When you want to give your time or your money to a cause and don’t know where to start, ask yourself two questions: Why do you want to give, and how much do you want to be engaged in the process?
Philanthropy is the practice of promoting the welfare of others by donating a generous portion of money or time to a cause. A common phrase in the world of philanthropy is “giving while living,” which is based on the premise that philanthropists, or the person doing the giving, wants to delegate where their money goes while they are still living. They will be able to watch how their giving affects the object of their benevolence, while also being able to adjust their decisions based on the results.
“Giving while living” allows you to judge the success or failure of your philanthropic activities based on many factors, including personal values, what you hope to accomplish within the organization by giving this gift, and what you expect for yourself or the future of your family.
Simply giving money away is not complicated, you can do that in a matter of minutes. But giving away money for maximum results requires a little more research and planning and sometimes professional help. Budding philanthropists often struggle with this problem. Many people have good intentions that outweigh the knowledge and understanding of the cause they choose to support.
The following suggestions can help the wealthy beginner learn the best ways to become involved in philanthropic activities.
Choosing Your Cause. It is exciting when you decide to get serious about giving, but it is also easy to be overwhelmed. With so many health, environmental, and social needs around the United States (and the world), it may be difficult to know where to start. Your decision becomes especially difficult when large sums of money are involved and if you are planning to give to a cause for a long period of time. As with most endeavors, philanthropy involves getting to know your subject. You may have already started your charitable efforts by donating small amounts of money to several different types of groups, but now you want to see even greater results. This approach requires strategic giving. Start with causes you care about, and select a few grantees (persons or groups you are donating to). Experiment by investing a small amount of time or money, and see what you achieve. You may be happy with the results and see how deeper commitments may help, or you may find just the opposite. In either case, however, you have taken the important first steps of philanthropy and learned valuable lessons that will help with future decisions.
You Are Your Own Watchdog. Philanthropy is often daunting because you decide what you do with your money and your time. If you take the wrong approach, it can affect you and others now and in the future. You must learn when to stick with a choice and when to change course. To make sure you stay on a successful philanthropic track, you should always examine how you make decisions. Keep in mind what your goals are and how the results of your giving line up with those goals. Be flexible and change if the situation changes.
Philanthropy Should be a Combination of Time and Money. Charitable giving has always existed, but true philanthropy is not as common. True philanthropic aid is genuinely wanting to change outcomes instead of just giving because it is the “right thing to do.” True philanthropy involves giving money (as well as time) in an attempt to bring about meaningful change.
Donating Money vs. Donating Time. Donating money is vital, but volunteering, or donating time, is often regarded as fundamental in sustaining such organizations as nonprofit groups. If it were not for the time volunteers contribute to these organizations, many of them simply wouldn’t exist. So what is the correct scope of time commitment vs. financial commitment? Just as there is no one answer when deciding who should be your grantees, there is no right answer for how much to give. Philanthropists must balance their decisions according to their own heart, time constraints, or allowances as well as their pocketbook.
Evaluate Charitable Organizations. Begin your evaluation with your own heart. Examine your deepest convictions and concerns. Before you donate money to an organization, be sure the group has the same goals as you do. It is equally important to know how well it will use the money to attain those goals. You will want to know how one company compares with another with the same goals, the group’s past performance, and whether it is eligible for tax deductions. One of the best ways to gauge a charity is to become a volunteer.
Tax Benefits of Donations. When you decide to get started in philanthropic activities, you should be aware of the tax benefits you may receive. You should also consult your own tax advisor, considering that tax rules may vary according to your circumstances, the specific charity you are donating to, and where you live. For instance, an advisor might look at the following:
- If you itemize your deductions, a donation to a qualified charity or an organization may allow a deduction against your income tax.
- You may only deduct contributions that are made in the same tax year.
- Not all charities qualify for a contribution deduction, although most do.
- While there are limits to the amount you may deduct, these limits are high.
- There are rules for non-cash donations.
- Always have written confirmation from the charity.
Eight Organizations You Can Donate to and Receive a Deduction
- Educational organizations that are tax exempt
- Hospitals and specific medical research organizations that are tax exempt
- Churches or other religious organizations
- Private operating foundations that collect donations into one common fund
- Community chests and other publicly supported foundations
- Membership organizations that depend on the general public for more than one-third of their contributions
- Private foundations that allocate contributions they receive to public charities within 2½ months after the end of the foundation’s fiscal year
- Government units, including political subdivisions of a state or the state itself
When You Want to Create Your Own Foundation or Charity. Philanthropic activities for the wealthy can go beyond writing checks and spending a few hours volunteering to help the community. If you have invested a portion of your time or money in a certain cause you are passionate about only to find the results do not live up to your expectations, you might consider starting your own charity. Below are some steps that may help get you started.
Be sure to explore charitable resources that already exist. You can sometimes make a more valuable contribution to an existing charity with the same goals you are pursuing.
Educate yourself about people who may be able to influence the success of your charity. Examples include civic leaders, local business owners, other individual donors, or well-known community members. Host meetings during your charity’s planning stages so that you can share your ideas and enthusiasm with these individuals. Doing this will allow them to know what to expect, and it will give you valuable insight into what type of support you may be able to expect from them.
Include a wide variety of people in different occupations. Begin taking note of individuals when you are in the exploration stages of your philanthropic journey. What people seem to share your passions and your values? How do they stand out, and what could they bring to your foundation or charity? A talented group of individuals with a diverse skill set will dramatically improve your charity’s chance of success.
Welcome volunteers. Volunteers are a crucial resource in any charity or foundation. No matter how wealthy a philanthropist may be, all resources should be centered on the cause itself. In these types of situations, the rewards for hard work are not monetary. Your charity’s financial resources and man-hours will be limited (even Bill Gates knows he can’t do everything), so it is important to pinpoint those highly motivated individuals who may be able to help you run your charity. For new foundations, these people are often wealthy in their own right and could become board members. Volunteers are vital for your foundation or charity, especially in the beginning. Sometimes, you may need a group of people to devote their time in a certain area, such as fund-raising or soliciting donations from businesses or individual donors.
Define your mission. When you create your own charity or foundation, one of the most difficult decisions may be determining the exact nature of the charity’s mission. Each individual in your group should know the objective of the foundation and work toward that specific goal every day. Each decision should be based on attaining this goal. Begin by defining your mission as a group and keep lines of communication open. Have frequent meetings and brainstorming sessions as things progress. Be sure you all agree at each step in the process.
Know when to stand firm in your decisions and when to take advice from others. You have assembled a group of individuals to help you achieve your goals, but it is important to remember that a balance must be maintained. You are the primary founder, but you must understand why you picked each individual in the first place. Each person has unique skills and abilities, and you should be ready to let individuals contribute in ways that make them feel valuable. This practice will allow you to build a strong, united group—with each individual just as passionate about your mission as you are.
For Your Philanthropy to be Truly Rewarding, it Needs to be Tied to Something You Believe In. According to psychologists, the person who gives the gift gains the most. Even people who can afford to buy anything they want can reap even greater rewards by giving. One person who exemplifies this concept is billionaire Bill Gates. His current passion is now his philanthropic work, even more so than his business.
Getting involved in philanthropy is an opportunity you shouldn’t miss. If you are wealthy, you have the chance to help so many wonderful causes and gain rewards greater than anything money can buy. If you have children, get them involved by letting them spend time with you in your volunteer work, or let them choose a meaningful cause of their own. Practice “giving while living” and see how you can touch lives and impact your world. Your philanthropic activities can set an example for your children and generations to come.
With all the information available on the Internet, some of your questions may be easily answered.
Some Helpful Websites Include:
- The Largest U.S. Charities – Largest does not always mean best, so a beginning philanthropist may need a little more information before finding the best group. Here are some of the most helpful websites that will help you evaluate charitable organizations:
- Charity Watch – Charity Watch is a service that compiles reports and keeps donors informed on approximately 600 charities—and how they spend your money.
- The Better Business Bureau For Charities and Donors – Complaints, reviews, resources, and tips for donors.
- Association of Fundraising Professionals
- Great Nonprofits
While the rewards of philanthropic giving are great, most wealthy individuals find they need professional help along the way. Considering the many difficult decisions you’ll have to make, a certified financial planner will guide you through the entire process. A Certified Financial Planner (CFP)® knows exactly what to expect—and what to avoid—on your philanthropic journey. Ultimately, hiring a CFP® is about saving you valuable time and money so that you can make the biggest possible difference. Please contact one of R.W. Roge & Company’s Senior Wealth Advisors today for experienced direction in getting started.