Today, I filled up my car with gasoline. While the gas was being pumped, I stood around taking in my surroundings. One of the things that I took my time looking at was the gas prices signage which every gas station has on their fore court. It got me thinking.
Gasoline is an inelastic good
We need gas to ”function”, as public transport and convenience do not meet our needs. Without gas, we cannot go to work, get our kids to school and whatever else we use our cars for.
Therefore, regardless of price, we will use our cars, which means buying gasoline. This allows for the gas stations to increase their prices without fear of reprisal. What's more, we tend to be loyal to one gas station for convenience. Our choice of gas station often reflects our habits i.e. our route to work. Now before we get angry with the gas stations, they only make 3 to 5 cents per gallon sold.
Back to my original thoughts. Firstly, the price varies between when you pay cash / debit card as opposed to using a credit card. The difference being 13 cents per gallon.
I pumped 12 gallons of gas this morning into my car. I normally do this twice a month on average. 12 gallons x 13 cents = 1.56 x 2 = $3.12 (per month) x 12 months = $37.44 in extra costs a year. That $37.44 could have been saved or spent on something else. Some of you might think that this is obvious and that I am an idiot and should stop using my credit card. I don't think that's the case.
Using a credit card for gas can be worth the extra charge
Firstly, security. In the past, my debit card has been fraudulently been used within days of receiving it by someone on the other side of the country. Money was taken out of my account and it was instant. It was only caught because I had noticed a charge of $5 that I could not account for at a gas station in Texas. I live in California!
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The scammers usually take a small amount first to see if the transaction goes through, and if it has been noticed.
If it is not, then the scammer goes on a mass spending spree that could end up in the thousands of dollars.
Which means that I could have significant cash flow problems. Meaning that I could have had insufficient funds in my account to pay bills. That situation is not only embarrassing, but could have affected my credit score and the survival of my business.
Credit cards can be a safeguard against fraud
Secondly, my credit card statement arrives on a monthly basis. This allows me to check my spending against my statement for fraud. I am protected and I can dispute the charge without having to pay. With a debit card, I can dispute the fraudulent charge, but the money has already left my account.
With a debit card or cash, once you have spent it, it is gone. But with a credit card, I have a grace period between spending and having to pay it back, which gives me extra time to ensure that I have enough money in my bank account to pay the bill. In business, in essence it allows me to use the credit cards money between statements before I have to pay my bill. This gives me time to collect monies owed to me.
There is a statistic out there that says that within the first 2 years of business, 80% of businesses close their doors and it is because of cash flow. They simply do not have the money to pay their bills. Quite often it is because of late payments, which has led the company to not be able to pay their bills on time. A vicious circle.
Going back to the gas station.
Gas prices have varied quite a bit over the last year or so. I have seen the price as low as $2 and as high as $4.90. Reasoning behind that is supply and demand, “seasonal blends”, holiday seasons etc.
With that in mind, putting 12 gallons of gas in my tank could cost me anywhere between $24 and $58.80, or $48 and $117.60. This adds up when you fill up twice a month.
Anyway, next time you fill up, take a look around. Price changes could have a significant effect on your budgets and always check the pump for skimmers and broken seals.