Getting around the FDIC cap on insured bank balances

Posted on June 9, 2010 Written by

About three years ago, a new financial service came available which addresses the issue of the FDIC cap of $250,000. This service, known as CDARS (pronounced like the tree), is explained in full at www.cdars.com. Some banks have purchased this service and some have not; check with your bank to see if it participates. In a nutshell, this is how it works:

• Your church buys a certificate of deposit (CD) for a little less than $250,000 (in order to have any interest earned included in the $250K cap).
• The CD you purchase is actually a CD in First National Bank of Peoria (for example). In turn, First National Bank of Peoria buys a CD from your bank for the same amount. These two banks are cooperating in the CDARS program and have just exchanged money that is fully insured through FDIC.
• You buy as many CDs as you want, all from different banks around the country, to cover your financial assets. The maximum amount you can invest in CDARS is $50 million (I don’t think that’s a problem for anyone).
• The CDARS program does several things:
o It insures as much money as you want to have covered
o It invests the church’s money through one financial institution so you get one bank statement (which means you don’t have to deal with a dozen banks and their statements)
o You earn interest at the going CD rate (which is very low right now – about 1% per year – maybe it will go up soon?)

This is how my church puts this in practice
• My church has a cash balance of about $1.8 million (not unusual for a megachurch)
• We purchased 12 CDs for $100,000 each (that $1.2 million plus the $250K insured through our bank covers the bulk of our demand deposit balance)
• These CDs are laddered so that one comes due every month.
• All interest earned is put into the church’s checking account (which is added to the church’s financial statement and pays for the operations of the finance office)
• Each month our bank notifies me by email and I sign and email bank a document approving the next CD purchase – it is all handled electronically
• This church has a line of credit of $1 million. Because there are severe penalties (invasive of principal) for early withdrawal of a CD, the church will tap its line of credit should there ever been a financial need. Then, we’ll pay back the line of credit as CDs mature each month.
• My finance committee members were not aware of this program and several of them took it to their companies!

If you have questions or want someone to talk with me about this, I’ll be happy to help.

Lead On!
Steve

Filed Under: church finances, church financial statements Tagged: ,

Change

Posted on May 17, 2010 Written by

I heard it last week from my financial assistant: of the reported revenues for the prior week (total of $56,000), around $29,000 came in the offering plate. That means that about $27,000 came to the church outside the offering plate: in stocks, online gifts, mailed in offerings, etc. This is a change: for years churches felt that the offering plate was their primary source of revenues. Well, I can document that as of last week, things are noticably changing – only 52% came in the offering plate.

That is huge for churches. Church financial leadership must understand that the way of giving and supporting church work has already changed. If churches are not on the “change bandwagon,” then they are leaving some financial gifts “on the table” and not in their offering plates.

So, what are you doing to facilitate giving to your church? Are you making it easy for people to give in new ways? Or are you still relying on the offering plate to provide 100% of your revenues?

Lead On!
Steve

Filed Under: budget, church finances Tagged: ,

Book Review

Posted on May 7, 2010 Written by

Just finished reading “The New Context for Ministry: Competing for the Charitable Dollar” by Lyle Schaller. He wrote this at the end of 2001 and it was published in early 2002. In the book, especially in the last handful of chapters he makes some predications about the future of church economics. It is uncanny how accurate he was and is.

Schaller gives all churches (and non-profits) a warning shot across the bow about the way they’ve always done church finances versus the new economy and how they need to re-shape their church’s finances. It is also hard to acknowledge that the church is not prepared for the future. What is worse, is that no one seems concerned about the future enough to do anything about it.

About once a year someone pulls the fire alarm in my church. It is always a false alarm. Everyone knows it is a false alarm. So, no one moves the exit; no one gets the kids out of the building; no one runs to investigate the source of the alarm. In this book, Schaller is pulling the fire alarm for churches because there is a real fire. Unfortunately, churches believe that “God will provide” the financial resources they need. Well, God will but the church must actively work and search for it.

I recommend the book (even though it is not particularly readable) with an emphasis on his recommendations at the end of the book.

Lead On!
Steve

Filed Under: future, leadership, planning, strategy Tagged: , , ,

A Penny Saved …

Posted on April 28, 2010 Written by

I just filled up my gas tank (for future history, today gas was selling at $2.759 in Richmond, VA). Whenever I get gas, I look around the ground for pennies. I didn’t find any today. I haven’t found any pennies (dimes or nickels) for several months. This is one of my indicators of the economy.

A few years back, when the economy was doing quite well, I almost always found loose change when I filled up with gas. It seems that in those days, it wasn’t worth the effort to pick up pennies or nickels and people just left them when they were dropped. Not any more.

About a two years ago I noticed that there were fewer and fewer coins on the ground. About 18 months ago I noticed they were almost all gone and officially, in spring 2009 there wasn’t any more loose lying around. Here’s my prediction, when you fill up with gas (or go through a fast food drive through) and you see coins on the ground, then you’ll know that the economy is back and healthy. Here’s my second prediction, you really won’t see those coins on the ground until about six to nine months after the economy has turned the corner.

What I’m talking about in the context of churches is this question, “When will people feel generous again?” For church economics, two things have to change:

  1. The economy has to turn around in a visible, tangible way. Actually, as of right now (barring a major economic or terrorist event), the global economy is making steady headway out of the mires of 2008-2009. In about 3 months (summer 2010), the US and other first world countries will be on the financially-healthy rebound. But just because things are better financially does not mean people will be charitable or generous.
  2. The second thing is that people have to feel financially-healthy in order to be generous. The feeling of angst that people have right now (will I have a job tomorrow?, will I have enough to pay my bills?, etc.) must be eased a lot before they will respond to church pleas to give more. Churches need to help educate members to get in a more personally financially-healthy place (Crown Ministries and Financial Peace University). When churches do that, then their members will feel more generous. It takes people about 6-9 months after the economy has turned around for them to feel charitable.

Two questions for you:

  • Are you helping people get their financial house in line with God’s plan for their financial house so they can be more generous faster?
  • Or are you waiting till you see pennies on the ground as your indicator of when people are feeling more generous?
Lead On!
Steve
Filed Under: budget, church finances, planning, wisdom Tagged: , , ,

Jewish Philosopher Maimonides’ View of Charity

Posted on March 27, 2010 Written by

This comes from Louis Jacobs’ the Book of Jewish Belief, page 185. One of the most reknown Jewish philosophers, Maimonides, listed eight levels of charitable acts. It is interesting to see how these are borne out by individuals and by churches today.

  1. A man gives, but is glum when he gives. This is the lowest degree of all.
  2. A man gives with a cheerful countenance, but gives less than he should.
  3. A man gives, but only when asked by the poor.
  4. A man gives without having to be asked, but gives directly to the poor who know therefore to whom they are indebted, and he, too, knows whom he has benefited.
  5. A man places his donation in a certain place and then turns his back so that he does not know which of the poor he has benefited, but the poor man knows to whom he is indebted.
  6. A man throws the money into the house of a poor man. The poor man does not know to whom he is indebted, but the donor knows whom he has benefited.
  7. A man contributes anonymously to the charity fund that is then distributed to the poor. Here the poor man does not know to whom he is indebted, neither does the donor know whom he has benefited.
  8. Highest of all is when money is given to prevent another from becoming poor, as by providing him with a job or by lending him money to tide him over a difficult period. There is no charity greater than this becasue it prevents poverty in the first instance.

So, how is your church not just helping the poor, but preventing poverty?

Lead On!
Steve

Filed Under: generosity Tagged:

Retirement – how much

Posted on February 26, 2010 Written by

How soon you are able to retire depends on how much you have invested in your retirement fund. Whether you want to retire depends on whether and when you want to retire.

Cut to the chase – how much do you need?

  • Take whatever you believe you need to live on and divide it by 5%. The thinking there is that if you have $2,000,000 saved up, you can tap 5% of that per year to get $100,000 to live on (presuming that is the figure you want/need). Figure out what the figure you need to live on, then divide by 5%.
  • Remember that the figure you need to retire is going to be different than what you need in 2010 dollars – both to the good and to the bad.
    • When you retire your taxes will be lower (if you retire at or after age 65).
    • When you retire, you will hopefully have paid off your house and not have a mortgage to pay.
    • When you retire, remember that inflation will increase the amount of 2010 dollars you’ve calculated you’ll need – project that out at the annual average inflation rate of 3% for the number of years left till you retire.

Okay, how much should you sock away each year? I’ve heard three different figures:

  • 10-15%
  • 14-18%
  • 15% of your own money plus whatever your employer puts in. This is what Dave Ramsey says. Dave also says that you shouldn’t count on Social Security and I agree with him. And what is the downside, if Social Security really does happen for you, guess what, you got some extra money!
  • Bottom line, put in 15% of your gross annual wages each year plus whatever your employer chips in.

If you can afford to put in more, do it. Put in as much as you can. After all, when you get your statement from your retirement fund, at some point I hope you’ll be able to go to your boss and tell him that you’re retiring and he can find someone else for your job – you’re new job is watching the waves come in on the beach!

If you can’t get to the 15% this year, then start and work your way up every year. When you get your pay raise, go straight to the Human Resources office or officer and increase your personal contribution to your retirement fund by 1%. After several years of doing that you’ll be at 15%. Yes, it will affect how much you can have now to spend but you will also not pay taxes on those monies you’re investing.
What funds to invest in? I’m not going to tell you. I’m pretty aggressive in my personal investing and so far it’s worked out well. I did bail on stocks at the early stages of the 2008 recession and got back in to equities in early 2009 so I dodged some (but not all) of that bullet. Rule of thumb, invest your age in fixed income and the rest in equities. I do about half my age but as I said, I’m fairly aggressive and I monitor it regularly.

Who to use? Any one of the big boys. I personally like Vanguard but that is a personal decision because years ago I was at a meeting in Philadelphia. During the lunch at a local church, I was served tea by the wife of the founder of Vanguard. I was so impressed that a woman worth hundreds of millions would willing serve tea and water to guests of her church – I just knew that said a lot about the company her husband founded. So, I use Vanguard but other companies such as Fidelity, T Rowe Price, and Tiaa-Cref are also very good.

As Dave Ramsay says, “Live now like no else so that later you can live like no one else” – meaning, you’ll be able to retire while they are still working!

Lead On!
Steve

Filed Under: church administration, church finances, church staff Tagged: , ,

Group Decision-making

Posted on February 15, 2010 Written by

I was asked to speak to our church’s “Emerging Leaders” class about decision-making by groups. Specifically, there are three questions to answer:

  1. Why teams or committees in the church make decisions?
  2. How teams make decisions?
  3. How and why decisions are made by teams or committees get passed on for further approval?

First, full-disclosure: I work in a Baptist church. Baptists believe in democracy – my mom said that the truest expression of democracy, warts and all, is in a Baptist church. Members (actually, only those present) get to voice their opinion regardless of how much they’ve contributed to the church financially, how informed they are on the subject, or how much the result of the decision will affect them and their family. Everyone gets a voice – and that is very good and very bad.

Rather than digress into an explanation of the very good and very bad (which pretty much everyone can figure out for themselves), let me speak to these three questions.

  1. Why do churches have committees to make decisions?
    1. The Baptist church is a democracy: as explained above, decision-making is shared by the church. Now, the entire church cannot decide everything so it delegates some decisions to committees. Some decisions are made by the committees and some are passed on (see question #3). Sharing the burden (or blame) helps unify the church.
    2. “The Wisdom of the Crowds:” providing a venue for people with different life experiences to share their wisdom can help make decisions more informed and thus have better results. I frequently remind my committees that “right now we’re operating from a basis of ignorance and getting more information will help us make a better decision.” Decision-making from a base of ignorance is never good – get as much knowledge and wisdom as possible.
    3. Corporate buy-in: having as many people as reasonably possible in the decision-making process will mean that later on, those decision-makers can be “emissaries” to others who question the decision. It also means those decision-makers will support the decision verbally and financially when the time comes for them to speak out (or else they’ll be viewed as hypocrites and not trusted by other members).
    4. CYA (cover your ass): this is not a polite term in church but it is exceedingly true. Smart leaders will use officially sanctioned committees to make decisions that might cause heartburn in a handful of individuals. Those individuals who have their own agendas will find it harder to fight the group. An individual decsion-maker can be hounded (sometimes mercilessly) by a person with an agenda. Individuals who question the group decision in a public arena can be asked why they did not go to the committee rather than air their grievance to the world.
  2. How do teams make decisions?
    1. The best decisions made by groups are by consensus. Sometimes a vote necessary for an official record. However, shy away from official votes when possible. Ask the members of the group if everyone is in agreement. Then, when you do need to take a vote, those official votes will have that much more power because members are willing to put their opinions in the record.
    2. Decision that are made by split or almost split decisions are not valid. Decisions should have a clear majority (at least 66-33) in order for them to have full support of the committee. Then, the committee must share and explain their decision with others so that there is further and continued buy-in.
    3. Point of clarification: some decisions should be made by a person for one of several reasons
      1. Expediency: there is not enough time to have an official meeting. In those cases, if the decision is minor then the leader can make the decision. Sometimes a leader may want or need to consult one or two others for their input but ultimately the decision will be made by that person.
      2. Leadership: “follow we” is not what Jesus said. Leadership is given to us by God. Sometimes leaders just need to make a decision and get out there and lead. Leadership is not “finding a parade and jumping out in front of it.” Leadership is realizing that sometimes people are following you and sometimes people are chasing you – sometimes at the same time! Leadership is a topic for another blog.
  3. How and why decisions that are made by teams get passed on for further approval?
    1. Authorization: some committees are not authorized to have the final say in an issue. A team will pass on their decision with a recommendation to the next group in line when they are required to do so. The next group may or may not follow the prior group’s decision and/or recommendation.
    2. Publicity: having a decision made by the entire congregation or a very large group provides the opportunity to “sell” or “market” the decision. That way, more people will be aware of the decision, can tell others about it, and when the time comes, can support it financially.
    3. Tricky issues: matters which could affect a member or group of members might need to be dealt with in an official capacity (depending on the matter and the people it affects). Some people accept negative news better than others; those who do not accept bad news are well-known and when a decision involves them, a group decision can help (see CYA above).

All that being said, let me tell a story that happened in a church. A certain member had a major contract with the church which annually cost the church over $40,000. I wanted to put that contract out to bid and I was authorized to do so but I knew how news would be received. I asked the church’s Finance Committee to “order me” to put this out to bid (see CYA). Four companies bid on it and that member’s bid came down 35% even though it was the same contract and two other bids were almost identical. I was authorized to make the final decision but I asked some elders in the church to help with the decision. They realized this was a tricky issue and they asked the Finance Committee to make the decision. The Finance Committee wrestled with this for over an hour before giving it to the member. The result is that about a dozen church leaders felt that this member was taking advantage of his church and his influence waned. The right decision was made, the member was put on notice that his prior actions were unacceptable, and the church got a $14,000 discount on an annual contract.

I need to go now, the contractor for a small renovation project needs me to make a decision. I’ll handle that one myself – no committee need get involved!

Lead On!
Steve

Filed Under: church administration, leadership, strategy Tagged: , ,

Financial Resolutions 2

Posted on January 4, 2010 Written by
The next set of financial resoutions for churches from Brad Leeper of Generis.com
3. Conversations must move beyond stewardship to generosity
With all due respect to the biblical concept of stewardship, the term itself is passive, hard to understand, and boring. In the secret places of the heart, people do not long to be good stewards. They do long to make an impact. To be a difference maker. To be generous to the point of giving up something that is good in exchange for something that is better.
Churches that celebrate generosity become more generous. Churches that are silent about generosity become zealous about cutting expenses. I have lived in that cutting expenses season. Experiencing generosity is much more fun. Try a vocabulary shift in 2009. Replace stewardship with generosity and unpack the stories about how the generosity of your church changed lives. Watch your giving flourish.
4. Churches must speak more intentionally about finances
Economically tough times create intense static in the minds and hearts of your people. Consider that we have been accustomed to a consumer driven lifestyle accompanied by $3 cups of specialized coffee and the internal confusion hits decibel levels too loud for even 18 year old rockers. Where do your people stand in juggling financial realities? According to a USA Today article May 2008:
· 9 out of 10 consumers in their 30s are in debt.
· 45% of respondents in one survey said they had too much debt to think about saving. Do we think the answer is any different about their generosity?
· 20% of adult in their 30s are still paying college loans.
Another source reports that Americans now save, on average, less than 1% of their income. How can we expect people to give generously when their margin is already so razor thin? Be daring in your coaching. Teach people how to get out of debt. Teach them how to save. Inspire them to live above the roar of our consumer-driven machine.
When I perform a giving analysis for a client, it is very typical to receive a list of regular attending households (OK, relax. I do not ask for names) with over 50% of those households having giving nothing in the last year. I have had pastors tear up when they realize that they are the number 2 top donor in the church. Your people are not as up to speed about finances as you think they are. The church that preaches and teaches about sound, biblical financial practices will create a long-term culture that gives abundantly to match its compelling vision.
 

Lead On!
Steve

Filed Under: church administration, church finances, generosity, leadership, strategy Tagged: , , , ,
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