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Plummeting gas prices fuel savings plan

Take advantage of the lower cost of oil now, and benefit later in the year. “Today” financial editor Jean Chatzky offers advice on how.

Finally, there's some good news as far as gas prices are concerned.

Fuel prices have actually dropped 30 cents or so in the past month according to AAA. According to Richard DeKaser, chief economist at National City Corporation, the decline in vehicle fuel prices since the beginning of August translates into a monthly savings to consumers of $2 billion.

Simultaneously, the home-heating season is right around the corner. In order to save even more over the coming winter, you ought to think about locking in your rate with your fuel provider right now while prices are low.

Why? According to Dan Singer, co-president of Robison Oil in Elmsford, N.Y., this is the calm before the storm. “We're anticipating that prices will go back up in October,” he says, noting the gas and oil prices are notoriously finicky. “We do think prices for winter will be lower than was feared a couple months ago, but we don't think they'll be as low as they are now,” he explains. That's because many oil refineries skipped their scheduled maintenance in the spring and early summer this year. Because of this, most will be taking care of that maintenance (which results in a decrease in supply) in October. Singer estimates that winter pricing will end up 20 to 30 cents higher than the current numbers. But if you lock in now, you'll keep your bills from making that jump.

The result of both of these developments is that you're likely to feel a little flusher for the first time in a while. That gives you a choice. You can take the extra $30 to $50 a month in your pocket each month and go to the movies, buy a pair of blue jeans or get take-out sushi a couple of times. Or you could use it to do yourself some real good. Obviously, I'm for the latter:

  • Get more for your money. Put your extra funds to the best use by paying off bills or loans first. If you do this, you can actually double your gasoline savings, according to Sheryl Garrett, founder of the Garrett Planning Network, an international network of independent financial advisers and planners.
    “The flip side of using your credit card is that often times it takes about twice that much money to pay off what you've purchased because of the fact that you're carrying it over time and accumulating all that interest. So if you use your gasoline and heating savings to pay down credit cards, consider it double its value because of the interest you're saving.”
  • Bulk up your retirement fund. Contributing as little as an additional one percent to your 401(k) or other retirement account could pay off big time in the end. First, you can have the increase automatically deducted from your paychecks, so you're saving the money before you even see it — no chance for slip-ups at the snack machine. Also, don't forget that money goes into your 401(k) untaxed, saving you even more. Planning for retirement can be a daunting task — many financial planners are now suggesting that people plan through age 105 — so while you might not even notice a small increase in your automatic deduction, you'll be saving on stress as well as money.
  • Sock it away. Put your extra money in a savings account, so you'll have a larger emergency pot to rely on if times get tough. Even if your bank's interest rate is low, putting the money away will get it out of your hands, eliminating any danger of unnecessary expenditures.
    Also, once you see the dollars start to accumulate, you just might be tempted to dig even deeper into your pockets and deposit more money — say, that $5 that you spend on a venti half-caf caramel non-fat latte every morning.
  • Whatever you do, do it automatically. “I think we have to make the savings not a conscious activity. We have to put it on autopilot. Even though I think and talk about money every day, if I don't put things on autopilot, they don't necessarily happen,” says Garrett.
    We all know that we need to save, but once the money is in our hands, it's that much harder to hold on to it. Instead of spending and then trying to save, reverse the process by deducting payments, as well as savings and retirement plan deposits, directly from your paychecks. Whether you choose to make an extra 401(k) contribution, increase your savings account balance, or pay down your debts, set it up so your bank, company or credit card does the work for you.
  • Don't drop your good habits. If you started carpooling to work with a friend during the gas price surge, there's no reason to stop now. You still want to save money, and carpooling is one of the best ways to do it.
    Garrett estimates that driving 10-20 percent less could save you $500 a year. And even if the home-heating price drop holds true through the winter, you can still resurrect last year's money-saving tricks, like cutting back on long showers, keeping less-used rooms (the guest room) on the cooler side, and tracking ventilation fan use in the bathroom and kitchen, which can suck the heat you're paying for right out of the house.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, .