By Nick Rossolillo, President, Concinnus Financial
March 10, 2015
I want to say one word to you. Just one word. Are you listening? Plastics.
Thus went the recommendation given to Dustin Hoffman’s character Benjamin Braddock in the 1967 movie The Graduate. Sound advice? Perhaps. Actionable advice? Dubious.
In a world where “advice” is easily obtained but rarely personalized, the real trick becomes how to apply it to your own situation. In a previous article you can find here, I outlined some of the reasons oil and gas has come down so dramatically in price in the last nine months or so. However, the actionable advice part of the post was lacking. This is a follow up to that article on how one might specifically put these lower prices to work for their own situation, whether as a business owner, or as an investor and saver.
Current Prices, Tax Deductions, and Discrepancies Between the Two
At the time of this writing, I filled up the gas tank at just over $2 a gallon. Having a 10 gallon tank in my car, that equated to just over $20. You have, no doubt, been experiencing something very similar, depending on your car (or truck) and which part of the country you are filling up in. It’s a pretty good feeling, since that leaves you a few extra bills in your wallet than it did last year (about a 60% savings in my particular case!).
If you use your car for work or you are self-employed, you probably know that the federal mileage deduction rate for 2015 is set at 57.5 cents per mile*. Let’s assume you get an average of 20 miles per gallon, your vehicle has a 10 gallon tank, and you use that entire tank of gas for business related activities. Your deduction would be $115 dollars, more than likely substantially higher than what you actually paid at the gas station. (Perhaps you do not drive for work, or as a business owner you do not take this deduction but instead write off actual costs of your business vehicle or vehicles. Hang with me, this is still applicable for you. We are all currently saving on our gas budget in some form or fashion.)
What are you doing with that savings? Is it being spent elsewhere, eating out, going on vacation, etc.? Or is it being put to work for you, either helping you catch up on bills or padding your savings account? If you answered yes to the former, here is a way for you to perhaps adjust your budget and start accumulating some extra funds. If you answered yes to the latter, congratulations! Let’s take your planning to the next level.
Ideas to Put That Cash to Work
If you believe that inflation is a real thing and that prices will always tend to go higher over the long-term, you are wise to accept current gas prices as a gift and stow away your savings for later. Here are a few ways you can get a little extra out of that savings:
Increase the amount you are contributing to your retirement accounts. If you haven’t fully taken advantage of what your employer matches, increase your deferral to do so. If you already take advantage of your work-sponsored plan, consider starting a Traditional or Roth IRA. ᶱ
Start a savings account earmarked for future gas consumption. As prices rise again in the future and start to cut into other parts of your budget, you have a cushion to fall back on.
Consider a hedging strategy with what you have already saved. You can purchase oil and gas investments in your retirement savings, which you can assume are for future transportation costs when you retire. If you own a business or are self-employed, you can deposit savings into a business investment account, and hedge for a future increase in business expenses. If prices rise, you are growing current savings to hedge against future cost increases. If prices decline, your hedge is a wash as you continue to save money on your driving expenses.ᶲ
Any strategy you may choose to pursue should begin with a look at your budget as a whole (whether it is a business budget, personal budget, or both). Where is your money going? Is a decrease in spending in one category being allocated somewhere else? Is this re-allocation a necessity? How much are you saving overall? If you use one, consult with your financial professional regarding your budget and any tax strategies or investment strategies you employ as part of your business or personal financial planning. Consider consulting an accountant and/or investment advisor if you are unsure of how to structure any of the strategies just discussed for your business.
Final Thoughts
The drop in fuel costs caught many by surprise. Who would have guessed a year ago we’d see gasoline under $2 a gallon again? Or that we would see news headlines now espousing oil oversupply, after a decade of discussion about energy shortage and unsustainability? At the end of the day, though, treat the current circumstances as an opportunity. Don’t let it slip away, only to be a “remember when…” story recounted at summer barbecues and after-hour work parties. Find a way to put the situation to work and benefit from it down the road!
Nick Rossolillo is the president and founder of Concinnus Financial, based in Spokane, WA. He works with individuals and small businesses creating personalized investment portfolios and helping with financial planning. To contact Nick, visit www.concinnusfin.com, email him at nick@concinnityfinancial.com, or call (509) 220-1895.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.
*New Standard Mileage Rates Now Available; Business Rate to Rise in 2015.” IR-2014-114, Dec 10, 2014. www.irs.gov/uac/Newsroom/New-Standard-Mileage-Rates-Now-Available;-Business-Rate-to-Rise-in-2015
ᶱIndividual Retirement Accounts (IRA) offer tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of IRAs. Their tax treatment may change.
ᶲManaged futures are speculative, use significant leverage, may carry substantial charges, and should only be considered suitable for the risk capital portion of an investor’s portfolio.