Charitable Giving Deserves A Place in Every Budget

Like other personal finance goals, radical generosity starts with discipline

My wife and I recently participated in a panel discussion at our church on the topics of charitable giving and radical generosity. Although we’re still newcomers ourselves on the journey of generosity, I realize in retrospect that we might have made it feel impossible.

Specifically, we spoke too much from a place of wealth. We wanted our experience to be encouraging, but with one other high-income couple on the panel, we overlooked financially struggling families. I fear we alienated and maybe even discouraged some people by making radical generosity look unattainable.

It reminded me of feedback a co-worker gave me on The Rich Fool blog when I first launched the site. He loved the idea — balancing financial independence with radical generosity — but wondered how my advice applies to a 20-something digging out from under student loans. How could he possibly make room for generosity when still getting his financial footing?

In both cases, the conversations challenged me to make generosity more relevant to everyone, regardless of income.

Making Generosity An Attainable Goal

How do you approach charitable giving in your personal finances?

— The Rich Fool (@therichfool) April 14, 2018

A similar gap exists in the financial independence movement. On the one hand, you have personal finance bloggers who have already arrived giving advice from a place of wealth. They write about stock investing, real estate and passive income strategies. On the other hand, you have bloggers chronicling their journeys to financial freedom from a place of negative net worth. They write about budgeting, frugality and debt reduction.

There’s room for both perspectives, but those who have reached financial independence run the risk of appearing out of touch. Wealth makes it difficult to stay empathetic to those still aspiring to the same goal.

The same challenge applies to generosity. Although my wife and I increased giving dramatically last year in response to rapidly rising household income, we planted the seeds long ago when living on modest salaries. Radical generosity is a journey that starts with small steps, and I don’t want to ever make it feel out of reach. It’s an attainable personal finance goal at all income levels, but it requires an intentional approach to budgeting that creates room for increasing levels of giving over time.

Charitable Giving Starts With Financial Discipline

The financial independence movement excites me and gives me pause. I love the idea that cutting waste from our lives leads to financial freedom, but I worry that an overemphasis on saving results in hoarding. Generosity acts as the counterbalance, which is why I now prioritize saving and giving equally in my budget. We’re in a career stage of wealth accumulation where we can afford that mix.

But our generosity didn’t start there. We have remained disciplined in our giving, especially during tough times, including an unexpected job loss six years ago. Then, during seasons of abundance, it became much more natural to give extravagantly.

I’m convinced personal finance is most powerful when it enables and empowers generosity, so I’m committed to making giving accessible to all. Here’s how you can make room for charitable giving in your budget and climb the ladder of generosity.

Budget something, even if it’s small

Generosity must become a habit, just like other areas of personal finance. That means your budget should include a line item for charitable giving, even if you start with a small amount. If you introduce giving into your budget when there’s not much room, the practice will stick, and you’ll grow in generosity. But if you delay generosity until you can give from a place of abundance, it will be much more difficult to scale giving with income.

The key to a generous life is making a commitment from the beginning, not only when you can comfortably afford it. Even if you start with only 1 percent, you’ve opened your budget to the possibility of increased giving in the future. If you can’t afford to budget for charitable giving, then look for opportunities to give spontaneously and work toward recurring donations.

Increase giving incrementally

Once charitable giving owns a permanent place in your budget, find ways to increase your giving rate. If you get a raise, consider bumping it up by 1 percent. If you cut expenses, consider whether you can split the extra cash between saving and giving. A higher income and lower spending both act as powerful levers for generosity.

It’s important to set a giving goal. I believe 10 percent of income is a great target, and it’s not just because I practice tithing. Organizations like Giving What We Can encourage supporters to give that amount because it can make a significant difference in the world. For example, the organization’s “How Rich Am I?” calculator tells me that 10 percent of my after-tax income could buy 3,413 insecticide-treated bed nets — the equivalent of saving three lives.

If you can’t give 10 percent now, create a plan to get there. Then push the limits. We bumped our church tithe to 11 percent this year, and we hope to increase that percentage every year. Just like anything in personal finance, the journey of generosity consists of slow and steady progress.

Push the limits on generosity

Once you reach your baseline giving goal, look for opportunities to go above and beyond through extra one-time or ongoing donations. Because budgeted giving makes you feel like you’ve already checked the generosity box, these extra gifts stretch you.

In addition to our tithe, we occasionally support other people and causes through one-time gifts or short-term commitments. Over the years, that includes $100 gifts for hurricane relief, $100/month gifts to non-profit workers who raise their own salaries, and a three-year commitment to a church building campaign. Last year, we donated $10,000 to a missionary friend who quit his job, sold his house and moved his family to northern Africa to promote literacy and education. It was by far our largest-ever donation, and it took a huge step of faith. That gift pushed our total giving rate on gross income to 16 percent in 2017.

This progressive approach, where we increase charitable giving over time, causes us to look for needs and more giving opportunities. It turns generosity into a mindset and way of life instead of just a budget line item.

That mindset extends beyond charitable giving. We find ourselves being more generous to people around us, such as giving our nanny a raise when we get one. When the lines between generous giving and generous living start to blur, generosity becomes a way of life.

Set financial finish lines and give away the rest

Few people reach the highest rung on the ladder of generosity, or even consider it: setting financial finish lines. The concept calls for self-imposed limits on income or net worth, with the idea that you donate the excess. As an example, you might decide to live on $100,000 a year and give away the rest. Or set a net worth cap of $3 million and give away anything above that.

This is where generosity really gets radical.

I’m not quite there yet, but I’m working on it. My wife and I set financial finish lines for retirement and college funds based on what we estimate we will really need, rather than maxing out. This created room in our budget for additional donations, so we’re matching saving and giving dollar for dollar this year. We deposit the extra charitable donations into a donor-advised fund, where it will accumulate until we decide as family where to direct the grants.

I’m still working on the net worth finish line, and I don’t know yet where to draw that line. But based on my definition of rich, we will eventually reach a place where we have enough money and don’t need more. At that point, generosity will become the budget priority and prevent me from turning into a rich fool who hoards wealth.

Take the First Step on the Journey of Generosity

Anyone can practice generosity at any income level because giving starts with the heart, not the dollar amount. A small donation from a tight budget means just as much — if not more — as a large gift from excess wealth. It’s the sacrifice that counts the most; in fact, if you’re only giving out of abundance, then it’s not really sacrifice at all.

I know generosity feels like an insurmountable challenge when the budget is tight. But I agree with Dave Ramsey that giving deserves a permanent place in your budget, even when you’re in debt. The habit of giving forces spending discipline in other areas, which counter-intuitively improves your overall finances. Generosity serves as a guard rail that limits materialism. It forces you to prioritize.

All personal finance success begins with goals, whether it’s paying down debt or pursuing financial independence. It always starts with a plan and progresses incrementally toward the destination.

It’s possible to apply the same discipline to charitable giving. Take the first step and start your own journey of generosity. You might be surprised where it takes you.

How do you approach charitable giving in your personal finances? Let me know in the comments!