If your definition of financial independence or freedom includes sharing your financial assets with others, you would be well served by creating a strategy, a charitable giving strategy. Download our charitable giving checklist at the end of this article to help you get started with creating your own plan.
You may also find these five steps helpful in getting started. Carrie Schwab-Pomerantz has authored an excellent article, excerpt below:
Step 1. Identify your goals
There are hundreds of well-deserving causes—homelessness, the environment, refugees, medical research, arts and humanities, and social justice, just to name a few. How can you decide where and how much to give?
First, find your focus by thinking about why you want to give. Make it personal. What passions and interests motivate you? How does supporting a particular cause reflect your values? Talk to your family and involve them in the decision. If you have children, including them in your giving strategy can lead to new ideas and be an inspiration for them—and you.
Next, narrow down your options to five causes you connect with most. It can help to write a statement about why you want to support each cause and how. This type of values-based giving can make your donation more meaningful and personal, and it can motivate you to continue to find new ways to give.
Step 2. Establish your giving structure
Next, decide what types of assets you will give. It can be cash or goods (like used clothing or furniture), as well as real estate or appreciated securities. Donating appreciated assets held for more than one year—including publicly traded stocks—can be particularly effective, not only helping you save on taxes but also netting more to the charity. The type of asset you give and the type of charity you donate to determines the tax deduction. Certain charities like 501c(3) organizations are eligible for tax-deductible donations, but there are annual limits to charitable deductions.
Before making your donation, it can be wise to talk with a financial advisor or tax planner. You can give directly or establish charitable-giving vehicles like a donor-advised fund (DAF), a private foundation, or a trust. You can also give through certain types of accounts, like an IRA, to maximize the amount you give and the tax deduction.
Step 3. Create your giving plan
Instead of focusing just on the current year, it can be helpful to set a three-year charitable-giving budget. This type of big-picture thinking can ensure that your charitable-giving goals fit in with your overall financial situation and do not jeopardize your other important goals—like retirement.
Next, do some research. With over 1.5 million nonprofits out there, zeroing in on specific organizations can be a challenge. Sites like Candid (formerly GuideStar), Charity Navigator, and Charity Watch can help you find what you’re looking for. Also, get recommendations from friends and experts who are knowledgeable about the causes you want to support. Check with your local community foundation to find nonprofit opportunities close to home.
Once you have identified the specific organizations you want to support, create a short-list, and do a deeper review to make sure there are no red flags before you contribute.
Step 4. Implement your giving plan
Think about your gift’s purpose, how often you want to give, and if there are any specific terms you want to designate. Do you want your gift to be applied to a specific purpose, or do you trust the organization to determine its best use? If your gift is ongoing, will it be monthly or annually? While taxes may play a part in how you time your gifts, some families give at specific times of the year—like Memorial Day, Thanksgiving, or someone’s birthday—to make the gift more meaningful.
A DAF can be a good choice for ongoing gifts because you can pre-fund it. Because a DAF is a charity itself, you can donate an amount now (and be eligible for a tax deduction) and make recommendations to gift to multiple charities in the future, often in amounts as little as $50. DAFs also allow you to invest and potentially grow your funds in the meantime.
Regardless of how you give, keep track of your gifts (a DAF will do this for you) and periodically review and refine your charitable plan. That way you can adjust your giving tactics and strategy as your life evolves.
Step 5. Explore further
Whether you’re brand new to philanthropy or a seasoned hand, keep your eyes, ears, and mind open to different ways of giving. This includes asking your employer if they match charitable donations, volunteering, or organizing a fundraiser or event to support a cause. You might serve on the board of a nonprofit or offer your professional services. Be flexible. How, where, and how much you give today may change as you and your passions and interests change.
To me, charitable giving is not only an act of generosity but a way we can all enhance our own lives. By giving meaningfully—and strategically—you can derive a deep sense of satisfaction knowing you are making a difference. Happy giving!