I live in Florida. I drive a gas guzzler (well, that’s an understatement). The thing that kills me is it costs me $104.00-ish to fill my tank. Now that works out to be quite a bit of scratch if you think about it. I fill my tank twice a month and I rarely drive. (Only to pick up my little girl 20 min, a way and for the occasional grocery run).
That’s roughly 2400.00 a year. Pretty expensive. Now I do mix my own gas and I still get great performance, but I always figured there would be an easy way to do it. So after tons of research, I figured out the trick.
It’s an interesting little trick, but it does work quite phenomenally. About 3 years of research and I finally came up with the solution. Yes, I think and do research on things long term.
I’ve been looking at a company called Mygallons.com and when they first came out, I needed to break apart the business model and came to the conclusion that they had a pretty high chance of being a failure, but if they were successful, they’d be hugely successful. The only thing is I needed to understand the business model and see if they could actually survive the initial few years. Well, it’s been a few (years) and not only have they refined their business model, I like what I see. So I thought I’d give it a whirl.
Here’s the skinny on what they’re doing…(My best guess.. which is usually pretty accurate).
1. They basically pool your “prepaid” gas purchases into a hedge that gas prices will go up and hedge with a series of crude traders that the price will go down. This basically covers both ends of the spectrum, because if prices go up, the hedge (your prepaid gallons nets them money) while a negative / drop in price of crude makes them profitable as well.
2. Your money makes them money as well due to TVM (Time Value of Money) due to some nice investment vehicles.
3. You buy your prepaid gallons based on the current price of the day for your state. In florida, it’s 3.45 today. (There’s a minimum 10 gallon purchase). Not a big deal.
4. My car runs Premium Gasoline on average at $4.19-4.29 per gallon depending on the day.
5. I purchase my gas and they refund me the difference from what I paid vs. what I have in the bank with them (based on receipts). All done via ACH in my bank account.
So let’s do a little bit of math, shall we?
My car has a 25 gallon tank. It requires (supposedly 93 octane minimum). So based on a 25 gallon purchase, I net approximately: $15.00 per tank savings. I’m buying premium for $3.59 per gallon. Nice gig, huh?
So here’s the math: I prepay for 25 gallons at the going rate for the day: 3.45 x 25 = 86.25
I buy gas for: 4.19 per gallon premium. 4.19 x 25 = 104.75
I then request a refund for the gallons including the difference which would be: 104.75 – 86.25 = 18.50
They take a 6% rake off the top: so it’s: 18.50 * .94 = 17.39
So how much did I just pay for premium gas at $4.19? $3.51 per gallon for Premium going for $4.19 per gallon. So it’s a savings of: .54 cents per gallon. I just paid cheaper than economy gas at $3.75 per gallon than premium.
So what’s the rub? You need to float the money for the daily buy price at mygallons.com before you buy the gas, then take the savings afterwards.
Pretty slick, huh?
What’s really nice is you get an additional level of protection when you buy gas off the freeway or at those rest areas which charge you a few more pennies per gallon.
Bottom line? Even at the following assuming gas prices don’t change for me: 3.61*50 (per month) * 12 = $2166.00 (using my method) vs. $2400.00 per year, there’s a savings of: 2400 – 2166.00 = $234.00 per year.
Now, that’s a nice savings if you’re a truck driver, because it applies to diesel too!
Do the math people.. It’s all based on arbitrage and the spread.
Simple math, but I needed to validate it before I decided to try it. I’m in for the long haul, but careful to watch gas prices and if gas for my state drops to 3.15 or so per month, I’ll be buying my year’s gas allowance or at least a 150 gallon locked in price.
Kudos to the mygallons people for figuring out a model that actually works. It’s brilliant.
While I didn’t need to share this little tidbit, I chose to share it, because I believe in helping people. So if you are seeing a savings, PLEASE donate something to help me keeping this website running or buy my daughter something on her wishlist.