Many dream of winning the lottery and using the money to help others. Besides the obvious good done by helping others, philanthropy, even on a small scale, expresses our values and connects us to the world on new terms. It delivers personal satisfaction, and, if all that’s not reason enough, there’s a tax deduction too.
But you don’t have to wait to become rich. If you think the words “philanthropist” and “small budget” aren’t compatible, you’ll be surprised.
A small budget can’t stop you
You may also be surprised to learn that extremely small-budget donors are the most generous Americans, measured by how deeply they dig into their pockets to give. Atlantic Magazine writes:
In 2011, the wealthiest Americans — those with earnings in the top 20 percent — contributed on average 1.3 percent of their income to charity. By comparison, Americans at the base of the income pyramid — those in the bottom 20 percent — donated 3.2 percent of their income.
Charity Navigator, a free online service that lets anyone scrutinize charitable organizations, compiles its own statistics on the proportion of income donated by segments of society:
- Wealthy: 3 percent
- Middle-class: 2.5 percent
- Poor: 4 to 5 percent
The generosity of lower-income donors is especially meaningful when you consider that most won’t get a tax deduction. Only a third of Americans itemize deductions and most of them are wealthy, according to FiveThirtyEight.com.
Why poorer people give more is anyone’s guess. Some speculate it’s because the need is visible all around them, and wealthier people tend to live and work in more isolated communities.
Start where you are
How much can you really afford to give? The question is best answered with a budget.
(There are lots of great tools for keeping a budget these days. Our favorite is our partner PowerWallet.)
The guidance from Jesse Mecham, founder of the budgeting software and education site You Need a Budget, is to use your budget to identify and fund non-negotiable basic expenses before spending money on anything else:
You have to cover your immediate obligations—the non-negotiables — first. And then you have to think through your True Expenses — larger, less frequent expenses that you have to plan ahead for. We teach people to break True Expenses up, and treat them like monthly bills. So, Christmas, for instance. It comes every year. If you set aside $100 every month, when Christmas comes you have $1,200 just sitting there waiting to be spent without guilt or stress or relying on credit cards. This works the same for insurance premiums and car repairs and vacation funds.
After you’ve covered those basics you are free to set priorities for the rest of your money. Those priorities are different for everyone. They could include philanthropy, recreation, investing, entertainment, etc. — whatever matters most to you. Says Mecham:
The money that is left over, after obligations and True Expenses, is where you start making decisions about priorities and what is really important to you and what you want your money to do.
Mecham and his family put giving at the top of their priorities. “I think there are intangible rewards to giving back, but that shouldn’t be the motivation,” he says.
If it is important to you, more important than other things, you will be able to start funneling money toward that priority. And don’t be afraid to start small. Giving is a muscle and the more we do it, the more it grows, and the easier it becomes. Start small and be consistent. Get in the habit of putting a little bit of money toward giving every month, even if it is a very small amount.
Micro-philanthropy, the practice of giving in small amounts, lets you scratch the giving itch even when your budget is tight. Technology has made it easy for charities to accept and process small contributions — making it easier than ever to give.
Donating small amounts when making a purchase is familiar to many of us. For a few examples:
- Round It Up America: This charity, which funds other charities, takes the collection jar next to a business’s cash register to the next level. Many chain restaurants use it to help diners make small donations as they pay their bills. The money collected goes to food banks, homeless shelters and other charities.
- Checkout charity: Grocery shoppers often encounter “checkout charity” campaigns that suggest they add spare change to their grocery receipts. These campaigns have raised nearly $4 billion in the last three decades, says the Chronicle of Philanthropy.
- eBay Giving Works: This interface allows both buyers and sellers give to causes while conducting transactions.
New giving tools
Charities as big as the American Red Cross and as small as a local homeless shelter are using Twitter and texting to amplify their appeals. Immediately after the Haiti earthquake in 2010, the American Red Cross asked donors to text the word “Haiti” to 90999 to give $10 for relief and recovery. Three million people gave, totalling over $15 million.
Other tech-driven giving tools:
tinyGive: This platform that connects donors with charities. Registered users can tweet donations as small as $1 to participating charities. tinyGive makes it simple: “Just include the @organization you’re giving to, the amount (e.g., $5), and #tinyGive. We’ll handle it from there!”
DonorsChoose.org: American teachers post requests for donations for their classroom projects. Donors select which to help fund with gifts as small as $1.
GlobalGiving: This organization provides a platform for crowdfunding for small organizations engaged in education, training, environmental preservation, education, and feeding and housing people. Individual donors can direct their dollars to individual projects that are posted by the various organizations.
Charity Miles: Through an app downloaded to your smartphone, you give to a cause of your choice as you run, walk or bike. You’ll feel good from the exercise and from the contribution you make with each mile.
Get a tax deduction
The IRS deduction for charitable contributions is a helpful incentive. Here’s how it works: If you donate $1,000 and pay a tax rate of 35 percent on your last dollar of income, the donation reduces your tax bill by $350. File tax Form 1040 and itemize deductions on Schedule A.
A few tips:
- Be sure to donate to organizations that have IRS tax-deductible status. Learn more from Money Talks News’ “6 Tips to Donate to Charity the Smart Way,” the IRS’ “Eight Tips for Deducting Charitable Contributions” and Charity Navigator’s “Tax Benefits of Giving.”
- If you benefit from your gift — say you purchase a ticket to a charity dinner, for instance, or buy something at a charity auction — subtract the “fair market” value of what you received (the cost of the meal or the auction item you purchased) from your deduction.
- Gifts to individual people and to political candidates or political organizations are not eligible for a deduction.
- Keep receipts so you can support your claims should the IRS audit you.
Know where your money’s going
Finally, don’t be shy about demanding results from charities. Ken Berger, president and CEO of Charity Navigator, tells Fox Business:
All charities are not the same, and we need meaningful evidence of results. Wealthy people are pushing for this, but also young people, entrepreneurs — they want to see meaningful changes in people’s lives.
What’s your approach to charitable giving? Do you have experience with these new vehicles for giving? Share with us in comments below or on our Facebook page.