Charity and Donating

One fundamental (though not universally practiced) premise of FIRE is the absence of traditional employment. We then assume a fixed income from dividends or draw downs and conscious budgeting among FIREees. Because budgets are often tight at that point, is it still possible to continue to donate to charity?

Taking a step back, let’s acknowledge that charitable giving neither starts nor ends at FIRE. Many people actually seek FIRE with the intention of giving more time to charitable causes. Some people who’ve never been charitable reach FIRE then donate huge amounts of money to causes they believe in. This post will be more about the considerations you should make in terms of FIRE and optimizing your giving accordingly.

Taking another step back, it should be noted that many of the most visible charitably-minded folks, billionaires like Bill Gates and Mark Cuban and others at The Giving Pledge, though their contributions do enormous good in the world, are a product of a system allowing a very lucky few to accumulate disproportionate wealth while the majority of people cannot. All of us in FIRE, while we may not be billionaires, have benefited from that system (albeit not as much as those mentioned above). Because the system is stacked in favor of a ‘meritocratic’ but inherently inegalitarian accumulation of resources, there is an incredible need for those with abundance to share their time, talent, and treasure to others. Figuring out how to do so well is one of the challenges.

There are a number of high profile organizations trying to solve the problem of how to best donate your treasure:

1. Effective Altruism is an organization attempting to understand the world’s most pressing problems that also include the highest yield interventions, allowing donors to make the most impact with their donations. Effective altruism is ultimately a philosophy though the link above is to an organization. However, the organization representing the philosophy has a massive footprint. Its website has options to identify specific high-yield organizations, to give to mutual funds they manage offering larger donations to those organizations, online communities, and a variety of other programming. Worth a look.

2. Giving What We Can is an organizational derivative of the Effective Altruism movement created by philosopher Will MacAskill. It’s goal is to identify the best, most efficient and effective organizations for you so you’ll have a better idea where to donate.

3. Charity Watch is an organization calling itself “America’s most independent, assertive charity watchdog” and providing an ongoing list of charities using more than 75% of donations for programming rather than overhead. While Effective Altruism proponents might suggest charities promoting interventions providing a specific solution (malaria nets) solving a specific measurable problem (mortality associated with malaria), many of these organizations may be focused on broader problems that cannot be quantified (building infrastructure or eliminating systemic racism). Both types of programming are quite valid.

4. Charity Navigator serves a similar aggregator and evaluator function.

The problems with information aggregators aside (as in, who makes the aggregator the ultimate decider of value? Wouldn’t it be better if we could more critically assess their underlying algorithms? Who is holding these organizations accountable for objective and comprehensive analysis of charities?) these organizations are a good place to start.

However, that still doesn’t help with figuring out how to structure your donations in a fixed-income world. How much should you be donating? How often? Is it better to donate now or to donate bigger amounts later in life after compound interest does its thing? These questions lead to analysis paralysis.

Your donations will need to fit with your individual budget. Giving ten percent of your income is a common recommendation (and apparently this is the amount that will allow you to have a “clear conscience” about accumulating wealth in an inequitable world). Most charities would prefer that you do it on a recurring (monthly) basis though the reasons behind this are a bit elusive. That being said, any organization would love to receive a large lump sum payment once your investments have maximally accrued but it’s important to remember that solid charities need your financial help right now and their missions don’t have time to wait for you to be satisfied with your number.

Perhaps more important than your donation percentage or schedule is to think about how you want to engage with organizations doing things you care about. Your treasure is important but great organizations can also benefit from your donations of time and talent. Said another way, you can donate money to great organizations but you should definitely think about other ways you can augment their programming too. Helping organizations fundraise, write grants, build volunteer programs, or increase visibility through events and online presence, like compound interest, can increase your contribution dramatically. Spending time working directly with organizations you care about will build your network and lead to more interesting opportunities.

One final point to consider as you think about how to best structure your charitable donations is a donor advised fund. A donor advised fund is a trust you establish that allows fund trustees to give a fixed sum to charity on a recurring basis over time. The amount distributed varies over time but the establishing sum grows tax free. Trustees can choose where the funds will be donated. There are tax breaks associated with establishing the fund, which is why it’s often done by high income earners or those receiving lump sums. However, it’s a great option for those looking for ways to make ongoing, meaningful contributions to charity. Please discuss this with your accountant or estate planner for further information!