Plat Forms

If you are self-employed or retired and getting a pension check, did you know you don’t have to have taxes taken out of your checks each and every month? The interest that this tax money could earn could be about $100 or $200 a year, which invested yearly over forty years at 8 percent could net between $25,906 and $51,811.
If you can, pay your taxes by using an estimated tax payment schedule, which means that four times a year (April 15, June 15, September 15, January 15) you need to send in an installment payment of the taxes that you will owe. Here, too, you have a choice. In these four installments you need to send either 100 percent of what last year’s tax liability was, or 90 percent of what this year’s is projected to be. If your adjusted gross income (AGI) last year was more than $150,000, the IRS will make you pay 110 percent of last year’s tax liability, or 90 percent of what this year’s will be. (States all have their own rules for estimated taxes, so it would be wise to check.) You would naturally choose to send in whichever was less.
Let’s say last year you owed $8,000 in taxes, but this year you took a large sum of money from your retirement plan and, as a result, you will owe about $18,000 in taxes. Your choice is to send in 100 percent of last year’s taxes, which totaled $8,000, over those four installments at $2,000 each, or pay 90 percent of what you expect this year’s tax liability to be—in this case 90 percent of $18,000 $16,200.
Who wants to part with money, particularly to the IRS, before they have to? You would pay the $8,000 on time, in four installments of $2,000 each, and keep the remaining $8,200 you owe in a money-market or interest-bearing account of some kind. Instead of letting the IRS earn interest on your money, you’re doing it. And it can add up to a nice sum.

My favorite place to establish a money-market account is at a discount brokerage firm, but many discount firms don’t like it if you write more than fifteen checks a month; some, on the other hand, could not care less. If you write more than fifteen checks each month, you may find that it is just as cost-effective to keep your checking account where it is and to move only your savings to a money-market account. There may be other rules governing the account—minimum balance, minimum you can write checks for—so keep your needs in mind and ask the questions just listed before you set up the account.
Almost every major brokerage firm, including the discount brokerage firms like Charles Schwab, offer a money-market account. The one at Schwab is called the Schwab One Account. Usually the difference between an account at a full-service firm like Merrill Lynch and a discount firm like Schwab, for example, is the minimum needed to set up the account and the amount of the yearly fee they charge to keep the account. At Schwab you can set up a money-market account for $5,000. il you keep $5,000 in the account at all times, it’s free; otherwise they’ll charge you $5 a month, or $60 a year, unless you make two commissioned trades in the year, in which case there’s no fee. This is better than the CMA account at Merrill, which has an entry fee of $20,000 and charges $100 a year. Merrill also has a money-market account with an entry fee of only $5,000, but it sets limits on the number of checks you can write (three a month) and has a yearly fee of $65.
Yearly Fees
One hundred dollars a year might not seem like much— under $10 a month. But if you’re in your early thirties and open your account at Schwab, saving that annual fee year after year will pay off big. If you keep your savings in there for fifty-five years just growing and growing, that savings of $100 a year at a rate of return of 8 percent will grow to $84,892.32. From just $100 a year.
A quarter on the sidewalk here, $84,892.32 there. . . it’s all the same principle. Money creates money, if you house it well and give it time to grow.

Here are the questions to ask to determine the best money- market account for you:
What is the minimum deposit I need to open up the account? You can open a great account for about a $5,000 minimum.
1 What is the minimum balance, if any, required to keep it open? “None” is the answer you want to hear.
What is the yearly fee to have this account? The answer should be “Nothing.”
Does this amount apply even if I drop my balance down to $1? “Yes” would be a great answer, but if the answer is “No,” the fees should not cost more than $60 a year.
Am I required to purchase securities in order to maintain the account? If I don’t plan to do so, will you charge me a fee eventually? Some money-market accounts require you to make a transaction—buying a stock, buying into a mutual fund—in order to maintain the account or at least to maintain it for free if you don’t keep your balance above the minimum amount needed. Others don’t. This is not a big deal and may encourage you to test the investment waters (page 200), but if it makes you uncomfortable, the answer you want to hear is “No.”
%l Do you issue a debit card?
I Do you issue an ATM card? The answer should be “Yes,” or that you can use your debit card at ATMs.
J Are there fees if I use the ATM card? If so, they should be not more than a few dollars per transaction.
l Is there a maximum number of checks I can write every month? There shouldn’t be.
l Is there a minimum amount for which checks can be written? The answer should be “No.”
l Do you return my canceled checks or simply send me an itemized statement every month? Either way is okay, but most will just send you an itemized statement.
At the end of the year, do you give me a summary of every check I’ve written? “Yes” is the answer you want.
431 What interest rate are you currently paying, or what is your seven-day yield, or the amount in interest they have paid for the past week? The higher the better.
431 How do you credit this interest? “Daily” is the answer you want to hear.

Another reason many people were reluctant to think they couldn’t take advantage of a money-market account is that they thought they didn’t have enough money to open one or that they wouldn’t always have the minimum it takes to keep one open. Not necessarily the case. Many funds don’t require all that much to open them, don’t charge high fees if your balance drops, and don’t require a minimum balance. They’re smart. They know that just by opening the account, you’re on your way.
When I first became a broker, most of—in fact, all—my clients had far more money than I did. It felt funny to me sitting there, with my $2,000 of Macy’s credit card debt hanging over me, telling people what to do with their money. But I decided that since they had so much more than I did, I should listen to them as much as advise them. My dad always said, “Suze, when in doubt, do what someone who is successful does.” So when this CMA account came along, and I had never seen so many rich people jump on something so fast, I thought, Okay, I need to get myself one, too.
But who had $20,000? None of my friends did, but when
told them about the account, they all wanted one as much as
did. So we came up with a scheme. We needed $20,000 to open the account (today you can find other great ones for far less,
noted on page 180), so we decided to pool all our money
come up with about $1,000 more than the minimum needed. First one person would take all the money to open an account, then one week later withdraw all but maybe $100 (once opened, there’s no minimum balance, remember?). Then the next person would do the same thing, and so it went, all the way down the line. When the last person had her account,
the money was given back to its rightful owners and deposited into our correlating money-market accounts.
We were all so proud. Most of us had gone in with about $3,000, and we knew that the $100 fee was nothing
pay to get all the advantages and the 18 percent interest rate back in 1980. Most of us still came out $440 ahead that year, and that was a lot of money. (If I had known better back then I would have had everyone sign a promissory note or some documentation showing what belonged to whom, in case something happened to the one who had all the money.)

If you still feel uneasy with the idea of money-market accounts, you might consider money-markets that invest (which is to say lend) all their money in U.S. Treasury bills. Treasury bills are guaranteed and backed by the full credit of the government, which means that if the government can’t pay back the money when it is due, they will be forced to raise taxes to do so. When I was training to be a broker—and this still holds—the only time I was allowed to use the word “guaranteed” was when I was talking about a U.S. Treasury bill, note, or bond. In short, even though these kinds of money-market accounts are not insured by the FDIC, they are backed by the taxing authority of the U.S. government, which in my opinion is certainly as safe as, if not safer than, FDIC insurance. U.S. Treasury money- market accounts will not pay as much in interest as regular money-market accounts, but you will still do better than you will with most savings accounts.

A money-market account can be had through a bank, a full- service brokerage firm, a discount brokerage firm, a mutual funds company, or through a credit union. It works like a bank account. You keep your money there, can write checks against it; there are various restrictions, but you can always find a money-market account to suit you. When you put your money into a money-market account, you are buying shares in a money-market investment fund. The share price does not fluctuate in value, the way it does with stocks or mutual funds. Money-market shares are priced at $1 a share. How is a money- market account different from a bank account? In the interest it pays, which can add up to more—sometimes far, far more— than you’d get from almost any checking or savings account, as well as the ways in which the money is protected.
One of the main reasons many of my clients back then were nervous about opening a money-market account is that the funds aren’t insured by the Federal Deposit Insurance Corporation (FDIC). Even so, funds in a money-market fund are extremely safe. Essentially, every money-market fund has a manager who oversees the money that people like you and me deposit into the fund and lends it out to different entities—the federal government, state governments, or various large institutions or corporations. These are all short-term loans, usually for about thirty days, and they have a nice interest rate attached to them. Because the payback is so quick, the risks are minimal, and as soon as these loans are paid back into the fund with the interest, that interest is passed on to you.

Your money needs to be in the holding place where it will earn the most it can for you; it’s that simple. Otherwise, like Rob, you could be losing thousands of dollars a year.
So wherever your money is now, ask yourself the following questions—and if you don’t know the answers, find out:
How much is the money in your checking and savings accounts earning?
How much do they charge you for your checks or as a service fee?
Now you need to find out whether you can get a higher interest rate somewhere else, whether you can be charged less in fees, and whether you can establish an account that is just as safe and just as convenient. The answer is probably yes.

Money-market funds were still a new concept when I first became a broker at Merrill Lynch, whose money-market fund was (still is) called their CMA account—cash management account. You could open the account with $20,000 minimum, but after the account was opened, you could keep whatever you wanted in it and still keep the privileges of the account. Those privileges were many. The first was that the account paid the going interest rate—around 18 percent at that time, in 1280; comparatively, most banks at that time paid no interest at all on checking accounts. You could write as many checks as you wanted per month and were given a debit card as well; you could withdraw from your account through any bank in the world: no fuss, no checks necessary, no fees for these withdrawals. This was great for travelers, who didn’t have to tie up interest-earning money by withdrawing large sums of cash or traveler’s checks.
If you wanted, you could also use this account as a catch-all for other investments you wanted to make or already had. For instance, let’s say you happened to own XYZ stock, which you kept in your safety-deposit box and which sent you dividends in the mail every three months. Most likely that dividend check sat around the house for at least a few days until you either mailed it to the bank or took it there to deposit it. Probably this process took one or two weeks or more. If you had held those shares of XYZ stock in your CMA account instead, the dividend would automatically have been deposited directly into your account the day it was issued and would have begun earning the 18 percent interest at once, or you could have withdrawn it at once.
Merrill Lynch charged a yearly fee of $100 for operating the account. But even with that fee you came out way ahead of the game. Back then, most banks not only paid no interest, but also charged a service fee of $10 a month, which sometimes went higher if you wrote a lot of checks. Thus the service fee alone would be $20 a year more than Merrill was charging for its CMA account, with all those privileges. Most people would have made far more on 18 percent interest than the $100 to do so cost them.
Money-market accounts still work more or less this way. But back then they were still new. To inspire us to sign up clients for the CMA accounts, Merrill Lynch held a contest among all of us brokers: Whoever opened the most CMA accounts would win a trip to Hawaii. They had to offer us something, because it was not to our advantage if clients opened a CMA account—we received no commissions on them. We made money only if our clients bought or sold stocks or bonds or the other investments Merrill offered.
I didn’t win the contest, but I tried to. As I was working on my tan-to-be, though, I learned something about human nature. Those of my clients who had tons of money opened one of these accounts as soon as they heard about it. Those people who weren’t as rich, but who still easily had the $20,000 to open the account, all said, No, I don’t think so. They said they felt safer with their money where it was. They all would have picked up that quarter from the sidewalk, I’m sure, but even when I showed them the hundreds or thousands of dollars they were leaving on the sidewalk, so to speak, they refused to pick it up.

Start training yourself to understand not just what your money is worth today, but what that same money will be worth in the future. Like a slide projected on a screen, your money becomes much larger over time. Consider the “big picture”—that compounded future value—when you are looking at the money you could save or spend today. Whenever I have a client come to my office who wants to do something today that will cost a lot of money, I always calculate what it will really cost by looking into the future. That’s the true cost of today’s desire.
I had a client come in not long ago to say, “Suze, I want to take a year off work, and $20,000 out of my savings, to go live in Europe for a year.” No problem, I said, as long as she could understand what that meant for her future. That $20,000, if left invested at, say, 10 percent, would, in twenty years’ time, when my client turned sixty-five, be worth $135,000. Did she feel comfortable spending $135,000 to take a year off, not to mention the money she’d lose by giving up a year’s salary? “But Suze,” she said, “in twenty years $135,000 won’t even be $135,000, because of inflation.” But using a 3 percent inflation adjuster, in twenty years that $135,000 would still be worth $75,000. The trip would cost her $75,000.
It is so important to see what things are really costing you, and the way to see this is to see money over time. It is when you start looking at money like this—finding out how what you do today affects your future before making your decisions, which must be based on reality and not just on hope—that you will really begin to understand money. Desire the trip, understand what it will really cost, decide whether you can afford it, and if you can, then take it by all means. Or scale it back, if that makes more sense. Or wait a year. If not this year, then the right actions with your money will still get you to Italy next year or when the time comes.
And when you’re doing the right things with your money, when you’re being respectful, the right time will always come.