Tuesday, November 09, 2010

Managing Your Charitable Giving Budget

If you haven't yet depleted your 2010 charitable giving budget, it's time to assess your funds, update your giving criteria, identify the organizations that best fit your criteria, and allocate your funds among those organizations.

Assessing Funds: My wife and I set our charitable giving funds as a fixed percentage of our annual household income, such that when our income increases (or heaven forbid, decreases), our dollar amount adjusts accordingly. In my experience, agreeing on a percentage of income before calculating the dollar amount can help ease sticker shock. And agreeing on a budget frees us up to spend more than we otherwise might.

Giving Criteria: During the last several years, we spent almost 100 percent of our discretionary* charitable funds on the causes I am passionate about in the developing world. Drawing on my experience managing a philanthropic fund at work, this year I suggested to my wife that we should target 20 percent of our discretionary funds on local causes. My wife lit up at the opportunity to direct funds in our own community; although she agrees with me that in theory funds can go farther in the developing world, like many people she gains greater satisfaction in helping those closer to home. Our funds both locally and internationally are targeted toward solutions to help socioeconomically disadvantaged populations realize their unlimited potential, focusing especially on sustainable distribution of products and services related to health, education, and agriculture.

Organizational Fit: When I created this blog over five years ago, I originally used primarily financial criteria to make funding decisions. Now, I filter organizations primarily based on fit with my giving criteria, using CEO salary as a secondary financial filter to gauge charitable intent of the organization. For example, here's how I rated One Acre Fund:
  • Socioeconomically Disadvantaged: High (target the "extreme poor" in Africa)
  • Sustainable Distribution: High (98% repayment rate; near-term target to cover 70% of field costs with client revenue)
  • Health: Mid (target reduction in deaths of children age 0-2, with early data suggesting they're succeeding)
  • Education: High (training the extreme poor is central to their core values)
  • Agriculture: High (target farmers, who account for 75% of world's extreme poor)
  • CEO Salary: $13,000 (well below the $147,000 average)

Fund Allocation: Portfolio theory suggests that diversification is key. And many people with whom I've spoken believe that the more organizations they fund, the greater their impact, even if that means each organization gets only a small amount of money. But I subscribe to the theory that in charitable giving, fewer is better. With philanthropy, your money can be magnified by your volunteering and fundraising efforts. I find it easier to advocate for a few organizations I'm intimately familiar with, rather than for dozens of organizations about which I know little. Granted, especially as you're getting started, you will have some winners and losers just like in your non-charitable investment portfolio. For example, last year I funded four relatively young organizations. Two were wildly successful (One Acre Fund and Room to Read), so I doubled my investment in both organizations this year, while cutting funding to the other two. Since local giving is new for me this year, I'm funding more organizations in lower amounts.

Perhaps these reflections on my personal giving, based also on my management of a philanthropic fund at work, will help you to be more intentional and strategic in your own giving. If you have other suggestions that may benefit me or other readers, please leave them in the comments section.

*Note: my wife and I do not treat tithing (10% of our income paid to our church) or monthly fast offerings (value of two foregone meals) as discretionary funds

1 comment:

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