Hi Ruth,
I’ve always believed in giving back to the community, and now that I’m in a more stable financial position, I’d like to incorporate charitable giving into my financial plan. However, I’m not sure how to go about this effectively and tax-efficiently. How can I ensure my donations make a significant impact and align with my values?
Those generous with their money and time are always good people to be around. I applaud you for asking the question because even just thinking about how you can help others makes you an awesome human. Creating a plan for how you will give back to your community is the best way to ensure that you bake some good and long-lasting habits into your generosity and that you direct your time and money where you see value.
Growing up, my family were what you might refer to as “generous to a fault”, meaning that sometimes they gave away too much money, leaving our family struggling. I’ve learned from that example, and it has helped me navigate my charitable giving. Firstly, when money was tighter, I began to give my time. Donating your time can be as valuable in many instances as donating money.
In this busy world, there are a lot of causes and charities that need hands-on help. For example, fundraisers standing outside your supermarket have given their time, a precious commodity. We also readily donated our skills when required, and I’m particularly good at donating my husband Jonny’s skills as a graphic designer! As I was thinking about your question and talking it through with him, he told me he’s just agreed to design the posters, flyers and tickets for a local fundraiser next month. He is donating his time, and they are saving money by not having to pay for a key part of their fundraiser. Think about what skills you can offer to others for free.
Today, we continue to donate our time to various individuals and groups, and as money became more abundant, we also donated that.
In the past, I have donated to causes as I came across them, such as the collector standing outside my supermarket or the fundraiser who made an effort to come and knock on my door. Although it felt worthwhile to do this, I wondered about all the causes that didn’t have the time to stop me in the street or call in at my home.
I needed a little more structure. Allocating money in your budget to specifically go towards your good deeds is the first step, and once you have created a stream of funding, you can begin to spend it on the causes you support. A few years ago, I added another sinking fund to my list of bank accounts. These are individual bank accounts where specific sums of money are drafted into each account on the same day each week, all with a particular purpose in mind. I have titled one of these accounts “Giving.” Now, without me having to even think about it, money is being set aside for generosity toward others.
I see two main ways to determine how much you can safely gift to others without risking your finances. You can allocate a set amount of money each week to a sinking fund, as I do, or you can assign a percentage of your income that will be used for giving. Given my erratic income, I choose the former, an amount I know I can safely set aside for giving. Giving is just another item I can budget for with PocketSmith, except that, unlike paying my phone or internet bill, ‘giving money away’ is much more satisfying and enjoyable.
Over time, we have settled on our sweet spot, an amount of money that feels right to us. We can adjust the figure up or down at any time, but given that we are so used to spending a portion of our income on others now, the figure is increasing slowly over time.
If you have a person or a group in mind that you would like to support, I’d start by approaching them directly and asking what support they seek. And then build from there. With so much need in the world, you can’t be all things to all good causes. Think deeply about the people, groups, and causes who might have supported you and to whom you would now like to give back. For example, a member of my family is living with cancer and has been exceptionally well supported by one charity; therefore, that is one that I choose to help financially. Choosing a cause aligning with your values makes your contribution even more significant.
Given that we have a sinking fund that receives a top-up each week, I know this money must be spent. Therefore, my ears, eyes, and heart are open to a good cause, knowing that I don’t have to think about finding the money before I think about being generous. If I see an opportunity, I don’t hold back, and because I know I can afford to, I’ll give money. And I don’t second-guess my choices. Nor do I hang about for anything more than a ‘thank you’.
I simply trust that the person or charity I’m giving to has the good sense to make the right decision on what to do with the money we donate. Rarely has this “giving with an open hand” backfired on me.
PocketSmith is well-positioned to help you take advantage of any tax credits you may be entitled to due to charitable giving, because wherever you are in the world, there may be tax credits for charitable donations. In New Zealand, you can go to the IRD to learn about Tax Credits For Donations or to Submit A Donation Receipt. When you upload your receipts and track each transaction in PocketSmith, you also have the correct information and documentation at your fingertips to claim your tax credit. This well-structured system enables you to become more generous in many ways because by receiving credit for a portion of your donation, you free up more money to donate.
I love your heart, and I encourage you to budget your generosity much like you would any other PocketSmith spending category. However, while paying the electricity bill may be dull, donating time and money to a cause you can get behind is heartwarming for all involved. Incorporate saving up for charitable giving into your budget, pick a cause, get involved, and see where the journey takes you. Only good can come from being kind to others. As I sat to write this, I jotted down all the times I could recall donating time and money to others. Reliving each occasion made me feel kind and useful to society all over again. Thank you for that!
Got a burning money question for Ruth? Send them through to [email protected]!
Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.
