You're Wasting Up to $42,532 by Not Investing Your Gasoline Savings

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Gas prices are as low as they have been in a long time. In April 2016, the U.S. Energy Information Administration (EIA) forecasted that the average full price of regular grade gasoline will be lower in July 2016 ($2.07 per gallon) than at the same time last year ($2.79 per gallon).

That means the average American will save about $1,000 on gas this year. But unless you're banking those gas savings, you're wasting an opportunity to improve your financial situation. That's because money saved and invested compounds over time, and a mere $1000 could turn into tens of thousands, instead.

Here is why you're wasting up to $42,532 by not making smart use of your gas savings.

Make an Investment

Among the best pieces of financial wisdom from Warren Buffett is, "someone's sitting in the shade today because someone planted a tree a long time ago." Whether it's by dining out more often or buying more clothes, spending that extra $1,000 per year instead of saving or investing it is a decision that your future self will regret dearly.

Today is the best day to start an investment, even if it's with a small amount. If you were to invest $83.33 every month (about $1,000 a year) for 20 years in an online high-yield savings account with a 1% annual interest rate, you would have a total of $22,137.21 at the end of the 20-year period.

With such a long-term investing period, you would do even better with alternate forms of investment. For example, if you were to make the same string of deposits in an investment account paying a 4% annual rate of return, your investment would be worth $30,418.19 at the end of the 20-year period.

Of course, you would do best by putting that series of monthly $83.33 deposits in an exchange-traded fund (ETF), which is a marketable security tracking a market index, such as the S&P 500 or Russell 2000 indexes. The historical average annual return for the S&P 500, adjusted for inflation is around 7%. So, if you were to put $83.33 every month in an ETF tracking the S&P 500 for 20 years, you would end up with $42,532.14 after 20 years before applicable fees or taxes.

Making a consistent monthly deposit over a long period of time allows you to leverage the power of interest compounding, making the most of your gas savings.

Pay Down High-Interest Debt

Of course, you may want more immediate gratification with your gas savings. By using your gas savings to pay more than your minimum monthly payment on high interest credit cards, you can potentially save up to a few thousands of dollars every year.

Let's assume that you have a total balance of $4,534 on a credit card with a 25.24% annual percentage rate (APR) and that your monthly minimum payment is $140.56. By making only the minimum payment, you wouldn't pay off the total card balance for 18 years, and would end up paying an estimated total of $12,592!

By just increasing your monthly payment an extra $40.44 (about half of the estimated gas savings), you would pay off the credit card in only three years and save an estimated $6,081.

Another reason to pay down those high-interest credit cards is that those interest payments aren't tax deductible. Unlike your interest payments on mortgages, home equity loans, and student loans, your interest payments on credit cards or auto loans offer no tax advantage.

See also: How to Use a Balance Transfer to Save on Credit Card Interest

The Bottom Line

Gas prices will eventually go back up. For now, the EIA predicts that the average retail price for U.S. regular grade gas will be around the $2 mark until December 2017. Make the most out of your gas savings for the next year by investing the extra cash or paying down your high-interest debt.

What are other ways to make the most of your gasoline savings?