We’ve all seen the pitches on social media via platforms like GoFundMe. From paying medical bills to fundraising for post-natural disaster rebuilding to help with funding IVF treatments, even pleas to raise money for a trip to Disney World, people are using crowdfunding to help raise money for nearly anything.
Popular crowdfunding sites include GoFundMe, Kickstarter, and Indiegogo. Crowdfunding sites raised about $60 billion globally from 2010 to 2017, researchers at the economic think tank Bruegel reported, and the World Bank estimated a global crowdfunding market of $96 billion by 2025. More than 1,500 crowdfunding sites operate in the U.S. as of June 2021. These numbers tell of a real trend in terms of online fundraising.
While some crowdfunding sites are being used to raise money to back a new business or creative venture, other sites are becoming increasingly utilized for users to raise money to cover unexpected financial emergencies, such as medical bills, an unexpected death, even veterinary bills.
However, depending on a crowdfunding site to cover yourself in the case of an emergency isn’t just risky, it’s financially irresponsible.
How It Works
Setting up a crowdfunding page is relatively simple. You simply set your fundraising goal, write your story, and add a photo or video. Then, you share a unique link with your family, friends, and social networks via text message or social media. Once you receive donations, the platform makes it easy to thank your donors and withdraw your funds.
However, it’s not always so black-and-white. For starters, the popular crowdfunding site GoFundMe no longer charges a fee for personal and charity campaigns started in the U.S., Canada, Australia, and most major European countries, but does charge a payment-processing fee of 2.9% and 30 cents per donation. It also accepts voluntary tips from donors. The stories posted on many crowdfunding sites could be fabricated, though GoFundMe expressly states on its site that purposely misleading donors is not permitted. Unlike startup funding websites like Kickstarter, you are able to keep any funds donated to you via GoFundMe, even if you don’t reach your goal.
The use of crowdfunding sites like Kickstarter to help entrepreneurs get their businesses off the ground was made legal by the Jumpstart Our Business Startups Act, signed into law by President Obama in 2012. However, one should keep in mind that when using crowdfunding sites to start a business, there are several potential legal issues to consider.
A great alternative to crowdfunding via GoFundMe or other similar site is to work on building up an emergency fund. By definition, an emergency fund is meant to pay for unexpected emergencies or costs and is more reliable than relying on friends, family, or even strangers on the internet to donate money on your behalf.
Experts suggest saving enough to cover six months of living expenses in your emergency fund. Living expenses should cover the essentials, like rent or a mortgage, transportation, monthly bills, and food costs. Your emergency fund should also cover any debt payments, such as credit card bills or student loan payments.
However, this doesn’t mean that you should use this money to pay for nights out with friends or a monthly manicure. If you find yourself in the situation of having to use an emergency fund, due to an unexpected job loss or medical issue, you should cut back on all non-essential spending, since you don’t know when you’ll be able to find another job or pay off your medical debt. When you do find a job, that isn’t your cue to go back to your old spending habits. Rather, you should stick to your pared-down budget until your emergency fund is replenished.
While it may seem like a lot of money to save, having a well-funded emergency fund is a crucial step in establishing financial security—and it’s a much better option than utilizing crowdfunding websites.
Other options to avoid the crowdfunding route to help pay for unexpected expenses include obtaining a life insurance policy, and beefing up your insurance policies—such as increased natural disaster coverage and reviewing deductible amounts. It’s also wise to create an emergency budget or a pared-down version of your current budget that you can enact in the event of an emergency.