59% of Americans do not have enough savings to cover an unexpected $1,000 emergency expense.
That’s a staggering and frightening number. It means so many people living paycheck to paycheck and in constant stress and/or fear of something breaking down or health issue that would simply force them over the edge.
In our sector it’s not much better.
According to the 2025 State of the Nonprofit Sector survey…
- 52% of nonprofits have 3 or less months of cash on hand
- 18% have only one month or less of cash reserves
That stinks. When a rainy day hits, most nonprofits do not have the funds to keep the lights on. It’s part of the reason why layoffs are most nonprofits go-to when 💩 hits the fan.
Which of course should be the absolute last resort, not your first move. (Why? Because those who are left start looking for a new job to get away from what they perceive to be a sinking ship; remaining employees are now tasked with the jobs of others who were let go- with no pay raise; it deflates office morale; it can also show you can’t deal with tough situations- rather, management panics and just quickly gets salaries off the books. I’ve got more but that’s enough for now.)
Having a strong rainy day fund helps your organization deal with financial downtimes, when revenue is slow and funds aren’t coming in at their usual pace.
Yet so few organizations store money away, either because they’re always cash strapped (whether that’s the actual or perceived is another discussion) or the sector’s general lack of looking ahead and planning for the future.
Think all the way back to January 2025. (Feels like a million years ago, right?) The U.S. government cancels all federal grants pending a review. My LinkedIn feed turned into Chicken Little Land as organizations cried that the sky is falling.
But it didn’t have to be that way! Whether you had multiple revenue streams or most of your budget wrapped up in federal grants, having cash reserves would help you navigate the stormy waters ahead. You could keep the lights on, pay salaries, keep programs and services running.
Not having rainy day funds does great harm not only to your organization but also to the very people you want to help. Which means it’s time you got moving on creating your rainy day fund strategy and then implementing.
Easily navigate thru tough times
To be clear, I’m not talking about an endowment. That’s a long-term investment meant for long-term stability where the principal stays untouched and the organization only uses the interest. Though that is something organizations should consider.
(I’m working right now with an institution helping them plan their endowment fund campaign. The goal is an ambitious one but will set up this institution for long term growth and stability.)
How much reserves should a nonprofit carry? Every nonprofit should have 3-6 months expenses in reserve. If no money comes in, you can pay for everything you need to for the next few months.
💡 My recommendation would be six months if possible.
One of your first steps towards creating this rainy day fund is to have a Financial Reserve Policy in place. Once that’s done, you can decide how much to store away and how to do so.
For example, you could put aside 2% of annual revenue from events and programs and another 2% from fundraising dollars. You need to be consistent about it and make sure the money is put aside each month. After a couple of years of doing this you’ll find that the rainy day fund has grown and can meet your needs if needed.
You could also fundraise for the rainy day fund! Yes, I know this sounds crazy to you but I’ve done it.
People understand the need to put money away for a rainy day. They can similarly understand the need for your nonprofit to put money to the side in case financial hardships hit donors and the community. Again, you could raise small amounts which over time add up to a significant rainy day fund.
The overall goal is to plan ahead. Hopefully you won’t need to dip into this fund but when you do, you know it’s there. It helps keep stability at your organization and people don’t feel like you’re gonna go out of business.
That’s important both internally (staff morale) and externally (you’ll be around to help the community).
If you haven’t thought about a rainy day fund, time to do so. Talk internally. Get the Board involved. Create a policy and then go build the fund.
Emergencies happen. The more prepared you are now the brighter your future will look.
