Understanding the Impact of the Spending Policy

This document is a research article that outlines the components and implications of spending policies for not-for-profit organizations. It emphasizes the importance of establishing a formal spending policy to balance current and future community needs. The article details two key components of a spending policy: spending rate and spending methodology. The spending rate is defined as either a percentage of assets or a fixed dollar amount, while the spending methodology describes how this amount is calculated. The article discusses how these components impact the sustainability of the asset pool and the interests of both current and future beneficiaries. It also highlights the need for fiduciaries to coordinate spending rates with portfolio returns to ensure a balance between immediate support for current beneficiaries and long-term growth for future generations. The document aims to provide a framework for not-for-profit fiduciaries to craft effective spending policies that align with their organizational objectives.