Plan Your Giving: Why Budgeting for Charity Will Improve Your Life

In today’s abysmal economy, most of us are so discouraged by our plummeting retirement portfolios that we’re hard-pressed to buy a dinner out, much less donate our extra cash to a good cause. Not financial adviser Brad Dugdale of Coeur d’Alene, Idaho. Recently, when asked to chip in a few hundred dollars for an acquaintance’s expensive cancer treatment, he didn’t bat an eye—Dugdale and his wife had already set aside five percent of their annual income in a special bank account designated for charitable donations and helping others. The money was there for purposes just like this one.

In the past, Dugdale and his wife had argued over how much to donate to charities. “Before, it used to be, ‘Should we talk about it?’ “Should we do this one or not do this one?’” he says. But since creating a separate bank account for charitable donations five years ago, “we’re much more willing to support organizations as we come across ones that need help, because the money’s already being allocated in our budget.”

Although many people donate to charities sporadically, often in response to a natural disaster or an organization’s pleas for donations, planned giving can be the smartest way to support the organizations you care about. “Too often, we don't take the time to factor charitable giving into our financial planning,” says Andrew W. Hastings, Vice President of External Affairs for the National Philanthropic Trust. “Incorporating philanthropy along with your retirement planning, saving for your children's education, and other important needs is the first step in creating an enduring charitable legacy.” Raise money for this purpose and other purposes.

While the donation amount may vary, the United States is an overwhelmingly generous nation: In 2007, private individuals gave over $306 billion to charity, according to the Giving USA Foundation 's annual report.

“In general, most Americans give about two percent of their income to charity,” says Hastings, “but many give at a far higher percentage.” He claims that donors should give the amount that feels right to them, based on their financial security and other criteria. “We have found that a number of factors are involved when making the decision to give,” he says, “some of which are based on taxes and finances, but many others are based on very personal needs.”

Setting aside a certain percentage of annual income for charity is an established theme in numerous religions: many Christians donate ten percent of income to their churches as part of the tithing tradition, and in Judaism, the act of tzedakah obligates followers to give ten percent or more to charities that benefit the poor. Jesse Mecham, the Provo, Utah-based owner of the website YouNeedABudget.com , gives ten percent of his income to his church. That money is “used for anything from buildings to materials and utilities,” he says, and may be allocated to provide resources for people in developing countries.

Mecham also contributes a “fast offering” to help those in need within his own community. With those donations, “you're helping out the person next to you, maybe, who's going through a tough time,” he says. “You're helping on a local level and you meet the pastor, so there's a lot of accountability.”

Though Mecham’s giving is tied to spiritual concerns, he sees other benefits to budgeting for charitable giving: “Even if you’re only able to give a little bit, you’re asserting authority over your money,” he says. “It gives people liberation.”

Chris Guillebeau, the Seattle blogger behind The Art of Nonconformity , takes part in planned giving for more personal reasons. Guillebeau and his wife Jolie spent four years living in West Africa, which inspired a lifelong commitment to philanthropy.

“It may sound a bit clichéd, but during that time we worked in the poorest countries in the world and definitely came back feeling more of an obligation to help as much as we could,” says Guillebeau, who now gives about 12 percent of his income to charities that support development efforts in Africa.

Though giving such a large percentage of their income away means that the Guillebeaus must make sacrifices when it comes to their own desires, “I believe in giving the money out as quickly as I can, because otherwise it may not be there at the end of the month,” he says. “I would rather scramble around a bit trying to figure out how to do fun things than realize the giving was short. ”

To plan out a budget for your own charitable contributions, it may be helpful to set aside a certain percentage of your monthly paycheck in a special charity account, as Dugdale does. Less structured donors might find success using Guillebeau’s financial tools of choice: “Microsoft Money, MS Excel, and the backs of various envelopes.”

But no matter how you plan your giving, why you give, or what percentage of your income you can bear to part with each year, budgeting for charitable donations in advance can help you become a more effective and generous philanthropist. “It has allowed us to be free and support organizations on a whole different level,” says Dugdale. “It has made giving fun.”

Photo: Chris Guillebeau in Africa.