What’s in your wallet (or checking account)

Politician Everett Dirksen is often quoted, “A billion here, a billion there, pretty soon, you’re talking real money.”   But what about trillions?  Like $10.7 trillion?  That’s $10,700,000,000,000.  Americans had $10.7 trillion in their checking accounts at the end of last year, an average of about $3,600 per account, an increase of about $1,000 over the last ten years.  All of this according to the Federal Deposit Insurance Corporation study released last week.

All of this totals 77% of all bank assets.  More than three-quarters of what is in the bank is is in checking accounts, providing great liquidity but not doing much of anything to grow through interest.

I got a call from a pastor last week telling me that he discovered his new church has $86,000 in the checking account.  He thought that seemed kind of high.  I agreed with him.

How much is in your church’s checking account?  A while back I wrote about how to best guess how much you needed to have available.  But today let’s look at the opportunity cost of having that much in your checking account.

So we’ll start with the assumption that the church needs something in the checking account on an ongoing basis, say $30,000, one month’s expenses for this particular church.  That leaves $56,000 to invest.  What will that mean for this church?

Year to date our equity fund has returned 18.7% net of all fees.  It would be a great advertisement for me to show how consistent returns at that level can help a church’s bottom line but the reality is that although I am grateful for those kinds of income they’re really not sustainable.  Instead we’ll go with the five-year average on our balanced fund, 7.7%.

If we take that $56,000 and earn 7.7% each year, that’s $4,300 per year.  Some years that will be more, some will be less, but that is an average.  For a church with a budget of $360,000 this doesn’t seem like a huge amount.  It won’t add a bunch of staff or replace the aging boiler, but I wonder how many members of this church give more than $4,300 per year.  Simply by investing and taking a reasonable payout, this church just added another top donor to its rolls.

That $4,300 could provide seed money for a new outreach ministry, paint the walls in the Fellowship Hall where the youth group meets every week, send kids to camp or provide seed money for a mission trip.

With the benefit of being able to expect a comparable return year after year.

I often hear that the church “can’t be too careful with money that isn’t ours.”  I agree but you need to not only consider the investment risk but also the lost opportunity.  Would you really tell a donor who offered you $4,300 that you don’t need the money?  If not, why would you tell that to your checking account?

Four thousand here, four thousand there, pretty soon, you’re talking real money.

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