We’d all like our money to work for us while we do other things. In finance terms, this is known as “passive income”.

We chatted with some of our EM Solutions team to ask how NPOs can create passive income streams. Here are their top tips:

Cascade your investment bank accounts

This is all about moving your money around to make the most of bank interest rates. This is how you do it:

  1. Put this week’s payments in the current account,
  2. Hold 3 months’ expenditure in a Call Account, and transfer to your Current Account before doing payment batches
  3. Hold 6-12 months in a 60-day notice account, top up the Call Account every 2 months
  4. Put the rest of your funds in a longer-term, high-interest account. If you don’t have that much, start by filling up the 3-month bucket first, then put extra into the 6-12month account. As your money grows, the overflow goes down the cascade

Managing separate accounts without losing money

If donors want separate accounts, use current accounts, but put most of the money in the call account (and cascade with the other funds). Remember, more money together gives a higher interest rate. Draw down into the donor’s current account as needed. Keep a spreadsheet to track how much has been drawn down of the disbursement.

Money erodes – beat inflation by creating capital growth

Bank interest won’t hedge inflation. You need unit trusts and share portfolios to generate dividends and capital growth to avoid the erosion of value in your money. One of the best ways to create capital growth is to invest in shares. Speak to your banker and ask them to recommend an investment policy to determine what investments you can invest in and how to choose the correct risk profile for your organisation.

To summarise, it’s important to get your money to work FOR you, and not just sit unused in accounts. Interest will decrease your money unless you create opportunities for your capital to grow that exceed the inflation rate.

Chat to one of our consultants if you would like to learn more about passive income. We’re waiting for your call so that we can help you unlock potential.