Nonprofit leaders wear many hats: visionary, fundraiser, manager, steward, just to name a few. But when it comes to financial literacy, even the most seasoned executives can feel uncertain navigating investment terminology. Yet the ability to understand and speak the language of finance is essential to leading a healthy, sustainable organization.

You don’t need to be a Wall Street expert to make smart financial decisions. But you do need to grasp the core concepts that guide your nonprofit’s financial health, especially as more organizations move beyond basic budgeting and into strategic cash management, investing, endowment planning, and reserve building. 

Whether you're sitting in a board meeting discussing risk tolerance or reviewing your nonprofit's liquidity with a financial advisor, the right vocabulary empowers you to ask better questions, make informed decisions, and protect your mission for the long term.

This post breaks down 10 financial terms every nonprofit leader should know with no jargon, just clear, mission-focused definitions that connect to your everyday work. From understanding your time horizon to setting an effective asset allocation strategy, these foundational concepts will strengthen your ability to lead with confidence and clarity.
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‍Let’s dive into the 10 financial terms and tools that can help your nonprofit thrive

1. Asset Allocation
How your investments are divided across different asset classes (like stocks, bonds, and cash). It’s key to balancing risk and return based on your goals and time horizons.

2. Diversification
‍Spreading investments across various assets to reduce risk. A diversified portfolio protects your organization from being too dependent on one type of investment.

3. Endowment
There are multiple types of endowments that are a permanently or temporarily restricted pool of funds intended to support your mission over the long term, often invested to generate income.

4. Investment Policy Statement (IPS)
Your nonprofit's IPS is a governing document that outlines how your organization will manage and invest its assets. It aligns your financial goals with your mission, board oversight, and risk strategy.

5. Liquidity
How quickly and easily assets can be converted into cash without losing value. Liquidity matters when determining how accessible your funds are for short-term needs.

6. Operating Cash Flow (OCF)
The cash generated or used in day-to-day activities. Understanding your cash flow helps you plan reserves and avoid overextension.

7. Reserves
Set-aside funds that act as a financial cushion for future needs, emergencies, or strategic opportunities. Strong reserves signal organizational health and stability.

8. Risk Tolerance
The degree of variability in investment returns your organization can withstand. It’s shaped by your mission, board expectations, and financial timeline. Your nonprofit investment advisor can help guide you on the various risks.

9. Time Horizon
The length of time you plan to hold funds before needing them. Matching investments to their time horizon helps guide smart allocation and risk tolerance.

10. Yield
The earnings generated from an investment, usually expressed as a percentage. Yield helps nonprofits understand how their money is growing over time.

Ready to learn more?

Schedule time with an Infinite Giving advisor to discuss how we can help set your nonprofit up for financial success.