7 Things You're Wasting Money On

by Kelli B. Grant

These days, keeping your budget in line isn’t measured by the amount you spend, but by how much you save.
Before you blame your daily jaunt to Starbucks or weekly trip to the movies for breaking your budget, take a good hard look at how much you’re paying for less obvious but much more expensive money wasters like overdraft fees and auto insurance.
Cut back on these seven items and you could save roughly $1,000 a year.

1) Bottled Water
Getting your recommended eight glasses of water a day by bottle instead of tap is a huge waste of cash, says Phil Lempert, founder of Supermarket Guru. That buck-a-bottle water you down on a regular basis can really add up. (Even more so now that cities like Chicago collect an additional tax of five cents per bottle.)
Potential Savings: Spend $37 to buy a 40-ounce Brita pitcher and filter ($13 at Bed, Bath and Beyond), plus a four-pack of replacement filters ($24), and you'll be able to filter 200 gallons of water. Buy that much water in 24-packs of 16.9-ounce Aquafina bottles at Shop Rite instead, and you’d spend $283.50. Your total savings: $246.50.
2) Extended Warranties
Think twice before you shell out $10 a month for a two-year protection plan on your pricey new BlackBerry. New products tend to malfunction within the manufacturer’s initial warranty period, or well after any extended warranty has expired, says Michael Gartenberg, vice president of strategy and analysis for Interpret LLC, a market researcher. (Most extended warranties exclude accidental damage, too, so you’d still be out of luck if you drop that Blackberry and crack the screen.) To protect yourself, pay with the right credit card. Many credit cards -- including most American Express and MasterCard cards -- double the manufacturer’s warranty on purchases, adding up to another year of free protection.
Potential Savings: Someone buying a 40-inch Samsung flat panel high-def television at Best Buy for $800 has the option to add a four-year protection plan for another $150. Skip it, and pocket the cash instead. (The set already has a one-year manufacturer’s warranty.)
3) Gym Memberships
The cost of a gym membership can really rack up over the course of a year (an average of $775, according to the International Health, Racquet & Sportsclub Association). So make sure you're tapping into all of the discounts available to you. Check with your employer, health insurer and other membership groups like your union or alma mater to see if they offer discounts on gym and fitness club memberships, says Bob Nelson, president of Nelson Motivation, a benefits consulting firm.
Potential Savings: On your own, you’d pay $54.99 per month, plus a $49 enrollment fee, for a national access plan at Bally’s Total Fitness. Through discounter GlobalFit.com, which offers special rates for members of partner companies, you’d pay $37.80 per month plus a $29 enrollment fee for the same Bally’s membership. Over a yearlong membership, that’s $226.28 saved.
4) Overdraft Fees
Overdraft fees can run as high as $35 apiece and banks have a host of sneaky tricks that can cause even the most diligent consumer to overdraw on an account. For example, they may approve debit purchases that would put you in the red, or re-order transactions so that the biggest purchases go through first -- and deposits get processed last. To protect yourself, sign up for overdraft protection, which can cost as little as $5 to $10 a year (and is often free with high-level checking accounts), and can save you hundreds of dollars.
Potential Savings: Pay $5 annually for a connected line of credit at Citibank. It kicks in only when you overspend, helping you to avoid the $30 fee per overdraft. Mess up just four times within a year and you've saved $115.
5) Organic Produce
Sure, buying organic makes you feel like you’re doing the right thing, but it isn't always the best choice for your wallet. Fruits and vegetables like kiwis, sweet corn and broccoli require very little pesticide to grow. Others -- like avocados, onions and pineapples -- have thick or peelable skins that reduce your exposure to harmful chemicals. “Any pesticide that remains is not getting through,” says Lempert. For a handy reminder as you shop, download the Environmental Working Group’s wallet-sized organic produce guide.
Potential Savings: Organic broccoli costs $2.99 per pound at online grocer FreshDirect, which also offers conventional broccoli for $1.49. A pound of navel oranges is $4 for the organic and $2 for conventional. Someone buying a pound of each item weekly could save $182 over the course of a year.
6) Auto Insurance
“[Auto insurers] often give discounts for consumers who don’t drive long distances,” says Sam Belden, a spokesman for Insurance.com. If your driving habits have changed in recent months -- say, you’ve switched jobs or cut out pricey trips to the mall – call your insurer to ask if you now qualify for a better rate.
Potential Savings: A driver who cuts back to fewer than 7,500 miles a year could shave 5% to 15% off his premiums, depending on his insurer. Considering that the average driver shells out $817 a year on auto insurance, according to the Insurance Information Institute, that saves $40.85 to $122.55.
7) Music Downloads
For the longest time, Apple iPod and iPhone owners were stuck downloading their music from iTunes, while consumers with other MP3 players couldn’t put the service’s content on their devices. But now, most online music purveyors (including Apple as of March) offer content in a DRM-free format -- meaning you can listen to it on any MP3 player. That frees iTunes users to pursue cheaper music from sites like Wal-Mart and Amazon.com. Music fans with other MP3 players may benefit from Apple going DRM-free, too. The company plans to revamp its fees in April, charging 69 cents to $1.29 per song instead of the current flat fee of 99 cents. Bottom line: Check prices on several sites before you download.
Potential Savings: “Hot N Cold” by Katy Perry costs 99 cents at iTunes, but just 74 cents at Wal-Mart and 79 cents at Amazon.com. Someone buying a song a week could save $10.40 to $13 annually by shopping around.

10 Financial Myths Busted

by Jeffrey R. Kosnett

Before the economic rout, you could rely on certain iron laws of personal finance. For example, it was a given that house values didn't fall. Money-market funds never lost a dime. And no matter how ugly the market, expert mutual fund managers could protect you from drastic losses.
Alas, in this Hydra-headed global financial crisis, another generally accepted principle of financial strategy or economic logic finds its way into the shredder almost every day. We gathered ten truisms that no longer pass the test.

MYTH 1: There's always a hot market somewhere. When U.S. markets began to blow up, you heard about "decoupling" and "the Chinese century." The idea is that Asia -- or Russia or Latin America -- can grow vigorously independent of the U.S. and Europe. Invest there and you'll offset losses at home. Instead, Chinese, Indian and Russian shares have crumbled. Net investment money flowing into emerging-market economies fell 50% in 2008, to $466 billion, and is forecast to sink to $165 billion in 2009.
Truth: In this age of globalization, economic downturns and bear markets observe no borders.

MYTH 2: Real estate behaves differently from other investments. Call it a bubble instead of a boom if you like, but it was supposed to be "proof" that real estate returns don't strongly correlate with the returns of stocks and other financial investments. The message: Rental properties or real estate investment trusts can make money despite drops in Standard & Poor's 500-stock index or the Nasdaq. Wrong. REITs lost 38% in 2008 because the credit crunch and overly aggressive expansion plans hammered profits and dividends. REIT returns used to have little correlation with the stock market. Now they closely track it.
Truth: Real estate won't overcome other risks when credit problems are harming all investments.

MYTH 3. Reliable dividend payers are safer than other stocks. Companies recognized as dividend "achievers" or "aristocrats" -- because they could be counted on to increase their payouts regularly -- used to perform more steadily than most stocks. That's because shareholders seeking income tended not to sell. But now shares of dividend achievers can be as volatile as the overall market. One reason: more mass trading of blue-chip stocks in baskets, a la exchange-traded and index funds. Another factor: Banks, insurance firms and real estate companies can no longer afford to pay high dividends.
Truth: Companies aren't too proud to stop increasing dividends. If you want stable dividends, ignore the past and look for companies with lots of cash flow.

MYTH 4. Foreign creditors can drain the U.S. Treasury overnight. Puny Treasury yields suggest that it's bad business for the rest of the world to lend so much money to the U.S. But think: What else would these investors do? And who has the power to impose this dramatic sell order? Nobody. Foreigners own $3.1 trillion of Treasury debt. Of that, $1.1 trillion is with private investors -- mainly pension funds, which cannot safely ignore a class of investment that is absolutely liquid and has never defaulted. Governments and institutional investors hold the rest. On occasion they have sold more U.S. debt than they have bought. But massive private buying has overwhelmed the modest pullbacks.
Truth: If what you want is super-safe bonds, the U.S. Treasury is the go-to place.

MYTH 5. Gold is the best place to hide in a lousy economy. In early February, an ounce of gold traded for $910. That's just where it sat a year ago, when world economies weren't so bad off. But foreign and domestic stocks, real estate, oil and riskier classes of bonds have all tanked since, and now gold looks -- ahem -- as good as gold. However, gold does not typically benefit from a recession. As inflation slows, people buy less jewelry, industry uses less gold, and strapped governments sell reserves to raise cash.
Truth: Gold tends to rally in prosperous times, when you have inflation, easy credit and flush buyers (kind of reminds you of real estate. . . ).

MYTH 6. Life insurance is not a good investment. This canard spread as 401(k)s and IRAs supplanted cash-value life insurance as Americans' most popular ways to build savings while deferring taxes. True, the investment side of an insurance policy has higher built-in expenses than mutual funds do. But two factors point to a revival of insurance as an investment. One is guaranteed-interest credits on cash values, which means that if you pay the premiums, you cannot lose money unless the insurance company fails (see "Savings Guarantees You Can Trust," on page 55). The other is the boom in life settlements. If you're older than 65, you can often sell the insurance contract to a third party for several times its cash value -- and pay taxes on the difference at low capital-gains rates.
Truth: A good investment is one in which you put money away now and have more later. Checked your 401(k) lately?

MYTH 7. The economic downturn dooms the dollar to irrelevance. No question, the U.S. is deep in debt and going deeper while the economy contracts. History teaches that when a country can't pay its bills, lags economically and cannot control inflation, its currency loses value. That's why currencies in Argentina, Iceland, Mexico and Russia have all crashed within recent memory. The dollar does swoon, and it's lost punch in places as unexpected as Brazil and India. But -- and here's the surprise -- as recession gripped the U.S., the dol-lar got stronger. For one thing, there aren't many alternatives. For another, some other currencies were temporarily inflated by oil and commodities speculation.
Truth: The dollar has survived a tough test and remains the world's "reserve" currency.

MYTH 8. Mass layoffs reward investors. In the 1990s, news of layoffs would boost a company's stock for several weeks. Stock traders lauded bosses for tightening their belts, so it was smart to buy or hold the shares. But mass firings no longer impress investors. Lately, firms as varied as Allstate, Boeing, Caterpillar, Dell, Macy's, Mattel and Starbucks have all announced enormous layoffs -- only to learn that, if anything, doing so spooks the market even more. For example, on the day in January when Allstate axed 1,000 of its 70,000 employees, its shares fell 21%.
Truth: Don't buy a stock thinking that a layoff will help profits. More likely, trouble's brewing.

MYTH 9. It's crucial to diversify a stock portfolio by investing style. Experts say a sound fund portfolio fills all "style boxes," starting with growth and value. Growth refers to companies with expanding sales and profits. Value describes stocks selling for less than the business is worth. In 1998 and 1999, growth stocks soared and value stocks stalled. Then, for a few years, value rose while growth got crushed. But since 2005, the differences have been melting away. In the current bear market, both styles have been disastrous, and it's hard even to classify stocks as growth or value anymore. Many former growth stocks, such as technology companies, are so cheap that they act like value shares. Banks and real estate, once lumped into value, are a mess.
Truth: Pick mutual funds that are free to search for good prices on stocks, whatever their labels.

MYTH 10. A near-perfect credit score will get you the best loan rate. Before the credit bust, if you could fog a mirror, you could get a mortgage. You know what happened next. But bankers still need to make a buck, so it sounds logical that if you can show a strong credit score, you'll win the best of deals on any kind of loan. Not so. Mortgage lenders prefer large down payments. Credit-card issuers are just as apt to reduce your credit line or raise your interest rate. And those 0% car loans? Often they last for only three years, which puts the payments so high you'll need to come up with more upfront cash anyway.

Truth: Credit is going to be tough to get for a while no matter what. So don't obsess over every few points of your FICO score.

10 Things We Overpay For

by Joan Goldwasser

You can save big by buying cheap alternatives instead.

Does the avalanche of news about layoffs, business losses and a declining stock market have you looking for ways to cut your spending so you can beef up your savings? We're here to help, with suggestions for less-expensive alternatives to ten everyday purchases (for more ideas, go to http://www.billshrink.com/, which tracks cell-phone plans and credit cards).


Afternoon snacks. Do you munch protein bars as a healthier alternative to a chocolate pick-me-up? You could easily be paying more than $2 per bar and consuming just as much sugar as you would with your favorite candy bar. Stock up on fruit for a fraction of the cost when you do your grocery shopping. You'll be fitter and save a bundle.

Bottled water. Yes, it's important to drink water every day. But picking up the bottled variety with your lunch is an expensive way to stay hydrated. Rather than spend $2 a day for water, buy a pitcher and a filter for about $20 and drink as much as you want for pennies a glass.

A caffeine fix. Can't get through the day without at least one cuppa Joe? Stopping at Starbucks or Dunkin' Donuts can set you back as much as $1.65 per cup. Splurge on a pound of gourmet coffee for $8 to $13 and you can make 40 cups for about 20 cents to 33 cents each.

Favorite tunes. Do you rush out to buy the latest CD by your favorite group even though there are only one or two songs you really like? Instead of paying up to $18 for the CD, download those cuts you want from iTunes for 99 cents each, or from Amazon for as little as 79 cents.

A night at the movies. An evening for two at your local theater costs an average of about $20, including the popcorn -- and closer to $30 in major cities. And that doesn't even count the babysitter. For just $5 a month, you can watch two movies from Netflix or pay $9 for unlimited viewing. If you're willing to wait a little longer for new releases, borrow them free from your local library.

Fresh flowers. A bouquet of spring blooms brightens up a room and your mood. But purchasing it from a florist at $25 and up can quickly put a dent in your budget. Check out your local grocery store, which offers a selection of seasonal bouquets for $5 to $10.

Fruits and veggies. Sure, precut vegetables and salad mixes that are washed and bagged save a little time. But you'll pay for the convenience. Broccoli florets and sliced peppers cost $6 per pound, compared with one-third to one-half the price for the uncut versions. Lettuce varieties that are pre-washed and bagged sell for $5.98 a pound. But it takes just minutes to wash and spin dry enough arugula for your evening salad, and you'll pay one-third as much. Buying whole strawberries rather than sliced ones that are prepackaged cuts the price by 75%.

Credit-card fees. Every month, millions of credit-card customers pay their bills late, and they're assessed as much as $39 each time. Set up an automatic debit and you'll never incur another late fee.

ATM fees. Each time you use an out-of-network ATM you pay an average of $3.43. Do that once a week and you'll rack up almost $180 in ATM fees every year. Avoid those charges by selecting a bank with a large ATM network or an online account that reimburses your ATM fees -- such as the eOne no-fee account from Salem Five Direct bank. Another alternative: Get cash back at the grocery store.

Fax and mail services. Instead of paying FedEx $1.49 to fax one page, sign up to send free faxes from a provider such as faxZero or K7.net. Save on shipping with the U.S. Postal Service's priority mail service. You'll pay just $4.95 to mail an envelope or small box anywhere in the U.S., and your parcel is likely to arrive within two days. Larger packages cost $10.35. That saves at least 50% compared with UPS's two-day service, the cost of which varies by weight and distance.