Whether you are trying to be more generous with your money or trying to avoid giving too much, charity should be approached like any other expense. By spending your budget on charity, you can build a sustainable habit that won't eat up your other finances.
Charitable budgeting can be done in a number of ways, depending on your personal preferences and financial circumstances. Here are a few options to consider.
How to decide how much to give
If you are flying, the flight attendant will tell you to put on your own mask before helping others. The same wisdom applies to your finances. Before you start donating money to a good cause, you should have a firm grip on your financial situation.
Make sure you have at least three months of spending in a savings account and no high-yield debt, such as a credit card balance. It's okay to donate money here and there as you pay off debts, but don't feel pressured to give when your own financial needs aren't being met. If you have children or other dependents, make sure you save for their future too.
Give every month
Most people are asked to donate around the holidays, but you can donate to your favorite organization year-round. Instead of making a large donation, consider spending a little each month.
Nonprofits often offer recurring donations. Every month the organization will withdraw the same amount of money from your bank account or charge your credit or debit card. You can add this to your budget as a line item, which may be easier to work with than making a big contribution once a year.
Only use this strategy if you can afford to give the same amount every month. If your income or expenses fluctuate, it may be better to donate manually at the end of the year.
If you suddenly lose your job or are in major financial distress, you can contact the organization and ask them to pause your posts. Double check that this request goes through correctly and don't be afraid to call if it doesn't.
Start a sinking fund
A sinking fund is a savings account with a specific purpose. Most people use declining funds to save for car repairs or future vacations, but you can also use them to save for charity.
If you don't want to choose an organization to donate to, you can set up a sinking fund for charity. Pick an amount to save each month and create recurring automatic transfers from your bank account to your declining funds. If you choose to donate for a specific cause, you can withdraw the money from your sinking fund.
This strategy works best for people who feel like they are constantly being asked to donate. A sinking fund means you don't feel like you are over budget just for the sake of charity.
Make a tax deduction
When filing your taxes, you can opt for the standard deduction or the individual deduction. For most years, only those who break down their deductions are allowed to deduct charitable contributions. For most taxpayers, the standard deduction makes more sense. Pro tip: Use the TurboTax calculator for standard versus individual prints to help you decide which is best for you.
But when the CARES bill was passed in March 2020, a new rule was created that mandates that taxpayers who take the standard withholding can now deduct charitable donations. There is a limit of $ 300 for individuals and a limit of $ 600 for married couples. There is no income limit and anyone using the standard allowance can use this allowance.
This only applies if you are donating money to an organization that does not include donations in kind, such as clothing or housewares. For example, if you donate $ 300 worth of clothing and accessories to goodwill, that amount is not tax deductible. If you send a check for $ 300 to your local homeless shelter, it will be eligible.
You can give the gift to one or more organizations and choose whether you want to give it away all at once or in increments throughout the year.
To claim the deduction, obtain a donation receipt from the organization. You can use either the donation receipt or the annual financial statements.
The nonprofit must be a tax-exempt organization and you can check its status by searching the IRS directory. If you donate to an organization that is not on this list, you cannot deduct these contributions.
Crowdfunding sites like GoFundMe and YouCaring count contributions as a personal gift to the recipient, so you are not allowed to deduct donations on these sites.
If you're struggling to find money in your monthly budget, some of the profits can be donated to charity. For example, when you receive a tax refund, donate a percentage of it immediately.
You can always change the percentage if your goals change! For example, when you are saving to buy a new house or a new car.
Choose the right organization
When you donate to a charity, you want to know that your money will go to a reputable organization. Before writing a check, find the charity on sites like Charity Navigator and Guidestar.
These websites examine both local and national organizations to determine what percentage of the posts they spend on their mission versus executive salaries. Use these resources to help you decide if a nonprofit is worth your money.
Buy from companies that support the right missions
If you want to go a step further, buy from companies that support organizations you care about and avoid companies that contribute to causes that you don't. This can make shopping a little more difficult, but it also means more of your money will go towards what is really important to you.
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Zina Kumok (131 posts)
Zina Kumok is a freelance writer who specializes in personal finance. As a former reporter, she has covered murder trials, the Final Four, and everything in between. It has been featured in Lifehacker, DailyWorth, and Time. Read how she paid off $ 28,000 in student loans at Conscious Coins in three years.