Ok, you’ve played with our free gas calculator and you want a little more information on how it works. Here’s a more detailed description of what’s involved and how you can “drive free for life.”

First, you need to have some idea of what your current annual gas costs are. Our calculator can help you estimate this. Estimate the average number of miles you drive in a month and multiple it times twelve. Then divide that figure by your average miles per gallon (MPG) to get the total number of gallons you use in one year. Finally, multiple that figure times the price for a gallon of gas. Congratulations! You now have a decent estimate of your total annual fuel cost.

What’s this “Hedge Fund” all about?

Ok, so once you’ve calculated your annual fuel cost, what next? Enter our gas price hedge fund. Basically, we look at the average annual return for a number of oil-related stocks. Why oil-related companies? They historically (but not always, as our disclaimer is quick to remind you) will follow the price of oil. When the cost of a barrel of oil goes up, the price for a gallon of gas (usually) also goes up. And so does the return on these stocks (well, in theory anyway). So when oil goes up in price, if your oil hedge investment also goes up, you earn more money. That increased profit can effectively offset your increased costs at the pump.

So essentially, once you know what your fuel costs are, you know what kind of return you’ll need to offset those costs. If you leave the “hedge fund” field in our calculator empty, it will calculate the minimum investment you would’ve needed to make to offset your fuel costs. The resulting table shows the return from a variety of oil-related stocks and your net cost per gallon.

A few additional notes for the detail oriented…

We used ShareBuilder’s free What If I’d Invested calculator to determine the 5-year return for each of the stocks in our example. Then we divided that by five to calculate the average annual return. Obviously, some years are better than others, so this really cannot accurately calculate exactly how much you would need to invest, but it illustrates the concept that the wealthy already understand; there is no need to be alarmed about higher gas prices if you’re armed with the proper investment strategy.

But I don’t have $1,500 to invest!

Well, we didn’t either at one time. That’s one of the reasons we like ShareBuilder. It’s a stock investment company run by banking giant ING, and what makes ShareBuilder unique is that you can purchase fractional shares of stock. This makes it easy to get started. They’ll even setup an automated investment schedule, if you’d like to make it easier still. If you’re looking to get started in investing, ShareBuilder makes a great introduction.

Get $25 to invest, for free!

If you’d like to start a ShareBuilder account, leave us your email address and we’ll send you a referral email. Follow the referral instructions and you’ll get an extra $25 bucks in your ShareBuilder account to invest, courtesy of ShareBuilder and ING.  Pretty sweet!

The Bottom Line

All of this is designed to give you a different way of thinking about the cost of a gallon of gas. Hopefully, you’ll see how you can pretty easily protect yourself against rising gas costs, but we hope you’ll also do your part to conserve gas, too.