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4 Ways an Emergency Fund Can Boost Financial Strength

CTG_Blog_Emergency_Fund

4 Ways An Emergency Fund Can Boost Financial Strength

As community, church, and nonprofit leaders double down to accelerate their impact now more than ever, many continue to battle with financial instability amid the COVID-19 pandemic, but there are proven ways to gain stability, even during uncertain times.

One way to gain financial stability is to manage an emergency fund and while this has become a more common practice for personal finance, it’s generally not a topic of discussion for many nonprofit, human service, or religious organizations. 

In this blog, I want to challenge that norm by sharing with you the primary benefits of using an emergency fund (in tandem with your coverage and claim’s situation), so that you can start to boost your financial health and forward your mission regardless of how the market is trending.

But before I do, I’d like to bust a common myth that holds many board leaders and members back: just because your community-focused organization operates differently than a for-profit business (whether small business or large business corporation), doesn’t disqualify you from achieving a robust financial condition. 

You and I both know that a healthier financial position will translate to a stronger outcome in your mission and the opposite is just as true, so it’s up to you to take action now that will lead to growth later.

By creating and maintaining an emergency fund, you can experience these perks as soon as the first couple months. Here they are:

 

Lower the cost of insurance

A key advantage to an emergency fund presents you the opportunity to save on your insurance premiums.  How do you save?  Well, by raising your policy’s property coverage deductible.

While most organizations desire a lower deductible for insurance claims, statistically, you could save more money with a higher deductible.  The problem is, most organizations cannot make the jump from a $1k deductible to a $2.5k deductible, let alone a $10k deductible simply because they do not have the cash on hand needed to cover the expenses of a loss beyond their deductible. 

The good news is, there are many ways to steadily invest in your fund, including a gradual, stair-step method to make progress towards your funding goals over time.

Let me tell you what I mean.  Ideally, you’d want to start your emergency fund with the goal of funding it at or above your property insurance deductible.  By doing this, you’re essentially self-insuring any unforeseen expenses that fall below what your insurance would cover.  But, as your emergency fund grows, you’ll have the opportunity to raise your deductible, which will generate savings on your insurance premiums.  You can then funnel those savings back into your emergency fund, growing it more quickly and the cycle goes on and on.

For you visual learners out there (like me), here’s an example of the potential insurance premium savings generated by periodically increasing your deductible over time.  By comparing similar organizations (including insurance coverage, premiums, claims history, etc.), we can determine the reasonable difference over a 10-year span.

At YR-3, deductible increases to $2,500; at YR-6, deductible increases to $5,000; at YR-9 deductible increases to $7,500.

By committing to this method in the long haul, you’ll not only accelerate the process of saving insurance premiums but also become less dependent on the insurance company, which leads us to my next point.

 

Gain more control over your financial state

As just mentioned, by growing your emergency fund over time, you’ll rely less on the insurance policy (and other financial institutions) to manage unexpected losses, which will position you to gain more control over your current financial state and future outlook.  Regardless of whether you’re a board leader to a nonprofit or church, we can all agree that this is good news!

 

In what ways can you gain more control over your financial health? By slowly increasing your emergency fund with time, you’ll also grow the level of which you self-insure your own losses (i.e., “claims”), giving you more power to make significant financial decisions instead of external institutions (like your insurance company).

Notably, managing property-related claims that are lower than your insurance deductible will ensure you keep a clean claims history with insurance carriers, which is a large premium-bearing factor for insurance.

Along that point, your organization will become an ideal prospect for insurance carriers, allowing you to maintain the best insurance options, coverage and pricing on the market.  Who doesn’t want the best coverage options when it comes to insurance (especially when you’re a budget-minded church or nonprofit)? 

 

Become more responsible with your finances

My third point brings us to developing a new level of ownership and may not be as appealing as the first two perks, but is absolutely a significant benefit to managing an emergency fund.  When you start or set specific financial goals for your organization, you’ll naturally become more aware of your financial spending, habits, and trends.

When it comes to governance of a church or nonprofit, this new level of financial mindfulness for leaders and board members will become a layer of accountability that you didn’t have before, which will lead you to embrace more internal ownership over your organization’s financial state, instead of placing blame on external factors (like insurance companies, coverages, and claims situations).

What’s really remarkable about this ownership principle is that it always leads to growth and is universal to any set of circumstances. 

Another help of owning a greater level of financial responsibility can lead to a heightened risk management mindset among key leaders and board members, in which case, furthers how you care for your belongings, people and community.

 

Accelerate your missional goals

Lastly, creating a financial plan for the unknown will allow your organization to finally achieve financial stability, ultimately expediting your missional goals.  No longer will your general fund or capital campaign be hijacked by unexpected losses (unless it’s a sizable claim your policy coverage includes).

Contrary to popular belief, an emergency fund will actually enable you to accomplish your goals by curbing inconsistent unplanned spending and create stable benchmarks for long-term planning, so that your organization can continue to consistently grow and meet the needs of those you serve with confidence.

Well, I hope this has been helpful for you and I’d encourage you to identify one tip you can use immediately to improve your community-driven efforts.  If you have any questions regarding an emergency fund or your commercial insurance program, I’d love to chat with you so please feel free to reach me anytime!

 -Spencer

P.S. If you’re a key leader or board member who has questions about church insurance or nonprofit insurance, we exclusively work with nonprofit, human service and religious organizations and would love to help you so you can forward your mission with confidence!

A.Spencer Koulchar CTG Insurance

Have Questions? We’re here to help.

Send me an email at akoulchar@ctgins.com or
call our office at (810) 695-0096
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