Money is scarce, inflation is high, and talent is expensive. These global challenges impact organisations universally. As a follow-up to our previous article on how inflation in general will affect your budget, this article highlights the key benefits of establishing an emergency budget fund within your political party.
Financial stability: the core benefit
First and foremost, an emergency fund offers an additional layer of financial security. And we can all see that the value of stability has risen significantly in recent years. The ability to reduce or at least control risks, particularly from a financial standpoint, cannot be overstated. Having an emergency budget fund in place can assist ensure that your party remains financially stable, even in the face of unforeseen occurrences or expenses. This can provide you with consistency, and even a competitive edge over other parties in your area, and ensure that your organisation is able to continue its operations, even through difficult times. And most politicians would agree that being one step ahead of your opponents is always a ‘nice-to-have’.
Readiness for unforeseen expenses
An emergency budget fund allows quick and effective response to sudden financial needs, whether it’s a change in government legislation, a sudden drop in fundraising, or unexpected legal fees. Other than consistency and stability, this will also allow you to be able to not be extremely risk-averting in general, by putting a limit on your financial risks.
Enhanced strategic planning
With a well-managed emergency fund, your party can make more informed decisions when it comes to spending today and tomorrow. For example, your party may choose to allocate funds to a particular project or initiative knowing that it has a source of funding that can be used in case of an unexpected event. It also allows you to stay out of debt! Unexpected things can happen all the time, but if you choose to plan ahead and put away savings for a ‘rainy’ day, you’re able to avoid future costs, especially considering today’s extremely high-interest rates. As such, it also helps your party ensure long-term financial health, and provides better credit scores, in case you ever actually will need to go into debt in the future for bigger projects. Better credit scores, lower rates, less spending, more saving. This could be a classic example of a “virtuous financial circle”.
And when it comes to the size and the source of the fund that you are about to set up, it’s also great to go strategic with your planning – and also creative. You can allocate 5% of your membership fees towards the emergency fund, and you should even be public about this to your members. Even if you would have to raise the member fees by a small percentage, surely they would be happier to chip in, once they know the exact destination of that additional income.
Another smart way of raising money is by issuing external membership cards – that provide extra exclusive access to some of your events, merchandise or even one-to-few meetings with your leadership team. Thereby you not only open up a new stream of revenue, and make external people who are not party members literally invested in your success, you can also open up additional channels of communications with your voter base. Just make sure you communicate this in a way that you don’t appear to be only communicating through these channels – to avoid the appearance of elitism.
And how big should your emergency fund be? The best way would be to check what your biggest unexpected expense in the last couple of years was, or if you are a brand new party, do some comparisons with other parties in your region. And create a fund that is large enough that you can take out an emergency loan against that if needed. That means that you do not have to have 1 million euros extra lying around in your budget at all times. But your party should be able to take out a loan of that size, at any time if needed.
Establishing your emergency budget fund
Creating an emergency budget fund is essential for financial resilience in political operations. Here’s how your party can set up this crucial safeguard.
- Review your current financial assets: before creating new guidelines and plans on how to save further funds, it is important to review what you have already readily available. These might be allocated but unused funds, or any other types of frozen and liquid assets.
- Find the perfect form for your emergency budget: financial assets can take many forms, and it is crucial that you find the one that fits your party’s needs the best. You need to find a delicate balance between how liquid but at the same time separated it should be, as well as the form of investment: between profitability as well as stability. In this case, the safer the better – although your emergency fund should take the form of some investment, you should keep its risk status to an absolute minimum.
- Set up streams of revenue for your new fund: once you find in which way it should be, setup regular streams of revenue that would be allocated to the fund. Whether it’s a certain percentage of your membership fee, or one or two regularly occurring income that is solely dedicated to this (eg. as the annual January state subsidies) make sure that you have a dedicated source that will feed your new emergency fund in a reliable way.
- Be transparent and communicate clearly: make sure you let your party membership know about your new plans for the emergency budget, and explain the reasons behind them. Having an undisclosed fund within your party would definitely open the door to wrong kinds of questions later on, so transparency is your best friend in all of these financial matters.
- Regular review: after all those previous steps, set up an annual review process, where you discuss within your leadership team the performance of your fund, and whether its size and form still serves the purpose that you initially created it for.
Final thoughts
Planning ahead is not easy, and managing finances doesn’t come naturally to everyone. But as our world has become very uncertain – although some would argue it has always been – having an extra protection layer around your finances is probably a very prudent thing to do. By having an emergency budget fund in place, you and your party can be better prepared to respond to unexpected challenges and maintain your ability to carry out your objectives and long-term mission.
