Wheaties for Your Wallet

You’ll very rarely see me talking about new technology purchases as money-savers. Being a geek myself, I certainly succumb to the Geek Tax, buying new toys when they are expensive and watching them drop in price for years after. Personal Finance Wisdom, this is not.

I was struck, then, by Brett Arends’ recent Wall St. Journal article, which asks if Amazon’s new electronic book reader, Kindle, currently retailing for $359, might be a money-saver. Arends looks at two areas where you could save money: on the cost of the books you read, and on mobile wireless Internet access:

First, you usually pay less for books purchased on the Kindle than you do for those printed on paper and delivered to your door. In a completely unscientific survey, I picked an array of 10 popular books and compared their Kindle price with that of the paper version bought from Amazon. These included Fareed Zakaria’s The Post-American World, Ken Follett’s Pillars Of The Earth, Elizabeth Gilbert’s Eat, Pray, Love, to Dan Brown’s The Da Vinci Code. Kindle versions worked out on average about $6 cheaper. (And, of course, you get them instantly.)

On this point, though, he notes, “at a saving of $6, you’d need to buy 61 new books to earn back the $365 cost of the Kindle” (note, the price of the Kindle was slightly higher when he wrote earlier this week). But, he claims, there’s also mobile Internet service included:

if your mobile Internet needs are pretty basic – such as checking email and news, that sort of thing – you can do that too. Most data plans from a mobile network start at about $20 a month.

How does he figure this all adds up?

So if you need rudimentary mobile Internet and you typically buy two new books a month, getting a Kindle could save you $32 a month. Even when you factor in lost interest, that’s a payback period of 12 months on the $365 cost.

Buy two books a month on Kindle instead of on paper, and you’ll save money. Sounds good — but is he right?

I have a number of quibbles with this analysis — I think Arends gets both parts of his assessment wrong, in different ways.

As a book platform, I think Arends understates the potential savings of the Kindle dramatically. For example, he compares the $24.75 price of the new hardcover book Nixonland with the same book delivered through Kindle for $9.99 — a savings of $14.76 for one book. That assumes, though, that shipping the hardcover book is free. Amazon certainly offers discounted or free shipping programs, but they require an Amazon Prime subscription for $79.00 a year, or Super Saver shipping, with a $25.00 minimum purchase (Nixonland would fall just under that).

Assume for a second that you were not a Prime member and did not want to buy anything else with Nixonland. You would pay at least $3.99 for standard shipping (about 3-5 days for delivery), or $11.98 for second-day air, or $17.98 for next-day air. On the Kindle, you’d pay none of those costs, you wouldn’t need a Prime subscription, and you wouldn’t need to add anything else to your order to get Super Saver shipping. Rather than saving $14.76 a book, you’d instead save between $18.75 and $32.74 for one book. Looking at Arends’ average savings estimate of $6.00 a book, including shipping increases that savings to between $9.99 and $23.98 a book (assuming the Nixonland shipping costs are representative, and that you shipped each book you buy individually, which hopefully you wouldn’t!). Best of all, Kindle delivery — nearly instant — beats the delivery time of any of the shipping options, potentially by as much as a week.

There are downsides of buying books on Kindle, though: you can’t share them with others unless you’re willing to loan out your Kindle itself; storage on the device is limited; and more sentimentally, the feel of a well-read, dog-eared, coffee-stained book certainly isn’t the same on a slab of electronics. But let’s continue as gimlet-eyed rationalists.

For mobile Internet access, unless I misunderstand the description on Amazon’s site, the Kindle does not give you a free web browser. Instead, you have to pay monthly subscription fees for the blogs you want to read. For instance, O’Reilly Radar, where I am a contributor, is available for free online, but costs $0.99 a month to read on Kindle. The excellent blog Boing Boing, co-written by Wesabe advisor Cory Doctorow, is $1.99 a month through Kindle. If you read around 20 blogs, you’ll quickly swamp the $20.00 monthly savings that Arends claims, compared to mobile data plans on other devices. If I subscribed to all 190 feeds I read in Google Reader for free online, it would cost me at least $188.10 a month on Kindle — assuming they were all available on Kindle, which they aren’t. So I’m not buying the “mobile Internet is a cost savings” argument for Kindle. [UPDATE: see the comments for more on this.] For the purposes of argument, I’ll count this as a wash, although really I think you’d do better not paying for blogs that you can read free online.

Adding these up, it looks to me like if you normally order books using standard shipping, you’ll need to order 36 books — three a month — before you start saving money with Kindle. If you usually use second-day air shipping, you only need to buy 20 books to save money with Kindle. If you use overnight shipping, you only need to buy 11 books before you start saving — less than one a month. (Again, these numbers assume you are not an Amazon Prime member, and that you’re shipping books individually.)

Is Kindle worth it, then? You can certainly use your ordering history on Amazon to decide for yourself, but the numbers look very good to me. I also believe that wireless delivery of products like books has a real environmental benefit: compared to the carbon cost of shipping a book to you overnight, Kindle is potentially a huge savings of plane exhaust.

All told, Kindle looks like that rare tech device that avoids the Geek Tax and offers a number of economic and other benefits. For myself, I find the first version of the device inelegant, and I’ve had a hard time getting excited about buying one. I do buy and read a lot of books, though, and would love the cost savings it appears Kindle offers. I’ll probably wind up buying one for that reason, and for the environmental benefit I’m guessing wireless delivery would offer.

I opened an HSBC Direct savings account with a 4.50% APR interest rate about a month ago. On January 29th, I got an email from HSBC Direct announcing an interest rate change for my account:

We are writing to inform you that based on the recent drop by the Federal Reserve, HSBC Direct has adjusted your Online Savings Account rate to 3.80% APY. At 8x the national savings average, you are still earning one of America’s highest savings rates.

Today, I got another email:

We are writing to inform you that based on the recent drop by the Federal Reserve, HSBC Direct has adjusted your Online Savings Account rate to 3.55% APY. At 8x the national savings average, you are still earning one of America’s highest savings rates.

Oof! Nearly a full point drop — and I just opened the account a month ago.

Looks like ING Direct is advertising 3.40%, and Emigrant Direct is still up at 4.05%. Wonder how long that will last…

Wesabean Tommy Vernieri has created an excellent Google Code project, providing an Excel spreadsheet that lets you download your transactions from Wesabe and create a budget for them. He calls it Budgeting for Wesabe using Excel, and it’s a neat piece of work. Tommy’s spreadsheet uses the Wesabe API to fetch your transactions, and then lays them out to make budgeting easy. He’s also provided tools for updating your transactions in the spreadsheet.

You don’t have to know anything but your Wesabe credentials to use the spreadsheet, but if you’re a VBScript programmer, he also provides a set of methods for interacting with the Wesabe API. These would be great for building your own spreadsheet using the API.

Thanks much for building this great project, Tommy, and for sharing it with us!

P.S.: Tommy is a wine fan and wanted to let people know that, “If you’ve never watched Wine Library TV <http://winelibrarytv.com> you should check it out, it’s a lot of fun. The 400th episode is running on Monday…”

(Note: Wesabe does not endorse or review any third-party API clients — use at your own risk.)

New Year’s Eve is a time for wrapping up and looking back, and New Year’s Day is great for making resolutions. I’ve been reading the work of personal finance bloggers and journalists for a few years now, and I’ve been particularly impressed with three writers I think you should add to your New Year’s Resolutions list. Choose the one that’s best for your situation, and read what they write, or keep up with all three. A year from now, you’ll be much smarter about your money.

(Note, I’ve excluded everything on Wesabe from my top choices since I’m totally biased, although I certainly think that Wesabe Groups is one of the best sources of information and support around money issues that I know of. When we launched last year, a lot of people showed up and talked and got to know each other in our discussions, but over the year, the community has matured to the point where any reasonable question is likely to get one or several fantastic answers. Also, all of the writers listed below have covered Wesabe in some way, so I can’t claim to be completely unbiased about them, but — not meaning to brag — that’s true from all of the personal finance blogs and writers I read, so I can’t meaningfully exclude writers on that basis.)

There’s no question that the best place to start if you’re just learning how to cope with money issues is J.D. Roth’s fantastic personal finance blog, Get Rich Slowly. J.D. has taken a small personal diary and turned it into an essential resource with a great group of commenters and guest bloggers (full disclosure: I’ve contributed to his blog before and mean to again). J.D. blogs every day, talking about his own progress with finances — such as his recent post about saying good-bye to 20 years of debt — and topics that help people throughout their financial lives, such as his list of the 25 best books about money. He writes a ton and there’s a lot to absorb, especially if you read the comments, but the payoff is very high. I wouldn’t be at all surprised to see J.D. write a book of his own in the coming year.

Linda Stern’s weekly column for Reuters is fantastically level-headed, clear, and well-researched. She covers topics that everyone should learn about, and makes complicated or controversial issues clear and concise. Some recent examples that I especially liked include her rational approach to preparing for a recession, and her clear and simple advice about 401(k)s. Having been interviewed by Linda before, I can say from experience that she is extremely thorough and precise, and is completely disinterested in anything but what is best for her readers. If you don’t have a lot of time and just want a quick lesson every week on how you can be getting more from your money, this is the column to read.

Probably the least well-known of the personal finance blogs I admire, The Finance Buff deserves to be a lot better-known. I found myself linking to one of TFB’s posts every week for more than a month recently and thought I should spread the linklove around, but why? The posts are great, clear, and more advanced than most finance bloggers. TFB has an MBA in Finance, and is a Certified Employee Benefits Specialist, so there’s more than the usual finance blog credibility behind the posts. Some great ones: Best Checking Account Which Is Not A Checking Account, Estimate Your Overall Personal Rate of Return, and Vanguard or T. Rowe Price Funds: Actively Managed vs. Index Funds. What I like best about TFB posts is that they teach a great way of thinking about building your savings and investments — not just a quick trick but a philosophy to understanding your options and costs. If you have money to save or invest and don’t know where to start, this is a great guide.

Thanks to all three of these writers for producing so much help for people struggling with money issues everywhere. Keep up the great work in the new year!

There’s a lot going on in the Groups tab. Here are some highlights from this week:

Smart Banking: ING Direct questions and thoughts

“I’m an early adopter so have tried to completely cut the paper out of my life. I almost never deal with checks. My direct deposit used to go into my regular bank account, but now I’ve switched it to land in my Electric Orange Checking. Having a checking account with ING allows me to move money back and forth between it and my savings account in real time. No waiting for days until it becomes available. The checking account also comes with a debit / credit / ATM card. I’ve found that most Allpoint ATMs are located at gas stations and department stores. There are always plenty around. The only drawback is that they usually limit you to withdrawing $200 at a time. I rarely have to do that so it’s not that much of a problem for me, but could be a major inconvenience for someone else. It’s also a bit of a pain to deposit checks. You have to mail them in.”

Starving College Student: Help!

“I am 21, 2 years away from graduating. My parents pay for my cell phone bill and my car payment, but the rest is up to me. According to the FAFSA I am financially dependent on my parents, so I receive no financial aid and have ended up living on loans. About $17,000 borrowed a year pays for tuition (public school), rent, textbooks, living expenses and ‘fun’ expenses. I have accrued over $50,000 in debt so far (been in school for 3 years) and that number is going nowhere but up.”

Paying It Off: Good ways to use credit cards?

“Personally, I have never had good luck with credit cards. I start paying them off every month, but then the temptation takes over, and I plan on paying the rest off next month. Well, that actually builds up and all of a sudden, I owe 5000 on my credit card. This is what I do now.

“I have an AmEx card that I get airline miles with. I like airline miles because we like to take trips, and I get better value with miles than with cash for buying a ticket. My wife and I ONLY charge gas on the card. Gas stations get us double points. I used to try to charge everything, but that did not work because it was too easy for us to go over budget. I have our gas budgeted, and we pay off the card as soon as we get paid, not when it is due, so I am not tempted to spend the money elsewhere.

“This seems to work for us. Unlike some people, I am not good with the temptation of having credit cards with open spending. Even though some can put everything on a credit card and then pay it off every month, apparently there are millions of people like me that can’t. This is the only credit card I have. I will have enough points for my wife and I to fly to Hawaii next year first class.”

You don’t have to join Wesabe to read Groups — just come on in. It’s great to see so many people participating, and helping each other through hard times (like struggling with credit card debt) as well as good times (like finding the best place to stash that bonus check). The Groups tab is my personal favorite part of Wesabe. Nothing can beat reading people’s stories about their lives, especially when those posts lead to better ideas and lower stress. I hope you’ll drop by.

Since I’m both a USAA customer and a Mac user, I was happy to see that USAA is now supporting Macs for its fantastic Deposit@Home service. Deposit@Home lets you deposit checks into your account using a scanner, which has been a huge help for me. If you’re a USAA customer, you should definitely check it out. For now at least, they’re crediting the account immediately with your deposit, which in itself is a benefit over banks that take a day or two to recognize a check deposit you make at a branch.

Macs aren’t usually well-supported on bank sites. If you’re on Windows, Deposit@Home works through Java applet that directly controls the scanner. On Mac, USAA is instead having you scan the check yourself in JPEG format, and then crop it using their applet. I’d guess that makes supporting Macs easier (since they don’t have to write scanner-control code for Mac scanners), if a little harder for Mac users, but that seems like a good trade-off. I’d rather have Macs supported, even a little awkwardly, than not at all. (Anyone want to try it on Linux and let me know what you find? If you can scan an image on a Mac, you can do it on Linux, too, I’d guess…)

There’s an article on MSN Money today called, “When Banks Turn Evil,” written by Liz Pulliam Weston. It’s a great compilation of pitfalls in banking fees. Wesabe user haberschmidt and his complaint about Wachovia is mentioned, as is Wesabe user BillM’s recent issue with Electric Orange checking accounts. Definitely worth reading — there’s lots of great advice in the article.

A man in Washington state was busted for running a bank, with $28 million in deposits, out of his house:

A man operated a “warehouse bank” out of his suburban home, taking at least $28 million from people around the country who wanted a discrete [sic — I assume they mean discreet –MH] bank account, according to court documents.

An IRS investigator said Robert Arant had hundreds of customers, many of whom apparently used his bank, Olympic Business Systems LLC, to conceal assets for the purpose of evading taxes.

On his now-defunct Web site, Arant advertised his services to those “who would rather not deal directly with the banking system,” court records said.

Um, wow. Wesabe tip: don’t do this! Okay, you knew that. Tax evasions posing as shelters are incredibly dangerous for consumers. Remember the number one heuristic for evaluating offers like this: if it sounds too good to be true, it probably is. Don’t deposit your funds with an institution unless you’re sure they’re legitimate — for instance, you can identify a legitimate U.S. bank by searching for them on the FDIC web site.

Wesabe user ‘haberschmidt’ just posted a fantastic piece in the Wesabe Groups section, under the Smart Banking discussion about overdraft fee policies at the top U.S. banks. In the post, haberschmidt details how many different ways Wachovia has found to charge overdraft fees:

As the net effect, there should have been zero fees for overdrafts, but Wachovia ratcheted it up to 7 overdrafts for $245 in fees. I am absolutely appalled, and it has nothing to do with indignation over payment, since I ended up resolving the overdraft protection issue at the branch level and getting the fees removed. […]

Although the branch corrected the overdraft protection issue and reversed the fees, I am closing my accounts. I believe strongly in voting with my dollars and I don’t want to belong to a bank that takes advantage of its customers in this way. It strikes me as a predatory practice, and the kind of thing of which Congress should be aware when it reviews regulation on the credit card companies and other financial industry practices.

The entire post is well worth reading, since it applies to at least nine of the top ten banks in the U.S., and many others besides.

When we first launched Wesabe last November, we were not surprised to see that our #1 top merchant at that point was Amazon, and #2 was Netflix. That matched well with the stereotype of “early adopters.” What was surprising, though, was the merchant #20 was Overdraft Fee. If you think overdraft fees just hit people who are “bad with money,” they don’t — they hit a huge percentage of the population, and as Wesabe has grown, we’ve seen that more and more. Currently, our users have been charged roughly $200,000.00 in overdraft charges in just the past few months — an average of one overdraft charge for each and every person tracking their money on Wesabe. That’s a huge amount of money for consumers to lose, when it could instead be going to pay their bills or improve their lives. We’re out to help our members reduce that number to $0.

The good news is, we also see that almost 70 of those overdrafts, amounting to about $5,000.00 in fees, have been refunded by the banks — including, it sounds like, haberschmidt’s $245.00, and $216.00 in overdraft fees Washington Mutual tried to charge me a few months ago. That’s a good start, but we can get that down a lot from where it is now. In the past three months, I’ve spent a grand total of $1.50 on bank fees — down from $1,425.00 in the year I started working on Wesabe. (And I’m really mad about that $1.50!)

Whenever you see a fee on your bank account, ask the bank to refund it, and if they don’t, start looking for a bank that won’t charge you that fee. And check out haberschmidt’s post — it’s great for every consumer to read.

There’s a great article in today’s New York Times about a reporter discovering a $10 fee from a company she didn’t know in her bank statement, and tracking down to the source. It turns out her husband had signed up without realizing it, and she only found it by looking through their bank statement carefully:

The other day, as I was trying to avoid making eye contact with $168.09 (jeans and a T-shirt) and $40.24 (how can a tank of gas cost that much?), I happened to notice a mysterious $10 charge.

It was for WLI*RESERVATIONREWARDS.CO.

It didn’t ring a bell. Was Reservation Rewards a surcharge for a hotel room? A magazine subscription? Or a digital audio download?

I phoned the toll-free number. A customer service representative told me that my husband had enrolled in a subscription service that offered members discount coupons for travel and restaurants. The cost was $10 a month.

That didn’t sound like my husband.

“Maybe when he bought something else,” the customer service representative said. “Like on Fandango.”

She describes that a $10 rebate offer appeared as a pop-up ad, “Good for your next Fandango purchase!” and that all he had to do was enter his email address, since Fandango already had his credit card information. In the fine print, which he didn’t read, it said that by taking the offer he was signing up for Reservation Rewards monthly service. But the punchline came later:

The next day, it got worse. That was when my husband received an e-mail message telling him that he had been a Reservation Rewards member since November 2005.

He phoned from his office to read the message: “We have issued a refund of $160.”

“They charged us $160?” I asked. “You were a member for 16 months?”

“I’ll never buy tickets at Fandango again,” he said.

There’s more to the piece, including an interview with Reservation Rewards’ CEO, and a mention that they are currently subject of a class action lawsuit about their practices. (That link also includes a list of all the sites with which they’ve partnered — and it’s a long and familiar list.)

I think very poorly of these kinds of businesses. Consumers’ wallets are constantly taxed by monthly fees, charges, subscriptions, and penalties that offer them little or no benefit, and act as deadweight loss on their income. Here are a few tips for avoiding charges like these:

1. As the author of the article suggests, go over your bank and credit card statements carefully. Of course we hope this is one of the benefits of Wesabe, that you have better tools for going through just the new charges, and that you can research any merchant that shows up in your statement to find out what they do and whether they’re worth it for you. However you check your statements, though, be sure that you do.
2. Ask for refunds of charges you don’t recognize. Every time you see a fee or a charge you don’t recognize, ask what it is, and ask what you have to do to remove it and have it refunded. This works for all kinds of fees, from the subscription charges the author found, to account fees, overdraft fees, and others.
3. Block pop-up ads. We very strongly recommend the Firefox web browser, since it has pop-up blocking and other security and privacy features built-in. It also does a great job of letting you get to a pop-up window on those rare times when you want to see it. By default, though, you should never have to see those ads.

It turns out that 17 Wesabe users have charges from Reservation Rewards, totaling $397.00. Because of the way our privacy wall works, we have no way of knowing who those people are, but I’ve written a Wesabe tip pointing to the article, matched against “Reservation Rewards” as a merchant name. Now, whenever a Wesabe user gets one of those charges, this is what they’ll see in their accounts:

That tip link has pointers to the Times article, the class-action information, and the toll-free number you can call to ask for a refund. This is one of the big ideas behind Wesabe — one person does the research to root out this charge, and everyone on the site benefits. It’s easier to watch your statements closely when they’re telling you right there what to look for.

I’m glad this reporter tracked down the charge. Hopefully, having this practice highlighted in the New York Times will make it harder for them to continue doing business by taxing consumers with underhanded offers.