Almost all personal financial experts will tell you our families need a financial reserve of several months’ income to weather unexpected challenges. I lead an organization where we seek to have some level of financial reserves for contingencies and capital expenditures.
On the surface, it would seem that a church should have financial reserves if at all possible. But there are implications that argue both ways on this issue. Let’s look at eight of them.
- Meet current obligations before funding a reserve. A church in California had reserves of nearly $250,000, but it was not current on its bills, even its utility bills. The witness of a church is damaged when it does not meet current obligations in a timely fashion. That should be a priority over a reserve fund.
- A reserve can serve as a contingency for unexpected expenses or downturns in giving. This purpose is consistent with other organizations and with families.
- Church members can feel that ministries are neglected if the church has reserves. Ministry needs are unlimited. When a ministry leader or someone who has an affinity with an underfunded ministry sees money in a reserve fund, he or she can feel the ministry is being slighted since funding seems readily available.
- The leadership of a church should clearly communicate the purpose of a reserve fund. Here is a statement straight from the annual budget of a church: “As good stewards of God’s funds, we seek to maintain the equivalent of approximately three months’ funding of the annual budget for unexpected contingencies.”
- Consider a cap on the reserve funding. In the example of number four, the church implicitly capped the reserve funding at 25 percent of the budget. Such a move communicates wise stewardship rather than hoarding.
- Reserves can relieve stress on church leaders. Church leaders have many different areas that can engender stress. A church financial reserve can alleviate some of the financial stress.
- Excess reserves can lull members into complacency. I have seen churches with large reserve funds or endowments that are doing a terrible job in ministry. The members do not see the need to give or to serve. Many of them think the church should pay for ministry to take place.
- With any reserve, the tension is between stewardship and complacency. For that reason, I often recommend the reserve amount be capped at a certain percentage of the budget, usually between three and six months of the annual budget.
Let me hear your thoughts on financial reserves in churches. What is your philosophy? What does your church do? Some of your churches cannot afford reserves. If your church had excess funds, what would you do with them?