Don’t let inflation wipe out your cash surplus
Does your nonprofit have more money in the bank than you need to cover day-to-day operations?
If so, rising prices across the economy, AKA inflation, could significantly reduce the value of your nest egg. Please don’t allow your nonprofit’s hard-earned savings to go up in smoke.
Your nonprofit has already lost money
The US economy has seen 3.8% inflation in the past six months (Feb-Jul, 2021). If your nonprofit had a $100,000 surplus in a checking or savings account, that means you lost $3,800 in buying power. I bet you and your staff could come up with a few expenses you’ve been putting off that would have been better than just seeing the money evaporate.
Inflation is real
Nobody has a crystal ball, but the trends that have driven inflation so far this year could continue for the foreseeable future, especially while the pandemic continues to create massive unpredictability for business and people’s personal lives. Factors include:
Supply chain breakdowns around the globe have driven up the cost of cars, electronics, and more. If a manufacturer depends on parts from overseas, shipping delays make it harder and more expensive to get those parts.
Difficulty in hiring means that employers need to pay significantly more than a year or two ago to attract and retain talent. When employers raise wages they often raise their prices as well.
If inflation stays at its current rate, that means that a $100,000 surplus will lose $7,600 in buying power over the next 12 months.
How do I know if we even have a surplus?
You have a surplus in your checking or savings account if it has money in it that you’re not using for day-to-day operations. For example, if over the past three years the account hasn’t dipped below $100,000, then you probably have at least a $100,000 surplus.
How do I protect against inflation?
Every nonprofit has different goals and can take on different levels of risk. Be sure to talk to an investment advisor to figure out what’s right for your organization.
If your organization has a very low risk tolerance, be sure to talk to ask them about options such as:
Treasury Inflation-Protected Securities (TIPS)
Commodities
Government bonds
Real Estate Investment Trusts (REITs)
You should be able to invest in any of these in ways that you can convert the investment back into cash in less than a week in case your operating fund runs low.
Do not wait
Every month that you wait, your surplus loses purchasing power. With a $100,000 surplus, you’re losing the price of a nice new laptop computer every month (about $633).
Note: if your cash surplus includes donor-restricted funds, be sure that what you do is consistent with the grant agreement. Or talk to your grantor to request some leeway.
Bottom line, don’t let months go by with your surplus steadily losing value. Talk to your investment advisor about getting your surplus invested ASAP in something low risk so you can at least slow your losses.
Once you’ve done that, you and your board can take the time to carefully craft and adopt an investment policy and investment philosophy to guide your long-term investments and decision-making. These kinds of bigger decisions frequently do take months – and that’s fine as long as your money isn’t steadily losing significant value every day.