Is This The Year You Start A Charitable Giving Habit?

December 18, 2017

It’s the time of year for giving. In our home, as in many households, that giving includes charitable contributions. While we make some contributions during the year in response to events, we make our planned gifts during the holiday season. Here’s how we think about it:

Charitable giving is a financial habit

While I can’t prove this scientifically, I do believe that money has a “flow,” and that sharing some of the money I make with others shows gratitude for blessings in my life. In fact, giving away money can actually improve your budget by forcing you to manage your financial resources more mindfully. Making charitable gifts has always been something my husband, Steve, and I agreed upon in our relationship. In fact, when we got married we asked friends and family to make donations instead of sending presents.

How much to give

Personally, we aim to donate a set percentage of our income after taxes. We include charitable donations which are tax deductible, as well as contributions which aren’t (such as contributing to a GoFundMe campaign for a neighbor with unexpected medical bills). If you’re new to giving, start with a small percentage goal, like 1 to 2 percent of your take home pay, or 5 percent of your discretionary income.

Tax deductions

If you itemize your taxes, you may take a tax deduction for money or property donated to a qualified organization. According to IRS guidelines, you may generally deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases. Don’t forget to print out copies of the donation acknowledgements – you’ll need to save them in case your tax return is audited.

Where to give

Where you give is an entirely personal choice. If you’re new to charitable giving, consider asking yourself, “what problem do I most want to help solve?” as a starting point for your research. You may make more impact by making larger contributions to fewer organizations. Set some guidelines for yourself. For example, we focus our giving on education, international health and food security.

You’ve got plenty of charities to choose from. According to the non-profit directory Guidestar, there are 1.8 million IRS recognized non-profit organizations in the U.S., including 501c3 registered charities and other nonprofits. Some people give a set percentage to their religious organization. It’s a good idea to check out any organization on Guidestar or Charity Navigator to see how well they make use of donors’ contributions.

Giving stocks or mutual funds

Lucky enough to have bought Apple stock fifteen years ago? Give some shares of that instead! If you have stocks or mutual funds which have appreciated in value, donating shares instead of cash allows you to make the deductible donation without paying taxes on the capital gain. See IRS publication 526 for all the rules.

Check for matching donations

Chances are, if you work for a larger company, your employer will match employee charitable contributions, up to a certain dollar limit. Some employers have guidelines for what types of contributions they will match, so check your benefits website for more details.

When you can’t afford to give much – or anything

If you’re buried in student loans or credit card debt, or at a place in your life when you just don’t have any surplus income, please give yourself permission not to make donations. If you can swing it, give your time instead. Most of those 1.8 million non-profit organizations run on a combination of contributions of both money and volunteer effort. Don’t know where to start? Check out VolunteerMatch or Volunteer.gov.

The bottom line? Giving is habit worth developing.

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How Giving Your Money Away May Actually Improve Your Budget

November 28, 2017

You may think I’ve gone crazy or made a HUGE typo by suggesting that giving your money away could actually lead to more money, but I really mean it. Some people can actually help their ability to budget by being generous with their money. Here are several reasons to be generous this giving season:

Taxes

This may be obvious, but charitable giving can reduce your taxes, which may put more money in your pocket. If you itemize your deductions on your income tax return, then you can get a tax break for every dollar that you give to charity – as long as you have a receipt or proof of your donation.

That’s one thing to keep in mind when giving money away — by making bigger contributions by check or debit card where you get a receipt, you’ll get a bigger bang for your buck than by giving a couple of bucks in cash to several organizations here and there.

Just like anything else, the more you focus on the things important to you, the better results you will get. By finding causes that really resonate with you and supporting them to what you feel is a significant degree, you will get more tax benefit and more emotional satisfaction than randomly throwing money here and there.

Going big

Charitable giving to high levels, such as the Biblical principle of tithing or giving away 10% of one’s income, forces you to be accountable for every other penny you have because so much has already gone out the door. I’m not suggesting that your giving be restricted to religious organizations (nor am I promoting a religion), I’m just pointing out that the concept has been around for a long time.

If you are paying your taxes and then giving away another 10% to the charities of your choice, then you will have to prioritize the other dollars that you keep. Sometimes people find that by prioritizing the remaining 90%, they actually spend less and save more than when they have the full 100% available to them but don’t track where it’s going because they are always getting by. Here’s what I mean.

Scarcity often leads to better use of what we have

My wife recently completed graduate school to become a Nurse Practitioner. While she was in school, she continued to work full-time (3 days, 12 hours per day) while doing 2 days per week of shadowing in a medical practice, PLUS 1 day a week in class. Somehow through it all, she managed to continue being an amazing Mom to our kids and partner to me. We talked about her cutting back to part-time at one point, but she wasn’t sure it would help. When I asked her why, she said, “All that would mean is that I’d have a day to sit on my backside and watch TV. As crazy as this schedule is, I am so much more productive because I know that I have to be.” I think the same principle can often apply to our money.

Giving leads to gratitude which leads to greater performance

One other way that being charitable helps is that it makes us feel better about other people, ourselves and what we have. When we are focused on what we don’t have, are we really doing the best job we can for our current employer or do we have one foot out the door? If we are truly thankful for what we have and focused on doing the best job possible, that often translates into better job performance. While there are no guarantees, over time better performance usually leads to more pay and better earning opportunities.

So we’ve seen that there are tangible and possibly some intangible benefits to being generous with our money. If I’m right, then hopefully you will end up with a better bottom line even though you are starting with less. If I’m wrong, then you will have a little less money, but the world, and you, might be changed for the better. Is that a bad thing?

Reasons to Stay Away From a Roth IRA

July 01, 2013

Roth IRAs are not a secret anymore since they first became available in 1998 as a way to use after-tax money to save for retirement. The biggest benefit is that as long as the Roth IRA account has been open for 5 years and withdrawals take place after age 59 ½, you never have to pay taxes on the earnings (contributions are always accessible without taxes). Tax-free earnings growth has a lot of appeal for younger generations and people not in their peak earning years who expect to be in a higher tax bracket during retirement. Continue reading “Reasons to Stay Away From a Roth IRA”

A Financial Yardstick for Everyone

March 27, 2013

One thing I’ve come to learn after being on the financial helpline for 6.5 years is that some employees simply want to know how they are doing relative to everyone else. No matter how I try to encourage them to consider themselves and their circumstances unique, human nature drives us to want to know if we are ahead, behind, or in line with our peers. We crave some type of yardstick to know if we are measuring up. Continue reading “A Financial Yardstick for Everyone”