If your nonprofit has an endowment or board-designated reserve, you’ve likely asked—or been asked—a version of this question: “How much of this can we actually spend?”
It’s a reasonable question. But without a clear, written policy in place, the answers often vary depending on who’s in the room, how the market is doing, or what the budget looks like that year.
That uncertainty can lead to confusion, tension, and decisions that feel reactive rather than strategic.
A spending policy changes that.
It gives your board and leadership team a shared understanding of how much you can draw from your invested funds each year—and helps ensure those decisions are grounded in purpose, not pressure.
In this post, we’ll walk through what a spending policy is, how it works, and why it’s one of the most important financial tools your nonprofit may not be using yet.
What Is a Nonprofit Spending Policy?
A nonprofit spending policy is a written set of guidelines that defines how much of your invested funds—such as endowments or long-term reserves—your organization can safely and prudently spend each year.
It’s most commonly used in managing:
- Endowments
- Quasi-endowments (board-designated funds intended for long-term use)
- Reserve or investment accounts held to support ongoing operations or special initiatives
At its core, a spending policy helps balance mission today vs. mission tomorrow—ensuring your nonprofit has predictable funding to support programs now, while still preserving assets for the future.
Not the Same as a Budget
One common misunderstanding? A spending policy is not the same as your organization’s annual budget.
- A budget outlines how you’ll allocate and spend your total revenue across programs, salaries, events, etc.
- A spending policy, on the other hand, specifically governs how much you can draw from your invested funds, usually calculated as a percentage based on a formula or historical average.
The two should work together—but they serve different purposes.
Want help creating a spending policy that aligns with your long-term goals and board expectations? Join our free webinar: How to Set Up a Spending Policy for Your Nonprofit Endowment.
Why Your Nonprofit Spending Policy Matters More Than You Realize
If your nonprofit has an endowment or board-designated reserve, a formal spending policy isn’t just helpful—it’s essential. It brings structure, clarity, and consistency to one of your organization’s most important decisions: how much to draw from your invested funds each year.
Here’s why it matters more than you might think.
1. It Can Bring Predictability to Unpredictable Times
Markets rise and fall. Donations shift year to year. But your programs can’t wait for the economy to stabilize.
A well-crafted spending policy—especially one based on multi-year averages—can smooth out market volatility, so your funding levels stay consistent even when your portfolio takes a hit. That means fewer surprises, more stability, and better planning.
2. It Prevents Internal Confusion and Conflict
In the absence of a written policy, decisions about spending from reserves or endowments can come down to personal opinions—or worse, last-minute scrambles.
A clear spending policy gives your leadership team and board a shared framework. It answers the question, “How much can we responsibly spend?” without guesswork or heated debate.
3. It Helps Protect Your Mission—Today and in the Future
Without guidelines, it’s easy to overspend in good years and then cut too deeply in lean ones, disrupting programs and eroding long-term sustainability.
A good spending policy acts like a safeguard. It helps ensure your organization can continue delivering on its mission for years to come, not just reacting to short-term circumstances.
4. It Can Help Ensure Compliance with Legal Standards
Beyond internal clarity and strategic planning, having a clear spending policy can also keep your organization compliant with legal guidelines, such as the Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA outlines prudent spending practices to help nonprofits responsibly manage endowed funds, guiding decisions based on donor intent, fund longevity, and economic conditions.
A documented spending policy aligned with UPMIFA can ensure your nonprofit meets these standards, reducing legal and financial risks. It also demonstrates responsible stewardship of donor contributions, reinforcing donor trust and your nonprofit's reputation.
We’ll walk through key policy models and how to choose the right one for your organization in our upcoming webinar: How to Set Up a Spending Policy for Your Nonprofit Endowment. Click here to save your seat.
What Happens When My Nonprofit Doesn't Have a Spending Policy?
Some nonprofits operate for years without a formal spending policy—until something goes wrong.
Without a clear policy in place, organizations could find themselves making financial decisions reactively, or worse, under pressure. Here's what that can look like:
1. Inconsistent or Emotional Decision-Making
When there’s no shared agreement on how much can be drawn from your invested funds, decisions could default to urgency or opinion. One year you might draw 6% to fund a new program, and the next, your board wants to freeze distributions altogether. This back-and-forth can create instability and undermine long-term planning.
2. Confusion Among Board and Leadership
New board members may come in with fresh ideas or assumptions about how endowments work. Without written guidelines, you could end up spending time in meetings debating the same questions over and over: “Can we use this money?” or “How much is safe to take out?”
A spending policy acts as a neutral point of reference. It helps your leadership focus on strategy, not financial guesswork.
3. Risk to Your Long-Term Sustainability
Drawing too much in a strong market might not feel risky at the time. But without a disciplined policy, your organization could face a serious funding gap during a downturn or find itself depleting funds meant to support future operations.
Over time, that short-term thinking can chip away at your organization’s ability to grow—or even maintain—its impact.
These challenges are all too common—but they’re also preventable. In our upcoming webinar, we’ll walk you through how to set up a spending policy that’s clear, practical, and built to support your mission. Reserve your spot here.
Is Your Current Spending Policy Working?
If you already have a spending policy, now’s a good time to ask: Is it actually doing what you need it to do?
Many organizations either inherit a policy from years ago or operate under unwritten assumptions. But even well-intentioned approaches can start to show cracks over time, especially as your board evolves or your financial picture changes.
Here are a few questions worth asking.
When was the last time we reviewed or updated our spending policy?
If it’s been more than a few years, or no one remembers where the document lives, it might be time to revisit and improve your spending policy statement.
Is the policy written down—and do our board and leadership team actually understand it?
A policy that’s buried in a file somewhere (or lives in someone’s head) isn’t going to guide decision-making when it matters most.
Is it helping us balance short-term needs with long-term goals?
You want to support your current programs—but not at the expense of your future. The right spending policy helps you do both.
Does it still reflect how we think about risk, growth, and sustainability?
As your investment strategy or organization’s goals shift, your spending policy should shift too. Otherwise, it may quietly start working against you.
If any of these questions give you pause, you’re not alone—and it doesn’t mean you’ve done anything wrong. But it is a good opportunity to take a fresh look and make sure your policy is built for where your nonprofit is today.
We’re covering all of this and more in our free webinar: How to Set Up a Spending Policy for Your Nonprofit Endowment. Whether you’re starting from scratch or refining what you have, you’ll walk away with clarity and next steps.
Ready to Strengthen Your Financial Foundation?
Creating a nonprofit spending policy might not feel urgent—until the moment it suddenly is. Whether you're managing an endowment, board-designated reserves, or just planning for the future, a clear, well-designed policy gives your organization the stability it needs to make confident decisions in any market.
Join us for our free, 30-minute webinar: How to Set Up a Spending Policy for Your Nonprofit Endowment
We’ll walk you through why your nonprofit needs a spending policy, the most common models, how UPMIFA applies, common mistakes to avoid, and how to align your policy with your overall investment strategy.
You’ll leave with clarity and practical next steps you can take back to your board.
Disclaimer:
This blog is for informational purposes only and is not meant as financial, legal, or tax advice. Please seek professional advice from qualified tax, legal, and/or financial professionals before making any financial decisions.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
