SECOND BLOG: Setting Aside Our Savings for Reserves
Let me say first I am not complaining about the dues I pay in Summit House. This is to discuss how the amount of dues is decided. For many of us, our dues payment is the largest monthly item in our budget. It is important we discuss it.
It's natural for any of us to assume the way we manage our own money is the way Summit House should manage its money. It turns out this often is not true. Each of us knows, for example, the more money we save personally the better. For Summit House, too much savings, called reserves, may be a mistake.
We all hand over to Summit House some of our own savings. They are called reserves. Our Board needs some reserves to run Summit House. But more reserves than the Board actually needs is risky. Our 43 personal savings accounts are safer than one Summit House's reserve account.
Around the year 2000 a Summit House Treasurer stole about $120,000 from Summit House accounts. The checking and reserve accounts were drained. Since then, better safeguards have been put into place. However, risk of theft is and always will be present. Future Board members may not maintain the current safeguards. Every week there are local news stories of a trusted person stealing large sums from a community organization. At Summit House, we do not do background checks on Board members. They are not required to have training in financial security. People whom none of us know will move into our building in the future and become Board members. An addiction, mental health breakdown, divorce or black mail can change people. Let's be smart about this. Let's reduce risk of theft by limiting the amount of reserves to only what is needed to run Summit House.
How much is reserve is needed? In my next blog I'll explain an easy way to decide our dues and reserves.
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Comments
Although I am a huge advocate of emergency savings I tend to agree with Gary. Even our financial advisor told us we didn't need as much in savings as we thought.
Summit House does need enough to cover the cost of items we know will soon need to be replaced.
Let's not replace everything in the same year before it is necessary. I would hope everyone here at Summit House are financially conscious not to replace items in their personal units that are not truly in need of replacement - excluding if you are just updating your unit.
There are ways to protect Summit House from loosing hundreds of thousand dollars. This should not be a factor in the amount of our reserve at all.
It is my understanding that all board members as well as the treasurer are now bonded. I would like to know if Summit House has a commercial blanket bond to further protect us from the repeat of the 2000 something embezzlement.
I tend to agree with John about reserves for Summit House. I realize it's necessary to have some reserves for projects that need to be done currently and in the near future. But I don't see any reason for us to be concerned about a new roof or new elevator in the 2040's. Very few of us will be around in twenty years. The cost of those big budget items should be paid for by the people who are living here then. When we all owned our individual homes, I doubt any of us made sure to leave money behind for the new owners who might need to repaint the house ten years later. Again some reserves are good and necessary, but not for possible use in 20-30 years.