RFC - Annuity for Cash Reserves

Since we currently have a surplus, and we’re meeting our monthly costs, I’d like to suggest that we make a more formal declaration of a cash reserve, and to hold that reserve in a annuity. There been some discussion around this, but nothing formal, and it seems a prudent move financially.

My current thinking is as follows:

  1. Reserve shall be 12 months expenses, which Jim has indicated are $1200 per month. This includes rent, utilities, etc. 12 months * 12 is $14.4K, so I suggest we round up to a $15K reserve. This reserve shall be held to meet emergence expenses, and should not be used for day to day operation, or for appropriations, such as new equipment. Examples of emergencies include, but are not limited to loss of the current space, loss of a majority of the equipment, lawsuit, fire, or other unforeseen hazards.

  2. Of that reserve I’d like to suggest that 2/3rds be converted to a yearly annuity, and the rest be held as cash or an easily converted cash equivalent. The yearly annuity would be at the discretion of the treasurer, but should avoid risky investments such as stocks, or real estate, and be more focused towards bonds, and other lower return investments.

This is just a request for comments, once we have some discussion I’ll put forward a more formal proposal to be voted on by the membership at large.

i like this idea. what about CD’s? mayber talk to someone in the investment field? (my wife is a stock brocker and can probably give off the record advice.)

As long as the fund outperforms inflation and a steady build up of income/funds gets going, I think in ten years people will be really glad the work was put into noodling this idea :slight_smile:

The current rates of CD’s seem to be about a 1% to 1.5% at the 14400 at 1.5% that would be about $216 added each year, not a large increase. I am looking at other options but nothing is sticking out, saving accounts are pretty low also.

I will be talking with the Town Council’s bank to see what their best opinion is, and will pass this info along.

CDs even with their poor performance are pretty good for this purpose. $216 for locking money away we’re not going to use is a nice profit. I’m loathed to suggest anything riskier, just because we don’t need to be making money on this money. My main concern is to establish a formal reserve to limit spending, with profit a very secondary consideration. Maybe when we’ve got another 10-15K saved we can think about putting a portion into a riskier long term investment like a stock index fund.

I believe the Hive bank account is through PNC.

The thing to think about here is that with certain CDs, etc, it might not be possible to withdraw funds if needed without paying a significant early withdrawal penalty. The whole reason to have the rainy day fund is to be able to withdraw those funds when needed without delay, and if that’s what we are looking for, then we should avoid those types of funds what would tend to eat into that principal when you need it the most.


Agreed, which is why I’m suggesting only 2/3rds of the money be put into a CD.

There are several different strategies you can use to limit risk of withdrawal penalties. One being getting 3 5K, 15 1k CDs. That way you only pay the penalties on what you need if something comes up. The penalties are typically small since they are usually based off of the interest rate they are tied to. At the end of the day all conservative investment options I am aware of have a VERY LOW rate of return. From a true business standpoint, we would get a much better ROI spending time/cycles finding ways to increase membership by 1 member (~3X better return) or figuring out a way to manage our membership dues to let us know and take actions on failed transactions.

I think they call this tripping over dollars to pick up pennies!

I wonder if there is a general money market fund that is based on an index fund that we could use for a portion of the amount.

Or we could develop some ransomware, I hear that can be profitable.

Why not both? I don’t think it takes that long to open a CD or two.

I think people are already address members retention by finding ways to deal with the problems causing people to quit. However, that doesn’t seem relevant to this topic.

I believe Coy is talking about when someone fails to pay their dues for a month or 2, based off of a paypal glitch (common) or other reason. This is a slightly different subject that may need to be addressed in a different thread.

For non-profits, the financial instrument that you are looking for is called and endowment: https://en.wikipedia.org/wiki/Financial_endowment

Rather than manage an endowment ourselves, we should talk to a firm. This is a very common practise for non profits, and there are financial managers that deal with them routinely.

I think an endowment would be way more money than what we have right now. I also don’t think we want to pay somebody to manage the money, often times you’re better off doing it yourself, and they’re going to want a cut off the top.

However, reading up on endowments I noticed that often they require action from the board to release the money. This seems like a reasonable safe guard, such that it would not be possible in most circumstances for membership to spend the money, while allowing the board to do so in an emergency.

As such I think I’m going to amend #1 such that releasing the money from the emergency fund would require a vote of the board.


  1. Reserve shall be 12 months expenses. This reserve shall be held to meet emergence expenses, and shall only be released upon a vote of the board of directors.

Not trying to be a pessimist and I’m not saying this is a bad idea but without making a change to the bylaws, couldn’t a future vote override this one? Is anything really really being accomplished besides having it be known that a majority of membership today thinks it’s a good idea to have reserves?

Coy you are correct. Adding a statement of saying only the board can withdrawl it wouldnt hold to another vote without the bylaw change, perferable i wouldnt want to see this as a bylaw change.

Yeah, it’s a by law level event… establishing a financial goal that is gonna persist and last years is going to have to be a bylaw imo. Point of order procedure wise, it’s motion to discuss… then likely establishment of a committee, more wrangling and committee reports, then a final draft for the bog or what have you.

The main reason I am enthusiastic about this sort of thing, I saw a club sort out a financial windfall this way, and structure their payouts such that they did not have to do fundraising for many a year.

With an endowment, you can also divy it up for specific purposes… so if somebody raised 500 bucks and plopped it in for paying visiting speakers… then yearly some small portion would be added to that discretionary stream, not used, then plowed back into principle.

The other thing I am enthusiastic about is a financial goal of this magnitude lines up on getting serious about major renovation/expansion or relocation… and is good practice :slight_smile:

The problem with doing investments on your own is that with a non profit, you have to be careful about generating what is known as Unrelated Business Income: https://www.irs.gov/charities-non-profits/unrelated-business-income-defined

This is why you go with a firm that specializes in this sort of thing. Many of them are also non profits as well, so the fee structure is different than that of a brokerage firm.

That’s a really good point. But then, there are so many ways to spend money to further the community of making things… rent, equipment, training, scholarships, travel reimbursements… if there are smart financial people about, the hang ups can be figured out. Worst case? The corp would need pay taxes on those earned monies?

Worst case? The corp would need pay taxes on those earned monies?

It starts there, and gets into murky water from that point. Taxes lead to
audits, audits lead to lawyers, lawyers lead to THE DARK SIDE!!!

When it comes to UBI, the only winning move is not to play.