Wheaties for Your Wallet

My first real bank was actually a credit union (Navy Federal) while I was in the Marine Corps – they were great, but I was a young, indifferent customer.  After I got out of the Marines in 1993, I signed up with Bank of America and have been with them ever since.  For the first 10 years I didn’t really think about my bank: when I wanted online banking they had it, my ATM card always worked…there wasn’t much else I needed.  In 2003, I decided to apply for a home loan and after a quick look at BOA’s high rates, I knew there was no chance that I would get my loan from them.  In 2005, we started Wesabe and that involved the movement of non-trivial amounts of money, and BOA was a royal pain at every stage.  Last week I decided to take a good hard look at BOA and here is what I came up with:

• My checking account has fees (not sure why)
• The savings account rate isn’t competitive
• I don’t have my home loan through BOA
• I do have an MBNA credit card, but that came through an acquisition and they still haven’t properly integrated it into online banking

I do know the bankers at my local branch. Chris K. has been a pleasure to work with (he went to Beverly High and I want to Venice High), and the branch manager has done everything she could do to help despite bank policies.  Still, I think we are at a structural parting of the ways – I don’t like being constantly reminded that my bank gives crappy rates and sub-par products because they believe that inertia works in their favor.

If I could choose any financial institution to work with right now I’d go to USAA, but since I’m not active military they won’t take my money, so I had to look elsewhere.  My wife banks with Wells Fargo, but after my experience with BOA I want to try something a little more community oriented, so I decided to look for a credit union.

After Googling “find a credit union,” I got a page where I could enter in my zip code and it popped up 23 credit unions in my area. I was on number 18 before I found one I was eligible to join (with most, you have to have a certain employer or live in a particular area).  I clicked on the “About” page of the one credit union I could join and it took about a minute and a half to load, and the information and design left me underwhelmed.

I live in Alameda County and I work in the technology field.  Are there any progressive/aggressive banks or credit unions that people can recommend or who want my business?  I’m also going to ask this question on AskMetafilter and report back the results.

What do multiple credit card accounts, option arm home loans, and 30% interest rates have in common?  Trouble.  Not guaranteed financial collapse, but a high potential for financial trouble.  They also push the edge: “Not credit worthy? Fine, we’ll jack up your interest rate.” “Don’t have enough money to buy the home you want? No problem…just pay the interest.”

The phrase that I have heard to describe these practices is the “democratization of credit.”  I think the idea has a place in our society, but another way to describe it is “the Wild West of credit.”  The Wild West has many new opportunities, and many ways for things to go horribly wrong.

Managing money is hard, and what I’ve noticed is that when financial institutions care, they come up with some pretty cool products.  I especially like this one from Vanguard. Don’t know a lot about asset allocation over time for retirement?  No worries, they handle it for you, automatically shifting your asset mix over time.

I’d like to see something similar for our bank accounts (not these choices from my bank).  Recently graduated or building your credit and don’t know how to manage debt-to-income ratios?  No worries, your bank/credit union will handle that for you.  You give 100% of your business to one financial institution and in return you have confidence that you aren’t building your financial foundation out of sand.  I also think it would be great if  banks offered transparency into why a certain credit limit has been set, what a realistic allocation of your income should be, etc.  The basic account could be very simple: checking, savings and a credit card based on income and credit history.

The customer would have to acknowledge limits (more credit doesn’t mean more money), but as long as they stayed within the plan they could also be confident that they were on the straight and narrow.  The wild west can still be out there (I’m not recommending we limit choice), but those who want it can find a safe harbor with lower risk.

Full disclosure: I’m not now nor have I ever been a banker.  While this kind of account may not be a match for most consumers, I think it could really help others who are seeking guidance and stability. Perhaps even more importantly, it would show that banks were interested in actually helping their customers as opposed to just maximizing revenue opportunity and minimizing risk.

I’ve started getting a lot of questions about what it is like to be available to your customers 7 days a week. Many thousands of people visit our site every day, so some people might expect that I’m inundated with calls – not the case…I get between 3-5 calls a day (maybe one on Saturday and none on Sunday). I’m able to take 95% of the calls as they rarely overlap, and I try to schedule meetings before noon and after 4pm.

I also get roughly three calls where the caller hangs up shortly after I say “Wesabe this is Jason.” I think these are people trying to figure out if “talk to Jason” is real. Once I answer the phone the question is answered, and they have no more use for the call. It can be abrupt, but I think of these as successful outcomes…if slight abbreviated.

These numbers are significantly lower than I expected, and at one point I was actually a little disappointed, but I’ve come to see that disappointment as ego and not customer service. Taking calls now seems like a natural part of my work day, and not something special that I’m doing as a CEO – in fact this approach is fundamental to how all of us work at Wesabe. My co-founder Marc reads every single support email that comes in (over a thousand since launch) and then assigns them to the developer responsible for the feature in question. If something on the site isn’t working for you - the developer who wrote the code knows about it immediately.

For anyone else who is interested in taking customer phone calls, Quick stats:

Daily call: 3-5 (20 minutes each)
Sales calls: 1 (3 minutes…I try to convince the sales person to try out our service)
Hang-ups: 3

I also have a suggestion for anyone considering answering the phone: don’t have an agenda…you can’t have a real conversation if you have an agenda. I learned this lesson the hard way, and now I try to spend the call really listening to what people have to say.

We’ve been live for a couple days now, and I’m not overstating it when I say the response has been AMAZING.  The number of people joining has exceeded our highest expectations, so thank you everyone who is participating in this new space called Wesabe.  I’ve also been taking phone calls between 12-4pm PST which has been great.  I really didn’t know what to expect when we posted a link to our phone number (1-800-511-8544).  My wife was concerned that nobody would call and that I would feel like the lonely kid eating alone in the bleachers in high school, so she called just to make certain the phone would ring…thanks Jane.

In fact a number of people have called and they each had questions or topics they wanted to discuss, so I thought I’d share what we have been talking about.  The questions I get asked most frequently are:

Q: How do you make money?

A: A basic account will be free, but next year we will be offering “Pro” accounts for $4.99/month.  However, anyone who signs up with Wesabe in 2006 will get a “Pro” account for all of 2007 for free (already you are saving money).  We do NOT plan on taking advertising – plenty of people will help you spend your money we want to help you save it.

Q: Why should I trust user generated tips?

A: You shouldn’t, you should do things that make sense to you and fit into your life. My favorite tips have been about getting value in places it would have never occurred to me to look.  As soon as I see them I know they’ll work for me…the others…just pass by…they may work for someone else.

Q:  I want to try Wesabe, but I’m not comfortable using the Uploader, can I still get a good Wesabe experience?

A: Absolutely, you can download your data from your bank and then upload it via our Web site so that you never put any of our software on your computer.  We built these tools so that people could protect their privacy – we want you to be comfortable using the service.

I’ve noticed a few things from these calls: 1) Everyone sounds surprised when I answer the phone 2) Mostly callers want reassurance that we are “good people,” 3) People who call like being able to call, it makes them feel good about us, and 4) It seems nice people are interested in personal finance because every call has been great.  Thanks for all your calls, and keep them coming!

Today was a big day for us at Wesabe. Our site is live and available for everyone to use.

We set out to build a tool to help people gain control over their money, and we believe we have accomplished our goal. It isn’t perfect and we have a ton of features we want to add, but this product helps people right now.

We have been helped on this journey by an amazing number of people who gave their encouragement, time, feedback, patience and, truth be told, love (particularly our familes).

From all of us at the Wesabe team, welcome! We can’t wait to meet you.

Jason & Marc

Scott Adams, creator of Dilbert, wrote a book called “The Way of the Weasel.” In it, he lays out a one-page list for how to manage your money. While I recognize that a book consisting largely of cartoon is an unorthodox place to find sound financial advice, I think he is spot on — if you do these things you will be fine:

1. Make a will.
2. Pay off your credit cards.
3. Get term life insurance if you have a family to support.
4. Fund your 401(k) to the maximum.
5. Fund your IRA to the maximum.
6. Buy a house if you want to live in a house and can afford it.
7. Put six months expenses in a money market account.
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.

Done. I get it, and if you are here reading this blog you get it also. OK, so how many items on the list have you actually completed? We’ve done four of the first eight, but I believe we can hit all eight by the end of the year — I’m showing the list to my wife and am going to hold us to it.

If you had shown me this list seven years ago I’d have still been working on getting my credit cards paid off — the rest of the list would have seemed a distant dream.

There are really three challenges facing people:

• Knowing what to do (easy, see above)
• Being able to do it, i.e. having money to save, invest or buy a home (hard, a lot of good decision need to be made to get you to this point)
• Making the decision and taking action to fund retirement. You know what to do, you saved the money, and now you just have to do it (should be easy, but it’s not)

Putting money into 401(k)s and funding IRAs is hard. There are always reasons to not do it, but they really boil down to an unwillingness to take action with money. I’ve spoken to friends about why this might be and the reasons vary, but they usually come down to this one thing: we don’t want to make a bad decision, so we don’t make any decisions at all…which is of course a bad decision.

My new goal with money isn’t to get things perfect, and instead get it mostly right, i.e. Get the nine things on the list done. I believe if we do this, over the next 35 years, we’ll be fine when it comes time to retire.

Fear of making a mistake held us back, but I’d be curious to hear from people where they are being held up in their financial goals?

I first read about The Hype Machine in Fred Wilson’s AVC blog. I find his posts on the venture business interesting, but what I really like is his enthusiasm for music, and the way he makes it a family affair. We also both like The Flaming Lips and TV on the Radio. So, I read about The Hype Machine on his blog, but I have been so disappointed with last.fm (does anyone know what it does?) that I never checked out the site. I read about it again on Business 2.0 and it had this quote at the end of the article: “Prepare to click on something that will change your life.” That really got my attention.

I go to the site, it take me about 15 seconds to figure out what to click (which is about 10 seconds too long in my opinion) but I find a random song, listen, and love it. I then see a band that I know, and a song that I don’t, listen and love it. Two for two, so I look around some more to see if there is a better way to use the service, and there is, so I do that. Now I’m a very happy camper, so I don’t just bookmark the site I put it on my toolbar, and uninstall last.fm (whatever that is).

Seriously, this is what the radio should be like — music that you haven’t heard before that rocks (in all of rock’s various forms).

If you are interested in a website that rules and finding music that rocks — check out the hype machine. Oh, and my new favorite artist and tracks

Pas/Cal — CAU Sans Muscle
Under the Influence of Giants — Faces
Latyrx — Muzappers (Lyrics Born is on this track)

Wesabe — what in the heck is that? First, I should say, naming a startup is a special form of pain that I wouldn’t inflict on anybody. I was inclined to name it Knight Industries, but my co-founder Marc didn’t think that was a very good idea (you were right Marc). After months of brainstorming I came up with Wesabe which is based on the Spanish word “tu sabes,” or “you know.” Wesabe meant “we know” and our tagline is “together we know.”

This was great until I told the name to our good friend Neil, who is grammarian in both Spanish and English, and he had this to say:

The problem with tying this name to the Spanish-language verb saber (to know) is that the verb is conjugated thusly:

yo sé (I know)
tú sabes (you know, informal)
él, ella SABE (he/she knows)
nosotros sabemos (WE know)
vosotros sabéis (you know, plural, informal— today used only in Spain)
ellos, ustedes saben (they know, or you, —plural, formal— know)

As you can see, saying “we sabe” doesn’t sound cute or street slangy in this context. I doubt that the name would even register as Spanish or Spanglish for a Spanish speaker or a speaker of both languages.

Thanks Neil, thanks a lot. Which means, nosotros sabemos it isn’t conjugated correctly. It also nicely illustrates a point that Marc and I have been making for a while — there is a lot more knowledge out there than there is in here. And if you want to know something, for example proper Spanish grammar, ask and you’ll probably get back a ton of great information.

That said, we are sticking with Wesabe — to us it sounds great and it conveys our goal to our users.

Besides together we really do know.

Part of being an adult seems to be debt.  Whether it is credit card debt or a mortgage – most adults owe money.  I think the first real debt that we encounter is often student loans.  Like a mortgage it is often a good form of debt, and has relatively low interest.  When I graduated university in 1996 I had roughly $13,500 in student loans (which I think was the average back then).  My first job out of school as a media buyer paid $30,000 a year (I was thrilled to be paid so much) and with successive promotions I paid off the loan in three years.  I then lived debt free until I bought my home in 2003, but I remember how great if felt to know that what I earned was mine and not promised to someone else.

Recently interest rates for Stafford loans (the ones I graduated with) increased from 3.42% to 7.14% this change came about because of the Deficit Reduction Act of 2005.  The average student now graduates with $20,000 in student loan debt.  Generally students are given 10 years to pay off their loans and the target percentage of income is 10%.  Let’s run some numbers:

$20,000 @ 3.42% for 120 months = $23,642 and $3,642 in interest payments

$20,000 @ 7.14% for 120 months = $28,039 and $8,039 in interest payments

The difference is $4,397 in interest payments.  It also means that for a student to stay within the target debt ratio their first job’s income needs to increase from $23,642 to $28,039.

I think of this as a backdoor tax on recent graduates.  It doesn’t directly raise the tax burden but it closes a subsidy, so the net effect is the same.  It makes it harder for middle class college graduates to get out of debt, buy a home and save for retirement. A final note, 10 years later my good friend Brent’s younger brother just got a job as a media buyer – salary, still $30,000.

Hi, I’m Jason Knight, one of the co-founders of Wesabe, and I’ll be posting here occasionally along with Marc. When we started working on Wesabe, one of the things that immediately became clear is how isolated we all are when it comes to understanding how we spend money. My wife for example tells me how bad we are about managing our money. I think she is wrong — I think we do a good job, but it’s hard to know. Since I started Wesabe many of my friends have opened up to me about how they manage their money (I feel a bit like a priest). More than ever, I’ve come to believe that questions around money need to be moved into the light. By opening the conversation with your wife, your friends, each other… we can all better understand and get more for our money. Stakes are too high for us to be isolated, so I’m psyched that you are here and I look forward to the dialog.