Due to US and Israeli bombing of Iran, oil prices temporarily rose to $120 per barrel (WTI crude). If the Strait of Hormuz is completely closed, maybe the price of oil could go to $150+ per barrel. This would create a tremendous tax on consumers everywhere.
With yet another rise in the cost of living, survival has become even more difficult for all but the wealthy. Maybe the world will be safer in the long run, but in the short term, just keeping your head above water might be okay.
Meanwhile, if you’re an investor, your stock portfolio can also take a beating for who knows how long. Perhaps the S&P 500 falls another 15%, as it did in early April 2025 as the war spirals out of control. Or maybe we bounce around the 200-day moving average of 6600 before moving higher again.
Corrections are always a good reminder of the importance of proper distribution of assets. Personally, I bought dip for my kids, but that’s a topic for another post.
Now let’s talk about surviving high oil prices. Because maybe it’s a lot easier than we think.
How to survive higher oil prices
My survival plan for higher oil prices is pretty similar to mine survival plan for higher food prices during the pandemic.
Calculate.
Reduce.
Substitute.
By calculating, reducing, and substituting, I’ve been able to keep food costs relatively flat over two years while losing 10 pounds in the process. The fight against inflation is straightforwardbut not easy. Never miss a difficult moment.
Calculating the cost of increasing oil prices
My first step is to calculate how much my oil consumption costs each month. Oil is an input cost for many things, but most directly, gasoline.
Here in San Francisco, the price for regular unleaded per gallon is likely to rise to over $5 if oil stays above $100 a barrel. Therefore, filling my 27 gallon tank will cost about $135. Before the Iran bombing, gas was closer to $4.50 a gallon for regular. Therefore, my cost increase is about $14 per visit.
I fill my tank three to four times a month, which means I’ll pay up to $55 more per month gas.
thankfully, I already cut the cablethat saves me $120 a month. That leaves me with a monthly buffer of $65, despite rising gas prices.
Reducing consumption to combat cost
Let’s set aside my cost-cutting preemptive measure of eliminating cables. To counter my $55 increase in monthly gas costs, the easiest solution is to just drive 15% less.
I’ve only been driving about 6,500 miles a year on average for the past decade, so there’s not that much room to cut back. However, every Sunday I drive 40 miles round trip to a sports club to teach my kids swimming and tennis for a few hours. It’s about 30 minutes each way, which is a bit of a pain. But spending 5-7 hours with my kids is also a blessing. We also have lunch and play in between as part of Father’s Day Camp.
However, during times of high gas prices, adjustments may be made. Driving 40 miles requires about 2.5 gallons of gas, or about $12.50 in cost. Therefore, I will eliminate one of the four weekly visits each month to save $12.50.
Not swimming is a problem, but they will survive if they miss a week. There are many other things to do and learn.
Replace expensive activities with cheaper activities
With one less swimming session per month, I will replace this activity by taking the kids to the nearby public playground and teaching them tennis and basketball. I have been wanting to work with them on their dribbling and shooting skills now that they are 6 and almost 9.
So what happens to the remaining $42.50 I need to save to offset my higher monthly bill of $55?
Well that’s easy. Every time I take my two children to the sports club, I have to pay a fee of $25.50 for each child. Therefore, by skipping a week and substituting activities, I save a total of $63.50.
Now I’m actually ahead by $8.50 a month. Sweet! The two kid size basketballs I bought a month ago have seen little use. So higher oil prices have helped me be less wasteful.
Classic transport alternatives include taking public transport, cycling, walking or carpooling.
Other cost-cutting measures due to higher oil prices
Once you get past the obvious cost savings, it’s time to cut back on the following items that could become more expensive due to higher oil prices:
- No flying anywhere until oil prices calm down
- I continue to eat slightly less than my 10-year average
- Open windows when it’s hot and use a fan
- Don’t buy plastic products, including toys, electronics, household goods and synthetic clothes
- Skip fertilizing my plants
I may also impose a spending moratorium on discretionary items for 30 days, or until oil falls below $80 a barrel for 10 consecutive days, whichever comes later. Instead, all savings will go towards investing, like me treat the investment as an expense.
You just have to put up with higher oil prices temporarily
A realistic worst-case scenario is for oil to stay above $100 and go to $150 in six months. In that case, my family will reduce consumption by 10-15% and look for substitutes during that time period.
A realistic best-case scenario is that oil prices normalize to $80 or less in less than a month, in which case we probably won’t feel any different. After eating 10% less for at least a year, it actually felt good to lose weight and look fitter. I suspect driving and consuming less will make us feel better too.
Overall, I estimate that a 50% increase in oil would increase the household’s monthly expenses about 100 dollars – roughly $55 for gas and $45 for everything else.
We are relatively frugal, like minimalism and early retirement go well together. As a result, we should be able to afford these higher costs quite easily. After 16 years of living FIRE, saving money has almost become a fun game.
The much bigger issue is to see our investment portfolios hit, as they are essential to generating enough passive income to remain unemployed. That said, I’ve been through a lot of corrections since I started investing in 1996 and I’m always trying to make the most of my spare cash.
This time is no different.
Have you calculated how much higher oil prices will increase your household expenses and what you will do to counter it. Do you think rising oil prices are a big deal?
Track your finances so you can adjust to rising costs
One of the best ways to deal with rising costs is to understand your finances inside and out. When you know your net worth, asset allocation, income generation and investment returns, it becomes much easier to manage your expenses without feeling stressed.
Track your expenses with Empowerment of free financial means. Once you link your accounts, you can track your net worth, monitor your portfolio distribution, and better understand your cash flow. The more clarity you have, the easier it is to make smart adjustments when the economy changes.
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