How to Fit Charitable Giving Into Your Budget

When I shared personal finance lessons with a kindergarten class recently, the students had one question I wasn’t prepared to answer: How should they fit donating money to others into their financial plans?

I had been so focused on explaining the basics of budgeting that I overlooked this central question about how we can help others, especially as the holidays approach.

It turns out deciding how much of our budget to allocate to giving isn’t always straightforward. Charity varies widely by person and income levels.

“Some clients are very charitably-inclined and others not so much,” says John Jones, a certified financial planner and investment advisor representative at Heritage Financial in Newberry, Florida. The decision to give can be influenced by many aspects, from religious beliefs to the potential tax deductions.

But financial experts do offer some guideposts on how to weigh charitable donations against other financial demands.

Before settling on a donation goal, Erin Lowry, author of the “Broke Millennial” book series, suggests taking a close look at your own financial picture.

Review your financial goals — any debt, liabilities such as a mortgage or student loans and cash flow needs. “If you feel you are in a financially healthy place and are ready to increase how you give to charity, that’s wonderful,” she adds.

There’s no target percentage that works for everyone, so consider choosing an amount that fits into your budget without causing additional stress, Lowry says. “I just want to make sure you’re not putting yourself further into debt while financially helping others,” she adds.

Once you know what you can give, Lowry suggests donating consistently to reputable organizations that mean a lot to you, such as a local food pantry. This will help you plan ahead.

She also suggests setting some money aside for requests that pop up throughout the year.

But you want that hard-earned money you’ve set aside to go somewhere you trust.

Scammers often target charity-minded people with fake websites or calls for donations, especially after high-profile events like natural disasters.

“Always vet things before you donate to make sure it’s legitimate, especially before you click on any links,” Lowry says.

Websites like GuideStar.org and CharityNavigator.org make it easy to search for organizations to confirm their legitimacy, and it doesn’t take long to check.

To help others without adding strain to your own budget, Lowry suggests looking into non-financial ways of donating, like giving your time.

“Sometimes we get really fixated on financially contributing to causes and we forget there are other ways we can help, too,” she says.

Volunteering in-person with an organization, contributing items to a community pantry or signing up for virtual, skill-based volunteer gigs on charity sites can also go a long way toward the greater good.

For those who plan to give financially, it’s important to consider how charity fits into your overall budget, says Brenton D. Harrison, CFP and host of the podcast, “New Money, New Problems.”

If someone is committed to donating 10% of their income for religious reasons, then he doesn’t question that decision. Instead, he talks about what that means for the rest of their financial goals.

That might mean brainstorming long-term savings goals, making sure you have an emergency fund in place and aligning your budget with something like the 50/30/20 rule to guide spending.

He wants clients to make sure they are also paying down their own debts and have taken out sufficient insurance policies.

Consider how donating can help you minimize taxes, even if that isn’t your primary reason for giving. There are strategies, for example, that can help your money go farther.

“Personally, I tithe monthly but pay once every two years for tax reasons,” Jones says.

As he explains, if you plan to donate $10,000 a year, then grouping two donations in the same year, say on Jan 1 and Dec. 31, takes the annual total to $20,000 and could enable you to claim a higher tax deduction than what the standard deduction may provide ($15,750 for single filers), even though you will still have donated the same amount in total.

You can also consider donating through a donor-advised fund or, if you are over the age of 70 and a half, making contributions directly from your IRA to further minimize taxes. A tax professional can help you navigate the nuances and the IRS website also offers helpful guidance.

While it’s tempting to donate small amounts throughout the year whenever asked by friends and family, Harrison encourages people to take time to plan ahead, too.

“Tax deductions can be a strategy,” he says, so you can save money and do good at the same time.