked these disappointed reactions? Is this hint really about hedging? Or is it about budgetting expenses with a broad margin and saving rather than spending the leftovers (since ‘fun spending’ already has a budget of its own). I get it now. But it seems like that sexy ‘hedging’ association clouded your message. A lesson for future articles?

Merry,
Excellent suggestion. More convenient than buying futures like I suggested.

Peggy

We use less than 5 gallons a week, going back and forth to the grocery store. We both work at home right now and don’t really go anywhere. If/when we begin commuting again, this tip might be a consideration, depending on how close the income comes to the budget.

Oh, my eBay item sold today, so I finally have tip money to include!

Today’s tip: $0
Cumulative: $7.75

Whoohoo! I’m well on my way to $1000!

tran

Ramit, Thanks for the tip of the sub-account on ING! I already had an account for the purpose of savings and property tax but had them lumped together. This sub-account is good in that we can set aside the amount for the fixed property tax and make sure not to dip into it.
Also, thanks for the tip about mint.com. This type of sw seem to work really well if you purchase everything from your debit card so everthing spent could be categorized. The only thing is, I purchase and pay majority of my expenses from a credit card since the credit card offers cash back (yes, CC is always paid in full.) Could you reccomend any tips to better utilize the sw or ie create a budget or dash board on where the money is going if you pay your bills and purchases from a CC? Or a good debit card that provides cash back, would be good too.

Thanks! Btw, love your sense of humor. Your commentary and expression always crack me up!

useppewind

@Ramit Sethi and for all: (sorry for my poor english)
check this tips out, instead:

-at home, use low consumption bulbs (or high performance)
-here in italy diesel is about equal to gasoline, but GPL-cars are a lot more cheaper
-…….

Jason

Love the tip about the “sub” accounts. I’ve got ING checking and savings and always wanted a feature like this. As others have done, I used to track savings for large purchases on paper. Now I’ve been able to create smaller sub-accounts for various things I save up for and pay in lump sums. (Auto insurance, gym membership, payoff funds for my 0% apr credit purchases). It’s much easier to have everything in its own account than it is trying to remember how much of that total was for which purchase.

Chelsea

Cool idea Ramit. Tricking yourself into saving is a great way to do it, especially if you’re like me. I like your “if money burns a hole in your pocket – stop putting money in your pocket (instead of stop wearing pants with pockets -ideas.” As a combo of the two, I just started commuting to work via train instead of car most days. This saves me not just wear and tear on my vehicle, but gas money most of the time (depending on prices per gallon). Also, I was able to get my insurance way down because I only allow myself to drive once per week max. I think I’ll try our ING trick.

Claire

If you’re putting all of your extra $ towards paying down debt, you can’t do this tip.

PDXGirl

hmmm… Rather than create a seperate hedge I’ll just funnel whatever I save over $4.19/gal into my savings for the month, since I’m currently building my emergency fund I can then call a portion of soaring gas prices an “emergency” if I wish.

I generally purchase about 8 gallons a week premium (old car, she needs the good stuff) which on Sunday cost me $20.88 @$2.47/gal (8.45 gal) and would have cost $35.41 for a “savings” of $14.53 which I have transferred to my savings account.

If I do that all month I would save $58.12 that I otherwise would have spent on random stuff.

alexinmadison

While this may not be a “saving” tip per se, it is, in fact, a money making tip. Putting “extra” money into an interest-bearing savings account is better than lett ing it sit in your checking account where it can be easily pissed away on something stupid – like my inevitable “I don’t want to eat the sandwich I brought today” lunch.

Rhonda

I think what this tip reinforces for me is to put what I’m managing to save into some kind of interest-bearing account or to use it to pay down debt in order to decrease debt-related expenses even more. Those things sound pretty basic but sometimes I just need a little push to actually DO it. Between full-time work, family, housework, community involvement, car maintenance, and all the million other things we have to do with our time, a little help to make these financial tasks a priority is appreciated.

Aaron Riksen

People that are with Derek. If you are not part of the solution, you are part of the problem. Now I understand why our country is in such a state. Too many people trying to find fault in solution. I love this idea and alot of the ideas given. Stop overthinking things and finding the glitch in everything. If you don’t do it, how much money would you have saved. NOTHING. So if you don’t have something positive to say to our host, go someplace else.

ben

I guess you didn’t read about the $250 million charge Southwest took last quarter because of bad fuel hedges.

http://www.businessweek.com/lifestyle/travelers_check/archives/2008/10/southwest_sees.html?campaign_id=rss_daily

Robert

I use this strategy for quarterly and annual expenditures. I sat down and added up all the bills and misc expenses which come up during the year. Annual bills include Insurance, license fees, trash and water bill. The misc expenses mostly include groceries which are bought quarterly; TP, Paper Towels, Razor Blades etc. This is one of the best things I have ever done. in the past, It never failed that I would run out of everything in a single month. I would take a large hit and be behind in something else. Now, I know longer have to worry about it. When ever these expenses come up I simply transfer the money over to my checking account.

Frugal in the Fruitlands » Make New Friends, But Keep the Old

[...] challenge and am following along avidly. So far my favorite tip from the challenge has been Use Gas Prices to Become Your Own Hedge Fund. I calculated how much I had spent per week on gas while prices were high vs. after prices dropped, [...]

Lynn

I think the negativity on these boards from people who compalin that they already know this stuff, this stuff doesn’t apply to them and these are stupid frugality tips are just angry people looking to blame others for whatever tough circumstances they find themselves in. Understandable, but lame. There is no magic way to be rich and times are tough for everyone. We’re all just doing the best we can.

I think this was a great tip – and got me motivated to look into ING and Mint. I think Ramit is great and I’m thankful I found this information.. it’s put me in a mindset to be proactive about my savings as well and my overall finance situation. It costs me nothing to benefit from what others have found useful. The negativity is, however, a complete waste of everyone’s time – no one’s more than the people generating it…

Save Money during the Recession | Sassy Women

[...] Ramit Sethi is running a Save $1000 in 30 days Challenge over at I Will Teach You To Be Rich.  Some of the options are no brainers (Pack lunches for the rest of the week), while some are pretty innovative (Use gas prices to become your own hedge fund). [...]

Favorite Things: ING Orange « Life Before Noon: A Millennial’s Manual

[...] on to this little nugget of monetary sanity by an article posted on Ramit Sethi’s Blog, I Will Teach You To Be Rich. When I looked further into the ING Orange savings program I truly found no down side–and [...]

L Boyd

This is missing the whole point of hedging as you’re simply saving the cash to pay for future increases in fuel prices – the only benefit you’re getting is a small interest rate on your money. If you were to use your saved cash to buy a fund (ETF or ETN) that tracks oil, gasoline, or natural gas prices (by investing in an array of futures contracts), then you would truly be hedged against rising prices. As prices rise, so does the value of your investment; you’ll pay higher prices at the pump, but get nice returns from the fund that you invested in, thereby hedging your fuel costs. Sadatay.

Debbie

I’ve done this with my heating and cooling bills in a sense. We have cold winters and hot summers so between the gas and electric bill it’s usually comes up to about the same every month total except for a couple of months in the spring and a couple in the fall when the weather is perfect. So I save the cash that would go to the gas or electric company and move it to my emergency fund savings account.

Now when there is a car or home repair I have the cash on hand.

fred

How about stopping buying ‘useless’ stuff.

Suzanne

Ramit,

I am a long-time lurker of your site, but this is my first time commenting (sorry, I know you hate that).

I just wanted to tell you that a couple months ago I finally took your advice and transferred my savings into an ING direct account. At the risk of sounding like a commercial, I have to say that it was really easy and I like how I am able to separate my money into different “buckets.” Furthermore, I have earned a LOT more interest with ING than I was earning with my normal bank.

Thanks so much for this great tip, I will continue to apply your tips to my life and hopefully it will continue to “pay” off. (har har)

CW

This tip is similar to the old idea of budgeting with “envelopes”: set up a budget in which periodic expenditures are pro-rated per month and flexible or variable expenses (food, fuel, etc.) are given a somewhat padded average value per month; then, put the amount budgeted for each line item in an envelope (or sub-account) when you are paid. Spend the money in each envelope when a bill is due or a purchase is required, and bring forward the amount left over (if any) from each envelope at the end of the month, to apply to that budget item in the future. Make up for shortfalls by extra economizing the following month, or by redistributing overages from other “envelopes”. In addition to earning interest income if you use a savings account to hold money in your “envelopes”, you can SAVE money by having the cash you need when there’s a spike in the price of a necessity like fuel, or when a bigger bill comes due — like an annual insurance premium, for example — rather than having to pay these expenses with a credit card or loan on which you will pay interest. That’s how hedging against future expenses saves money even though you can’t stockpile the commodity when it’s at the lowest price.

Dr.Stuart Schaller, PhD

I understand taking the money from a checking account and putting it in an ING savings account, but I don’t understand the reason for creating a number of ING savings accounts, rather than just one. Is it simply for accounting purposes??

Josh

I know you love to push the ING Direct accounts, and they really do sound like a good idea. However for those of us offshore, like me in New Zealand, is there a comparative option? ING does have a branch in Australia, but that still does us ‘across the ditch’ no good! Any feedback would be appreciated! Cheers!

Bob

Lori,

All savings account interest rates are down right now due to the historic lows in interest rates generally (mortgages, fed prime rate, etc). What ING gives you is the easily created multiple/sub accounts with pretty easy access (transfers in and out of “linked” accounts like checking) and a very competitive interest rate for an FDIC insured liquid/cash savings account. ING Direct Orange Savings has been as high as 4 or 5% since I’ve had my account, but is currently about 1.5%, which is a bit lower than FNBO Direct’s 1.9%. I would need to do more due diligence to comment on any other pros and cons between the two accounts/banks.

josh

Howdy!
Here’s how you can do real “hedging” on a scale accessible not only to the big companies: when there is a sale on non-perishables which you consume a lot of anyway (which includes long shelf-life products such as UHT milk, cereals and canned goods), go to the shop, and buy up a several-month supply. Don’t buy anything else though – (other than perhaps the usual shopping) these sales are generally a trick to lure you into the shop and buy a whole bunch of other useless things which are more expensive than usual… It’s like going to Las Vegas, and enjoying the cheap accommodation, great buffet breakfasts, but STAYING AWAY FROM THE GAMBLING… This technique is only for those who are strong enough to resist the many temptations…

brent

wouldn’t it make more sense to buy oil stocks or a manage future ETF this is not real hedging because your not capturing higher prices