Are You Doing Charity All Wrong?

Here's how to make charitable donations that make a real difference.

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It’s the season of bell-ringers, phone solicitors, and end-of-the-year asks from charities everywhere. But if you’re only giving to charity when you’re asked, you might not be getting the most of your donations.

We'll show you how to figure out what charities are most deserving of your dollars, and put together a proactive charitable giving plan that puts you in the driver’s seat.

Set Some Giving Goals

In every aspect of your financial life, measurable goals are a good thing.

If you want to get out of debt, for instance, you would first figure out how fast you want to clear the slate and how much it’ll cost you each month to achieve that. Successful giving works similarly. Ask yourself (or sit down with your spouse) and discuss how much of your income you’re comfortable giving away. On average, Americans give about 2 percent of their incomes to charity; people who tithe often give 10 percent. Aim to set a goal that you can actually achieve. If you feel like you can do more, you can ratchet it up next year. 

Decide Where You Want to Make an Impact

“The most important thing you can do as a donor is to choose your outcomes,” says Elijah Goldberg, co-founder of Impact Matters. “Figure out what change you want in the world: Less homelessness? Better healthcare for new mothers? What do you want to see be different after you give money? That’s your most important decision from day one.”

And if you’re not sure what outcome you want to achieve? Have a look at AgoraForGood.com. This organization has divided the universe into six major cause areas including end poverty, global health and saving lives. You pick one, then drill down and pick an area within those areas until you wind up with information on nonprofits that focus on these areas.

“Much like investing, where you can pick individual stocks, you can pick charities and add them to your portfolio,” explains Angela Campbell, the organization's co-founder and CEO. 

Filter Organizations for Effectiveness 

No matter what you decide to support, the million-plus charities in the U.S. alone dictate you’ll have a choice of organizations. The best way to choose among them, Goldberg says, is to screen for effectiveness and for that you have to use data. “Most people give [based] on anecdotes,” he explains. That works when you’re choosing a plumber or electrician — the experiences of your friends and neighbors mean a lot — but it’s not as reliable when you’re choosing a charity. For that, says Goldberg, “we have to use more rigorous data.”

First, turn to charity rating services like GiveWell, which analyzes charities to help you maximize your impact, as well as CharityNavigator.org and the Better Business Bureau. Second, look at your favorite foundations to see which charitable organizations they give to; because they have bigger budgets, they spend more time analyzing where to spend that money.

Third, look at the data the charity itself releases. If you see that a charity says it trained 1,000 people, be skeptical enough to look for information telling you what that training did and what changed in those people’s lives. “There is no perfect data out there,” Goldberg notes, which is why you should feel free to pick up the phone or send an email and ask the organization your questions. If you’re not sure what to ask, try these:

  • What problems are you facing?
  • What assumptions are you relying on for your method to work?
  • What are the risks?

“If they can’t tell you what might go wrong,” Goldberg says, “they haven’t thought about it.”

Give Monthly or Open a Giving Account

Next, move the money out of your checking account — where you’re more likely to spend it — and direct it to the charities of your choice or into an account you set up for giving. You’re best doing this a) regularly and b) automatically, much like you contribute to a retirement account. For the charity’s sake, giving monthly “breaks them out of a starvation cycle,” Campbell explains. “Often, they have one event and raise 30 percent to 40 percent of their budgets. If you care about an organization, giving [on a regular basis] allows them to plan.” And monthly giving is also good for the donor. If you’ve established a giving goal for the year, it avoids the end of the year scramble to make up ground.

As for the account you use, you might consider a donor-advised gift fund run by a brokerage firm. When you put money in one, you can invest it so that it can grow while you’re deciding where to donate it. Note that you’ll get the tax deduction for the year you move the money into the fund, not the year you give the money from the fund to charity. But be aware that once you put money in a fund like this, it must be given away.

Limit Your Targets

Many people have a tendency to give to a lot of different charities and groups. That’s understandable — there are a lot of groups in need and it’s tough to choose just a few. But the hard truth is a bigger check is better than equally sized smaller checks. It takes a surprising amount of money to just process a donation. In fact, Goldberg notes that the amount it takes to process a $20 donation is the same as the amount it takes to process a $2,000 one (which means the charity might be losing money on the former). So don’t spread the love around — pick one or two worthy charities and focus your efforts.

Watch Out for Scams 

It’s sad to say, but with all the reputable organizations asking for your money, there are a certain number of bad apples. This is particularly true around the holidays, or whenever a natural disaster hits, and the desire to give ramps up. “Whenever you’re feeling pressured to give, that’s a red flag,” says Sandra Miniutti, vice president of marketing for CharityNavigator.org. Also be wary of solicitors who are evasive and who aren’t forthcoming with EIN numbers. And if you’re called by a telemarketer rather than a representative of the charity itself, be careful.  “They don’t tell you how much they’re keeping versus how much will go to the charity,” she says.

With Kelly Hultgren

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