Handling Finances

Everybody has their favorite pet theory about why gas prices are so high. It could be the evil excessive profits taken by oil companies, risky speculation by profit-seeking investors, a simple case of supply vs. demand or all/none of the above. It’s very hard to know since most of these effects are unquantifiable and it seems like politics has more to do with a person’s answers than actual facts.
Whatever the cause, high gas prices aren’t as bad as most people seem to think. Here in America, gas has been almost ridiculously cheap compared to the rest of the world. By itself that’s not a problem or anything, but it does mean that we’ve become used to thinking of gas as an abundant and cheap source of energy. We’ve built an entire country with sprawling suburbs and extremely limited train and subway access that heavily depends on cheap and abundant gasoline. We’ve scorned fuel efficiency and invested heavily in the largest, most powerful vehicles.

Since oil takes millions of years to form in any useful quantities, it is clearly a limited resource at the rate we’re using it! I should qualify that — we will never run out of oil altogether, it will just become more and more expensive to extract from the ground until some other form of energy is cheaper. We know we’re going to run out of oil at some point, so clearly we need to prepare well in advance. Except, we’re not remotely prepared. We’re decades away from any other fuel source for our vehicles and that’s assuming significant investment for those decades.

One option that gets thrown around a lot is to allow drilling in X or Y location that is currently being protected for Z reason. This will make the situation worse — prices will drop, investment will drop with it and we’ll be right where we started except X and Y reserves will now be depleted.

An unpopular solution.

Quite simply, we need to feel some pain in order to prepare for the future. When prices are low, some people simply deny that there will ever be a problem, the majority simply doesn’t care as long as their tanks are full and a second minority complains ineffectively that our increasing suburban sprawl and refusal to develop alternative technologies or even simply more fuel-efficient vehicles is just digging us further into a hole. When prices hit $3.00 per gallon in America, the former and latter groups grew for a while and then everybody went back to not caring. Now that gas costs $4.00 per gallon, people are really starting to hurt and put a significant bit of money toward changing our habits now so we can avoid wasting a huge amount of money changing once we’ve exhausted our last reserves and gas jumps to $5.00 or $6.00.

High gas prices aren’t all good — the poorest among us who have no cushion will suffer the most as they have to choose between gas to get to work and food. I certainly don’t enjoy paying twice as much for gas as a couple years ago. At the same time, this is the first I’ve seen long-term efforts to increase the reach of mass transit, to develop electric and hydrogen-fueled vehicles and to actually make token efforts to use currently available technologies to increase fuel efficiency in the average American car.

I won’t claim that the days of the 4-car family or the 1-kid family with and SUV and pickup that gets used once a year are over. Many of us have grown quite accustomed to the convenience of these light trucks even if we could easily do without. I’ve even heard some people who genuinely feel entitled to the affordable use of a Ford F-350 used primarily in a daily hour-long freeway commute. In the end though, we’re just going through the pain at the start of any new exercise routine. It won’t be easy, and it might not feel good at first, but in the end, we’ll stop wasting a limited resource, limit pollution, and save billions of dollars that are currently going toward oil companies and oil producing countries. And hey, if we can avoid pumping up the last of the American reserves in the process, then we might truly become less dependent on foreign oil rather than putting ourselves in a desperate position by using all our oil first.

When I started this blog, my net worth was right around zero, I’d paid off my student loans and had just landed a great new job.  Even with a trip to London, a new digital camera, and the occasional car repairs, our net worth is climbing between $2,000 and $5,000 a month.  While I’m confident this is sustainable, it’s not really how we plan to live long-term.  My wife would very much like to quit her nanny job and volunteer more.  We’re also looking at buying a house and then making, buying and renting children (through pregnancy, adoption and foster care) so we’ll be paying interest instead of earning interest and our costs will increase.  At the same time, if we can continue to save just over $2,000 per month (including part of our house payments that goes toward principal) and don’t turn rabidly materialistic in the next couple of years, I think we’re in good shape to hit this goal.

My net worth is computed very simply.  I add together my retirement accounts and my savings accounts and subtract my credit card debt (which is paid off each month).  In Quicken this is automatic so the only thing I have to do is review the transactions to make sure everything is copacetic.  I purposefully don’t add in the value of our two cars as they’re both worth no more than a couple thousand dollars and we intend to drive them until they’re more trouble than they’re worth.  If I purchase a new car someday I might include it in my net worth, but even then I suspect I’d prefer to treat it as spent money rather than an asset I can buy or sell.  When I purchase a house, that will certainly be included in my net worth.

Quicken doesn’t track all my money as the $500 I’ve put into Prosper isn’t included and my wife has an account she uses for selling Avon that I choose not to track, but overall it gives a good picture of my financial situation.

It’s hard for me to think about reasonable and useful goals more than a few years in advance so I just figured I’d set my first longer-term goal at the arbitrarily significant figure of $100,000.  A little math showed me that I’d hit it by or at least in 2010 if our cash flow stays reasonably static so that’s what I’ll shoot for.  If history is any guide, that’ll be somewhere around half in retirement savings so I’ll have a good start on avoiding dog food when I’m too feeble to play with lasers.

I’m traveling to London next week, and between a crazy work schedule and preparations for the trip I plan to take a break until June.  I’ve put a lot of my financial transactions on hold for the last month (i.e. retirement saving and saving for other goals) to build up some cash in my checking account for the trip, and while I was going to try to write a pre-trip article or two, I think I could use a break from writing altogether.

So goodbye until June and I’ll be sure to write about travel financing when I return!