I’m happy to announce that my buddy Michelle agreed to write on MoneyNing from time to time. Please help me welcome her by commenting below. From now on, the author of the posts will be noted below the title so you won’t think something is wrong when I comment on my own post! 
In the U.S., almost 90% of households make donations to nonprofits or charitable organizations.
If you think about it, the number isn’t too surprising. Most people are very generous, and the abundance of telethons, charity galas, raffles, etc., doesn’t make for a lack of opportunities to give.
Maybe you already give a lot of thought to charitable giving. After all, making donations is as much a part of personal finance as paying bills and allocating recreational spending. Perhaps you set aside a portion of each month’s paycheck for your favorite nonprofit or your place of worship, or maybe there’s an annual fundraiser that you never miss (who doesn’t love a good dunking booth?).
Or, perhaps you classify yourself as a spontaneous donor: someone who gives on impulse and usually in response to a pressing need.
Both ways of giving are great and are acts to be commended. But if you do want to put more thought into your charitable spending decisions, here are a few suggestions:
- Keep Records. If you engage in spontaneous giving, try to track gifts you make just as you would regular expenses. This will help you understand how often you are giving, the amounts of your gifts, and the causes that most excite you. Once you have a few months or a year of data, you can try to allocate a monthly or annual spending allotment for charitable giving.
Last month, I made a small contribution in memory of a coworker’s mother who passed away and another to a relative who is participating in a walk-a-thon—two classic examples of spontaneous giving opportunities. While I can’t always predict the donations that I will make in a given month, my historical data suggests that it’s a good idea for me to set aside $25 or $50 in my monthly budget just for this purpose. This way, I know that I have the resources to make a gift when I want to.
- Understand Why You Give. People donate for a variety of reasons, but understanding your reason can help you become a more thoughtful donor. Maybe you routinely support causes that your friends and family members work for; perhaps you’re interested in the tax benefits of giving; or maybe you are trying to achieve a specific result from your giving (e.g., you have a vested interest in reducing violence in your community or finding a cure for a certain disease). Once you figure out why it is that you’re giving, you can give more thought to how (and how much) you give.
For the most part, I am a results person. I am always fascinated to know how many kids were tutored or how much cleaner the air is because of my contribution. This kind of knowledge gives whole new meaning to a dollar amount and makes me think much more carefully about how I give.
- Know that Thought Isn’t Always an Option. Nor should it be. Ultimately, people don’t make charitable contributions because of tax benefits; they make them because of passion and a desire to do good. You wouldn’t go out of your way to donate some of your hard-earned income unless the gift was for something or someone you truly cared about. So, don’t expect to always be in a situation that allows you to analyze and calculate before hitting the ‘Donate’ button.
This reminds me of a recent gift I made when my friend’s mother passed away. I’ll be honest; I didn’t put much thought into it beyond knowing that I wanted to do something to show my friend that I cared. My emotional state combined with the ease of online giving made the decision much swifter than my usual financial choices.
But at least I know that these situations do come up and that I can adjust for my decisions accordingly once I’ve had a chance to clear my head. And in the end, I’m glad for those spontaneous giving opportunities—our ability to respond to them is what makes us human.
What suggestions do you have for more thoughtful giving? Does giving play a part in your personal finance?
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{ 19 comments… read them below or add one }
“I am always fascinated to know how many kids were tutored or how much cleaner the air is because of my contribution.”
One of my favorite books I’ve ever read (A Billion Bootstraps) is all about this topic. Basically, the authors make the case that people should seek maximum ROI for their donations, much like they do for their investments.
I’m not sure I agree with that. To think of the math of donations too much is like saying that I have to get a “thank you” from you if I ever help you do anything.
Sometimes, you should give because you CAN.
Agreed that you “should give because you can.”
But the question is where to give. There are a million different causes/charities/people to whom you could donate money. It’s impossible to give money to each.
How do you choose between them?
My answer is to try to make sure that my donations will have the most impact possible per dollar.
Your answer, of course, may vary.
Ah I think I understood your first comment.
When I saw maximum ROI, I was thinking of selfish reasons like tax deductions and such when I think you meant “where it will do the most good”.
I think it’s important to pick a charity with a purpose that you TOTALLY agree with. Like many other aspects of life, it’s unlikely that you will find “THE BEST” option but merely finding a “GREAT” one is good enough.
Ah. Perhaps I should have mentioned that in this case the “R” part of “ROI” is not measured in dollars.
You both make good points.
People give for lots of different reasons. As someone who works in the nonprofit sector, I’m just glad that they give.
But it definitely works well when a very passionate donor picks an organization/purpose that he totally agrees with and can spend money and time to make sure that his gift makes the biggest difference.
And absolutely–”great” is good enough.
That sounds like a great book! Business-oriented folks who like to view their donations as investments should check out innovative giving resources like kiva.org that allow you to do precisely that.
My wife and I try and give regularly, and give freely. We did the math, and it comes out to be about 5% of our gross income every year for the past 10 years. Not huge, but better than a poke in the eye. If we make $500,000 that’s still $25,000 a year.
The big problem with higher taxes and lower deductions by the new admin is the fall in overall donations.
RB
People often wonder how much they should give, or what the definition of a “significant” gift is. There may not be one answer to that, but I tend to think that whatever is significant for you will surely be significant to the recipient. It sounds like you and your wife are very thoughtful donors.
And you’re right, the administration needs to understand how important it is to make incentives for donating or our nonprofits will have an even tougher time.
I feel that many people actually miss the most important step of thinking about why they actually donate. Having the ability to give is one of the most wonderful feeling in the world and those who truly understand how their giving will affect lives are also the ones who reap the most benefit. Others however who don’t know (or care) will always be the ones who ask “why should I give to someone else?”
David: “Having the ability to give is one of the most wonderful feeling in the world and those who truly understand how their giving will affect lives are also the ones who reap the most benefit.”
This is absolutely how I feel. There have been times in my life where I haven’t been able to donate – those are depressing times. The times when I have been able to give – those are indeed “the most wonderful” times.
Michelle: “it’s a good idea for me to set aside $25 or $50 in my monthly budget just for this purpose”
Earlier in the week I’d decided to set aside a certain amount every month to go into the donate/charity button. So, it’s nice to get a positive reinforcement of this idea. Good post!
I agree about giving to something you’re passionate about, even if it doesn’t have the highest ROI. Sure if you give to a large organization with high efficiencies it may have more impact, but if you give money to help buy little league uniforms or give a summer camp scholarship you should not worry about a “less meaningful” return. I think giving is as much about the giver as about the receiver through the happiness that it gives us in return.
Your right and to those little kids it is very meaningful!
It’s nice to know that others do this as well. Thanks for reading.
Wow there really are alot of great causes out there you can donate to. When I give the thought I want to have is that my money is getting to the people that need help. That means the I try to stay away from the biggies like St. Judes, PETA, Red Cross etc… Not that they aren’t great causes I just think my money will go further in a smaller organization.
Frankly, Michelle. I’ve prepared an amount of money (It’s more than thousands for sure) for the donation every year. However, I never record the total amount of my donation, as I think we don’t have to do it, since it’s mainly for the charity stuff!
I started by giving back to people who had given to me (public TV and radio, state parks, and the local wildflower center).
Then I just picked a percentage figure. Part of me thinks all the money I don’t absolutely need for myself should go to those less fortunate. Part of me wants all my money for myself. (I compromised on 10%–it’s far less than I could give, but more than most give.)
Then I decided to figure out which causes are most important to me. (I picked saving the earth; reducing poverty; and reducing pain, abuse, and torture.)
Then I tried to look at my philosophies of how to attack these problems. (I decided I preferred trying to solve (or prevent) problems over short-term fixes. I also prefer providing resources to let people take action over legislation to make people take action, although I am reconsidering this for certain areas where such force doesn’t make people do what they don’t want to do so much as just the playing field. For example, I think I might like to legislate reduced pollution–if everyone has to do it, no one company will be at a disadvantage for trying–in a way I would never want to legislate birth control.)
Then I try to find organizations that are finding ways to do these things efficiently. Even 10% of my income really isn’t that much money, and I don’t like feeling like it’s not enough to do anything.
This makes things very difficult for me! I never have enough information, and I hate how I feel when reading about charities and deciding against them!
“Even 10% of my income really isn’t that much money, and I don’t like feeling like it’s not enough to do anything.”
I honestly think that all donors feel this way, and I mean everyone from minimum wage earners to Bill Gates. Do anyone ever really feel like they give enough or as much as they’d like to give? Last I checked, the world still has a ton of problems. Even Mr. Gates probably has charitable ideas that he can’t accomplish because the resources aren’t there or the circumstances aren’t right. But that doesn’t make his contributions (or yours) any less worthwhile.
You obviously put a lot of thought into your giving already, but you also say that you never have enough information. If you live in a city that has a community foundation, you might want to consider contacting it. Community foundations are places where the public can pool their financial resources for the good of their communities, and a well-staffed community foundation usually has several resident experts who have worked in the nonprofit sector and can help you make smart decisions about where to direct your money (kind of like a financial adviser for charitable giving). Community foundations can also help you manage the administrative functions of your giving with greater efficiency. They are invaluable resources and usually a great way to become a more involved donor, if that’s what you’re looking for.
If you don’t have a local community foundation, you might contact the nearest one, or you could consult a variety of research sources: your library, the internet, a local academic institution, or the charities themselves. The more you understand, the better you’ll feel when you do have to decide against a charity because you’ll have a specific reason. And you might even be able to offer some constructive feedback to the charity to help them improve and get into a position where you would consider donating to them.
Interesting. I’ve never heard of community foundations. And my city actually does have one.
However, my community is in really good shape. Even in this economy, unemployment is relatively low (we have a large government sector) and housing prices have been almost stable (though houses are taking longer to sell). We already have lots of people working on local environmental issues. And of course people get cancer and heart disease, but mostly not until they’ve already lived many wonderful decades. I’d just rather help third-world people start their own business or help buy ecologically valuable land than to help local kids join the debate team or help our libraries to be even better.
Actually, I have been learning that some environmental issues are best addressed by small, local groups and I haven’t found a way to help fight abuse besides local groups, so maybe I’ll check them out after all. Thanks for the idea!