Charitable giving is a noble pursuit, but integrating it into a financial plan can be challenging. Recent discussions with a kindergarten class highlighted this issue, as students expressed curiosity about how to allocate funds for donating. As the holiday season approaches, understanding how to balance personal finances with the desire to help others becomes increasingly relevant.
Financial planners emphasize that the decision to donate often depends on individual circumstances, including financial stability and personal values. According to John Jones, a certified financial planner and investment advisor representative at Heritage Financial in Newberry, Florida, “Some clients are very charitably-inclined and others not so much.” The motivations for giving can vary widely, influenced by factors such as religious beliefs and potential tax benefits.
Assessing Financial Health Before Donating
Before establishing a donation goal, it is crucial to evaluate one’s financial situation. Erin Lowry, author of the “Broke Millennial” book series, advises reviewing debts, liabilities, and cash flow needs. She notes, “If you feel you are in a financially healthy place and are ready to increase how you give to charity, that’s wonderful.” There is no universal percentage for charitable contributions, so Lowry suggests selecting an amount that fits into your budget without causing additional stress.
“Make sure you’re not putting yourself further into debt while financially helping others,” she adds. A consistent approach to donating, targeting reputable organizations that resonate with you, is recommended. Lowry also highlights the importance of setting aside funds for unexpected requests that may arise throughout the year.
Protecting Your Contributions and Exploring Alternatives
Ensuring that donations reach legitimate organizations is vital, as scammers often exploit charitable intentions, especially following natural disasters. Lowry urges potential donors to vet organizations before contributing. Websites such as GuideStar.org and CharityNavigator.org can assist in confirming the legitimacy of charities, making it easy to ensure that funds are directed appropriately.
For those unable to contribute financially, Lowry encourages exploring non-monetary ways to help. Volunteering time, donating goods, or participating in skill-based opportunities with charitable organizations can significantly benefit communities. “Sometimes we get really fixated on financially contributing to causes and we forget there are other ways we can help, too,” she explains.
When planning for financial donations, Brenton D. Harrison, a certified financial planner and podcast host of “New Money, New Problems,” emphasizes considering how charity fits into the broader budget. For individuals committed to donating a specific percentage of their income, particularly for religious reasons, Harrison focuses on aligning these contributions with other financial objectives, such as saving for emergencies and paying down debt.
Tax implications can also play a role in charitable giving. Jones notes a potential strategy: “Personally, I tithe monthly but pay once every two years for tax reasons.” By grouping donations, one can maximize potential tax deductions, which can enhance the impact of giving. For example, donating $10,000 in a single year may yield higher tax benefits than spreading the same amount across multiple years.
Individuals over the age of 70 and a half might consider making direct contributions from their IRA to minimize taxes further. Consulting with a tax professional can provide guidance on navigating these complexities.
While it may be tempting to respond to every request for donations throughout the year, Harrison encourages donors to plan strategically. “Tax deductions can be a strategy,” he advises, allowing individuals to maximize their philanthropic efforts while also ensuring their financial health.
The kindergarteners who sparked this discussion on charitable giving may not yet understand the intricacies of tax planning, but they certainly grasp the importance of helping others. As the holiday season approaches, aligning charitable intentions with financial realities can empower individuals to make a positive impact without compromising their financial stability.
