Due to the dual crises that are ongoing (the COVID-19 global pandemic and the movement against police brutality targeting Black people), a lot of people who have the means are donating to charity. This is great! In some cases, though, it is flooding organizations with millions while other organizations don’t get enough donations. I worked in the development department1 of a non-profit for about a year between college and grad school, and speaking from that experience I can tell you that a solid base of individuals making moderate but consistent regular donations are extremely valuable to most, if not all, non-profits, and I have made such moderate recurring donations the cornerstone of my personal approach to donating to charity ever since I’ve felt financially secure enough to do so.
If you are somebody who already a) works off a monthly budget of some sort and b) wants to get started with recurring donations to charity, read on to learn the details of how I approach it.
disclaimer
I work as a software engineer for a company in San Francisco, California and am compensated as you would expect given these facts—a high salary plus equity compensation. I’m writing here mainly for an audience of my peers because I feel strongly that those of us receiving such economic advantages have a responsibility to give back. If you’re not making ends meet, struggling to make ends meet, living paycheck-to-paycheck, or still working on saving up an emergency fund, then this blog post is almost certainly not for you! Or at least not for present you. Put your own oxygen mask on first, &c.
Note that not only am I writing for an audience of tech employee peers, but some of the content below is also specific to those paying income tax in the United States.
budgeting for charitable donations by incremental percentage of income
The rule I have for determining how much money I donate to charity is by a fixed percentage of my pre-tax salary. The inspiration here is largely religious tithing of 10% of income2. And at least 10% of my income is my eventual goal, but I have been working up to it while I also work towards other personal finance goals. I started with 1% of my pre-tax salary. This was at a time, years ago, when I was very newly not living paycheck-to-paycheck, and I did not yet have an appropriately sized emergency fund stashed away, so starting small at 1% was a way to balance my priorities. I’ve decided to make my calculations based on pre-tax income simply because that is so much easier to calculate.
Every time my salary goes up (due to job change, cost-of-living increase, or promotion), I redo my monthly budget and increase the charity percentage by another 1%. If my salary goes down, I just maintain the same percentage. This way, I don’t feel like I’m losing ground or starting over even if I am donating less, and that feels good. Incrementing by 1% is also nice under the assumption—which has held true for me, personally—that any increase in salary is likely to be greater than 1%, so while you’ll be donating more to charity, you will probably also still be receiving more net usable dollars (i.e., take-home pay minus donations) than you were before3.
When I make a percentage increase, typically I do a combination of increasing my recurring monthly donations to charities I’m already donating to and adding new charities. Some charities don’t have a complex technical stack behind them, so unfortunately sometimes there isn’t a way to update your recurring donation amount online, and you need to call them...😱! This is something I once procrastinated on for months (in the meantime I just made additional one-time donations online every month...), but on the flip side it turned out that when I finally called the organization in question (my local food bank), they were really happy (and surprised, it seemed) to hear that what I needed help with was increasing my monthly donation, and honestly it left with me with a nice warm fuzzy feeling, so there’s that: make a dreaded phone call, but get some ego stroking out of it.
tracking your donations
If you pay taxes in the United States, then you’ll want to track all of your 501(c)(3) donations since they are tax-deductible, and there are a couple of important things here.
- Not every organization will e-mail (or snail mail) you a proper receipt! This shocked me as a former non-profit employee because the organization I worked for was meticulous about proper 501(c)(3) receipts for all donations, and I just assumed that was a legal requirement. It isn't as long as the donation is less than $250.
- However, it may not matter if you are following this moderate recurring donations strategy because you only need to provide documentation (in the form of a letter/receipt rather than a bank statement) of a 501(c)(3) donation to the IRS for the purposes of claiming the tax deduction if the individual donation is over $250 dollars. It does not matter if you donated $2,988 to your local food bank over the course of a year if you did it in 12 x $249 donations. For now, I do keep my recurring donations under $250 for this reason, though this will probably change in the future. At that point, I’ll just make sure that any organization I decide to donate more than $250 to on a monthly basis is providing me with either monthly receipts or a year-end summary (as some orgs do the latter for recurring donors)4.
- It could be the case that increasing your tax-deductible donations just slightly could drop you into a lower tax bracket and thereby net you a bunch more money. Not a super frequent occurrence, but if you’re comfortable doing and/or projecting your own taxes (or you already work with an accountant who can do this for you), it might be something to look out for.
- Finally, lots of worthy organizations are not 501(c)(3)s! These are still worth donating to; you just can’t deduct these donations on your taxes, so be sure to leave them off your tracking. One of the highest profile in this category is probably the ACLU, which is not a 501(c)(3) because of the fact that it directly lobbies for or against legislation. (It is therefore a tax-exempt 501(c)(4) organization, an “action” organization.) Some international charities also don’t have 501(c)(3) status in the United States, though large charities (e.g., Médecins Sans Frontières/Doctors without Borders) mostly do. Finally, mutual aid organizations, which may be hyperlocal and largely informal, can be also be very impactful (particularly in relation to the current pandemic).
The process I’ve settled on in recent years for tracking is:
- Keep all my recurring donations on one credit card.
- When I get the statement for the last month, I download the PDF, highlight each line that is a 501(c)(3) charitable contribution, and file the PDF in my taxes folder for the current year.
- I also add the contribution to a simple spreadsheet that I use for keeping a running total. This just saves me time at the end of the year when I need to add everything up to figure out my total deduction.
variations
auto-acceleration
As I continue to get older and have started putting some personal financial goals behind me in the have-achieved column5, I’m considering making some changes to this approach to charitable donations. For example, I may add an additional 0.5% increase every calendar year, regardless of salary changes. I’m already accustomed to revisiting my budget as the year turns over, so this should be an easy addition.
percentage of equity or bonus
If part of your compensation consists of stock and/or bonuses, then you could implement an incremental percentage strategy with those sources of income in addition to or instead of the percentage-of-pre-tax-salary strategy that I use. This could be a way to get started particularly if you can’t spare much, if anything, out of your regular salary.
stockpiling
If you are a freelancer or your income is irregular in other ways (e.g., you work in a highly seasonal industry, &c), then a slightly more cautious strategy might be to set aside a percentage as your income rolls in, but then only actually donate the funds quarterly or annually at a delay when you can be sure that you’re in a secure enough financial position to spare the funds. This removes the benefit to charities of providing them with regular recurring income, but to compensate somewhat you can aim for regularity on a longer time scale, such as annually.
A completely different approach might be to stockpile a fund for donations but let emergent situations—such as the increased needs of bail funds due to the overpolicing of protests in response to the murder of George Floyd—determine when and where your dollars go. While I personally have chosen to focus on moderate recurring donations, there is definitely a need for lots of money, fast, in emergent situations, and it’s good to have a mix of people pursuing recurring vs. responsive donations.
taxing yourself
What I’ve outlined in this post is more or less a form of self-imposed taxation on income, with the added constraint that you only ever move into higher tax brackets over time, regardless of actual salary. While it would be wonderful if we could pick and choose the causes to which our tax dollars go, we can’t. But if you have the means, you can tax yourself and choose where your personal taxes go. Give it a try, and feel free to let me know how it goes for you!
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“Development” is non-profit speak for “fundraising,” who knows why.
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Note: I am not religious and in fact do identify as an atheist, though I am a member of the UUA. If you are a Unitarian Universalist, you know that “atheist” and “UUA member” is not actually a contradiction, but I’ll not get into that here. It was my UUA minister growing up who first pointed out to me that the UUA has a much harder time raising funds than typical religious organizations because there isn’t the hell-and-damnation motivation to donate. For some reason this comment has stuck with me for a long time; I want to be an exception to this generalization!
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Unless you end up in a weird tax bracket situation. I had a coworker once who got a small raise and saw her paychecks get (infuriatingly!) smaller because the bump edged her just over the threshold into a higher tax bracket.
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Another disclaimer: I am not an accountant or tax professional, and you should refer to IRS Publication 526 “Charitable Contributions” and/or your accountant and/or tax professional for details.
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For example, at the end of 2019 I paid off the last of my student loans! 🎉
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