If you’re a Millennial, you’ve probably grown weary of the cliché labels of entitlement that have been placed on your generation. In fact, major media outlets such as Entrepreneur, CNBC, and the Washington Post have challenged this mindset by reporting that Millennials – the generation which brought us crowdfunding – are among the most generous groups in history.
It’s understandable that for the first few years out of college, recent graduates must often conserve finances to meet the basic budget requirements of their newfound independence, such as rent, car payments, student loan payments, and day-to-day expenses. However, once young professionals get settled in their new lifestyles and see their careers (and salaries) begin to accelerate, they are finally able to start directing more of their income to savings, investments, and charitable giving.
We all know that charitable giving, first and foremost, helps those in need. However, did you know about the many other benefits to charitable giving, including how it can incite more meaning in your life, promote generosity in your children, encourage friends and family to donate, create potential tax deductions, and improve personal budgeting? You may be unsure of which charities to trust, what percentage of your donation is actually given to the intended recipients, or how much you can afford to give. With that in mind, you want to make sure your hard-earned money is going to a trustworthy cause that not only maximizes your dollar — but spends the majority of it where they say they do. We have you covered in this charitable giving guide — complete with budgeting tips!
Before we get started with our tips, we would like to introduce the nation’s largest, most utilized evaluator of charities: Charity Navigator. This 501(c)(3) non-profit organization aims to guide intelligent giving decisions by evaluating a charity’s financial health, accountability, transparency, how efficiently they will likely use support, their long-term sustainability, their level of commitment to good governance, and their openness with information. Since their inception in 2001, Charity Navigator’s professional analysts have worked to develop an “unbiased, objective, numbers-based rating system to assess over 8,000 of America’s best-known and some lesser known, but worthy, charities” — all in the hopes of improving the nonprofit sector’s performance. Many of the following tips come from Charity Navigator’s website. As such, their website is a great place to start your charitable giving research.
(Charity Navigator receives no funding from the charities they evaluate, and they refuse to charge users to view the data they have collected. Education Loan Finance receives no funding for mentioning Charity Navigator.)
Tip #1: Be an informed donor.
To be a smart donor, you must be an informed donor. This Top 10 Best Practices of Savvy Donors by Charity Navigator is a great place to start.
Tip #2: Find out what percentage of your money goes to the charity’s programs and services.
Finding out what percentage of your money is going to your desired non-profit’s programs and services is important! After all, that is what and who you are trying to help, right? According to Charity Navigator, “the most efficient charities spend 75% or more of their budget on their programs and services and less than 25% on fundraising and administrative fees… [but] mid-to-large sized charities do require a strong infrastructure, therefore, a claim of zero fundraising and/or administrative fees is unlikely at best.” To learn more about your charity of choice, simply type their name in Charity Navigator’s search bar. Executive compensation data can be reviewed in the CEO Compensation Study.
Tip #3: Review the charity’s financial records, transparency, and future goals.
Among other things, a healthy charity should be able to grow their revenue at least at the rate of inflation, maintain a continued investment in their programs (day-to-day and long-term), and have some money saved away. You can review such details pertaining to each charity by searching the non-profit’s name on Charity Navigator’s site, or you can request the charity’s three most recent 990 forms. Finally, talk to your preferred charity about its accomplishments, challenges, and future goals. Not sure what to ask? Consider asking these four questions before donating. If the charity is unable or unwilling to participate in any of your requests or questions, walk away.
Tip #4: Understand the different types of non-profits.
There are many different types of non-profit organization designations. Your charity’s designation will determine if your contribution is tax deductible or not. Before you donate any money, expecting a tax deduction, review this list.
Tip #5: Understand your tax benefits of giving.
Ensuring that your charity is a tax-deductible charity is the first step to receiving charitable giving benefits, but there is more you should know about charitable tax deductions before you make your donation. Your first task is to talk to your tax advisor to make sure there are no federal, state, or local tax consequences to making a charitable donation. Next, it is time to take a deeper look at the actual cost of your donation — after your tax-deductible savings are applied. For example, if you donate $100 and are in the 33% tax bracket, the actual cost of your donation is $67, thanks to the $33 in tax savings. With each and every tax bracket increase, the actual cost of the charitable gift decreases because your reward (the tax break) increases. You can read more about this, your benefits, and other great tax-related tips here, or you can calculate your savings on the Giving Calculator.
Tips #6: How much should you give?
The answer to this question depends completely on your personal budget. Different sources will recommend various percentages of your income or net worth, but the true answer lies in what you feel comfortable giving. Your task is to take a look at your budget and see if there is any room for charitable giving. If you need help figuring out how to create a budget that accommodates your spending goals, check out our blogs: “How to Write a Monthly Budget” and “How to Create a Zero-Based Budget.” Next, review the Giving Calculator to estimate the amount of your potential tax deduction, thereby reducing the actual spend of your initial contribution amount. If you still want to give more, this tax-deductible reward could change how much you can afford to give in a given year.
Maximizing the Impact: Once you identify a reputable charity that aligns with your personal convictions, you may want to consider focusing your philanthropic efforts there (rather than diversifying your allocation of charitable giving funds) to ensure that the organization you support can do more with the money they receive. Although your contribution may not fund an entire project, for most charitable organizations, every dollar helps meet a larger goal. You can always start out with a modest amount, increase your donation each year, and still feel great about putting your goodwill to good use.