By Larry Massey (Executive Vice President of Bank Of Houston)

A few years ago I was meeting with one of my clients, (I will call Dr. Smith) who told me, “I ‘m so broke by the end of the month that I don’t have enough money to buy a six-pack of beer.”  With a comment like that I began a series of questions with an obvious opener: How much do you make each month?  Answer, $30,000 gross per month.  Wow! As a banker who had specialized in helping physicians for 27 years, I knew it was time to give Dr. Smith a financial check up.

I began Dr. Smith’s financial check up with a series of questions:

• Who handles your bookkeeping and accounts receivable collection?
• Who is your CPA and when is the last time you met?
• When is the last time you prepared a personal financial statement?
• When do you file your taxes?

So we started by updating Dr. Smith’s personal financial statement plus a cash flow statement.  

With two children in private schools, a spouse who was active in many charities, and a large home on Rice Boulevard; we began to work together to solve the mystery of the missing beer money.

After spending just 30 minutes the solution became apparent:

·         Spend at least 30 minutes per month looking at bills and bank accounts

·         Engage a CPA to prepare a yearly personal financial statement plus work on getting income taxes paid by April of each year

·         Work on a yearly family budget, even if simple, to predict when large expenses are due

·         Save money for emergencies and retirement

·         Communicate with family the importance of not going broke  

To assist Dr. Smith, we put several bank products in place:

·         A personal line of credit

·         On-line banking access to monitor bank accounts

·         Opened a savings account to escrow money for taxes and tuition

·         Quarterly visits with CPA and banker to make sure progress is being made

So what happened?  After setting up the plan, it took Dr Smith just 18 months to get his cash flow under control so he could start saving instead of borrowing money.  Dr. Smith now enjoys his quarterly meetings with his banker and has become good at watching his personal finances.  He can now start planning for a ranch in the hill country and retirement.   

Larry W. Massey, Jr., Executive Vice President, Bank of Houston, 3900 Essex Lane, Houston, Texas 77027. Office 713-600-6760, email lmassey@bankhouston.com. Larry has been a banker in Houston since 1976 specializing in helping physicians with their personal and practice needs.  

Mr. Stein, President and CEO of Bank of Houston, is a frequent guest and co-host of the Houston Business Show. His extensive knowledge and experience has helped him to serve in senior bank officer positions and on the Board of Directors of Columbus State Bank, Central Texas Bankshare Holdings, Inc., Texas Bankers Association, Momentum Capital Corporation, and Bank of Houston.

For more information on Bank of Houston and Mr. Stein, please visit their website at www.bankhouston.com.

Ever wonder what would be the best way to invest your money? Let me tell you a little bit about your choices. For our customers in the need of liquidity through bank deposits, there are basically four different types of accounts at Bank of Houston in which you will receive interest, which include:

• NOW Account
• Savings Account
• Money Market Account
• Certificate of Deposit

A NOW (Negotiable Order of Withdrawal) account is a checking account which also pays you interest. The interest rate for a NOW account is a variable rate and can change at any time. Typically banks pay a relatively small return on NOW accounts in return for unlimited check writing capabilities.

If you want an account that will not be used as much as a checking or NOW account, a savings account might be the right choice for you. A savings account is a deposit account intended for funds that are expected to stay in for the short term. The interest rate for a NOW account and a savings account are about the same. At Bank of Houston, only six quarterly withdrawals are allowed on a regular savings account.

A money market account is a savings account that offers a higher rate of interest in exchange for a larger deposit balance. Money market accounts place restrictions on the amount of transactions you can make in a month. At Bank of Houston, only 6 transfers are allowed from the account each month, of which only 3 can be checks to 3rd parties. Furthermore, in money market accounts you usually have to maintain a certain balance to receive the higher rate of interest. At Bank of Houston, in order to accrue interest, the daily collected balance must exceed $2,500. The money market account is tiered where the more money you have in the account, the greater the interest rate you will receive.

A Certificate of deposit (CD) is a great way in invest your money if you do not need your money immediately. A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. Certificates of deposit usually offer the highest rate of interest that you will receive from a bank. CD’s are different from savings accounts in the fact that CD’s are for a specific, fixed term and for a fixed interest rate. A CD is intended to be held until maturity, at which time you may withdraw the money along with the accrued interest.

Depending on how accessible your money needs to be and the interest rate that fits your needs, any one of these four accounts may be right for you. Talking to a professional banker at Bank of Houston can also aide you in the important decisions regarding your liquidity and savings needs.