Guest post by James Nelson, MoneyCrashers.com
Charitable giving is good for your health and well-being and can ultimately lead to more financial wealth. But how much should you give?
If you give too little, you may feel bad that you can’t donate more. If you give too much, you can harm your financial situation and won’t be able to donate for a while.
The charities you choose will appreciate every penny you send their way. What’s essential is to balance your charitable giving so you donate enough to feel good but not so much you can’t sustain it.
8 Ways to Budget for Charitable Giving
1. Create a Line Item
Incorporate charitable giving into your family budget with a line item like the ones for your groceries, utilities, and rent or mortgage. By doing this, you accomplish two important things.
First, you make sure you can afford the amount you want to donate. Adding the line item into your general budget means the donation is part of your total expenses, which you can compare to your total income.
Second, it formalizes the donation in your mind. When charitable giving becomes part of your household routine, you do it reliably. It doesn’t become something you keep meaning to do but never actually do.
2. Pay the Charity First
Financial advisers constantly tell their clients, “Pay yourself first.” The idea is that, to avoid running out of money before serving your goals, you should set aside a portion of your income toward your retirement savings before paying your other bills.
You can also apply this to your charitable giving. If you make your donation on payday, you avoid the temptation to spend that money on other things.
If you wait until the end of a pay period and then donate what you have left over, there’s a chance you won’t have anything left at all.
3. Set Up Regular Payments
Charities appreciate donations of any kind, but most run on regular contributions. These reliable, renewing cash infusions are how they set their budgets and make sure the lights stay on and the staff gets paid.
Regular payments also help you since it’s easier to budget for stable and predictable expenses. Setting up automatic payments can be even better as you don’t have to remember to make the regular contributions.
Only commit to this if you have a reliable, steady income. Unpredictable income from a commissioned sales job or self-employment might not work here, as you won’t necessarily have the funds available on the day you choose to give.
You can manage your recurring donations through Every.org, knowing that they can be paused, updated, and cancelled at anytime on your My Giving page.
4. Start a Sinking Fund
A sinking fund is a savings account you create to reach a particular goal. People use them to save for a significant purchase like a new car, a vacation, or college tuition.
You can use the concept to save money toward a charitable contribution. Create a dedicated account, then put a regular amount of money into it each payday. When you want to donate, pull the money from the fund.
This method works well for households who don’t commit to a single charity or are approached for donations frequently from many organizations. It enables you to have funds to draw from and puts a cap on how much you can donate at any given time.
5. Divide Your Windfalls
This strategy is good for people who want to give but don’t have the steady cash flow to do so regularly.
Windfalls are those bits of extra money that come in from time to time, like bonuses from work, overtime pay, tax refunds, or some cash you find in an old jacket.
Whenever you get a windfall, divide it. Spend part on what you want or need and donate the other half. Your budget won’t miss the difference, and you’ll get to feel good about what you give.
6. Raise Funds
You can also find ways to generate extra cash for charitable giving. Strategies include:
- Selling unwanted stuff through a garage sale, eBay, or similar methods
- Creating a temporary side hustle by washing cars, walking dogs, mowing lawns, etc.
- Starting a GoFundMe page or other crowdfunding effort
- Gathering loose change from yourself and your friends over a set period
- Collecting recyclables to return for cash
Note: Many charities hold raffles, events with door prizes, and similar events to raise funds. Be careful before you emulate them, because these activities can be seen as akin to gambling. Laws in some areas strictly control this behavior, and you could accidentally become a racketeer. When in doubt, ask the charity for their preferences. They’ll have somebody on staff who knows the relevant rules.
7. Remember Tax Time
One advantage of charitable giving is that donations are often tax-deductible. The money you donate or the value of items you gift don’t count against your taxable income.
This frees up more money to donate in the coming year and lets you put your money toward causes you support rather than the projects government officials deem necessary.
To make the most of this, keep a few things in mind:
- Confirm the charities you support have nonprofit status and donations to them are tax-deductible.
- Get a receipt for each gift. If possible, get an annual statement as well.
- Enter your total tax deductions in the appropriate line on your tax return, or make sure your tax preparer has all the information and paperwork they need to do so.
This probably won’t be relevant to your financial situation, but the IRS puts a general cap of 60% of your gross income for deductible charitable contributions. Some types of donations, such as private foundations and fraternal societies, have a cap as low as 20%. IRS Publication 526 has more details, as will your tax preparer.
8. Remember Non-Cash Options
Although cash is the most helpful donation for the overwhelming majority of charities, it’s not the only way you can help out.
Every.org makes it easy to support charities with appreciates assets of cryptocurrency and stock or mutual fund shares, which can be uniquely tax-advantaged as you don't have to recognize capital gains tax.
Some charities, like Goodwill and ReStore, resell donations to fund their work. Others take electronics, food, and even cars to help move their mission forward. Many will happily accept your gift of time.
Whether you do this instead of, or in combination with, cash donations, the good you do won’t just help the charity. It’s often tax-deductible, saving you money.
All of the above is fine for people with the disposable income needed to make donations, but not everybody is in that position. Some live paycheck to paycheck. Others have some spare money but need to spend it toward a goal like getting out of debt.
If you want to give but can’t, many of the ideas above can also help you improve your financial situation. Use them to create a plan of moving toward being able to give. Once it succeeds, your gifting will feel that much sweeter.
James Nelson is a freelance journalist in Chicago. He has a personal plan for his charitable donations and evaluates it annually.
The views and opinions expressed in this blog belong solely to the authors, and do not necessarily reflect the official policy or position of any other organization including Every.org.