Set Up A Personal Fuel Cost Hedge Fund

As part of his goal to get readers to save $1,000 in 30 days, personal finance blogger Ramit Sethi suggests setting up a personal fuel hedging fund to protect against rising petrol prices eating into your best intentions. His own method calls for figuring out what you were paying for petrol a month ago, setting up an automated bank sub-account, and transferring his monthly savings in gas costs to it. Setting a calendar reminder, he'll check the cost of fuel in three months, and pull from the fund if needed, or drop more in if prices fall. If you're not the type to save receipts, Sethi suggests an expense tracker like Mint to deliver your fuel costs to you. It's basically an advanced means of tricking yourself into saving money, but a worthy one. Photo by 'bert.


    Kudos to Ramit for saving money, but the use of the term 'hedge fund' here is misleading.

    A hedge is an arrangement designed to reduce exposure to risk (in this case the risk of petrol price movements).

    To hedge your petrol price risk, you'd need to invest in something that moved at a proportional rate to the petrol price but in the opposite direction, so that as you paid more for petrol, your income from the investment increased (or vice versa) effectively fixing the price you were paying for petrol over the life of the hedge.

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