How Much Can You Really Afford to Give?
If you're under 50, finding your philanthropy comfort zone is challenging. Here are some guidelines for making your giving more manageable and effective.
You've been dutifully writing an annual check to your university, church, library, or women's shelter for ten years or more, and they've lately been asking you to consider making a bigger gift. You'd certainly like to, but how much of an increase is appropriate and sustainable? Most importantly, will it be a drain given your financial commitments and your long-term wealth management plan?
Finding a comfortable balance between providing for yourself and your family, and pursuing your philanthropy, can be especially tricky if you're under the age of 50. That's because the most common giving strategies are tied to estate planning and targeted to people closer to your parents' ages. If you raise the issue of gifting with your financial advisor or attorney, he or she is most likely to start talking about remainder trusts and tax reduction strategies; issues that may not necessarily be a priority for you.
Younger, wealthy donors regularly face these questions of how much to give, and feel them more acutely in a dragging economy. Sixty-three percent of wealthy individuals in America say that, due to their relative financial security, they feel an obligation to contribute to their communities, according to a study conducted by Harris Interactive on behalf of Community Foundations of America and HNW Inc., a marketing and communications consultancy. But most of these people also feel they need more money than they have now in order to feel very secure.
For younger donors, finding your philanthropy comfort zone is more art than science. Still, it doesn't have to be complicated. Here are a few strategies to help you find it.
Draw up a philanthropy budget
In your 30s and 40s, you're generally still accumulating assets, not giving them away. So most of your giving is going to come out of your income.
Benchmarks for giving are usually based on total income; for instance, your church might suggest that you donate 5% of your salary every year. But financial planners say it's more realistic to confine your philanthropic activities to the disposable income category of your family budget.
To find out how charitable you can really afford to be, Brian Sullivan, chief investment officer with Fiscal Dynamics, in Farmington, Connecticut, suggests a back-of-the-envelope look at your finances. "Define your standard of living," he counsels. "Look back and see how much you made last year and how much your fixed expenses were. Add on what you aim to put aside for retirement, college funds, and any other savings goals.. What's left over is your disposable income, and it's up to you and your family to decide how you want to spend it or give it away.
"Once you've preserved what you feel you need for yourself and your family, then it's a matter of stepping back and asking yourself, "Monetarily, how much is enough for me." Taken literally, the answer will tell you how much you're comfortable donating in a given year.
Keep your giving plan manageable
Once you have a number in your head, financial advisors suggest drawing up a two-to-three-year plan for putting it to work.
Even if a younger person is affluent, he or she can't draw a straight line from their current situation into the future. The stock market, your job, or your family situation can evolve in many ways. But if you have a charitable inclination and want to do more, knowing you'll reevaluate that decision in two years, and adjust up or down if necessary, makes it easier to take that step.
Once you've crunched the numbers and figured out which organizations you're most interested in supporting, it's okay if you're not inclined to increase your philanthropy budget. When you're young, getting into the habit of giving is more important than how much you give.
Adapted from an article for Community Foundations of America, Copyright 2005.