The festive season is here and thank goodness, so is the end of 2020. This week we reviewed our 2020 spending to see how we did in every budget category and we also finalized our 2021 budget. The best part of the process was when I realized we still had a couple hundred dollars left in our giving budget for this year. If we underspend in our food budget, we don’t run out and buy food. If we underspend in our clothing budget, we don’t buy more clothes. But underspending in our giving budget means we can give more, so today I made our last two charitable donations for 2020.
There has been so much suffering in 2020. Far too many people around the world have lost their jobs, businesses, homes, health, and family members this year. Personally, we have been very lucky and we feel able to be more generous with our money and our time. I’m convinced that talking about the idea of giving, as well as our own personal giving plan, is a way to encourage other members of the personal finance community to share their giving stories and it’s also a way to encourage others to give.
Does giving change after FIRE?
People have asked us if our giving plan changed after we reached FIRE (financial independence / retire early) and the answer is yes. Before reaching FIRE we mostly donated to one big charitable organization in the USA, and two small organizations in our local community. Since we retired early we feel more financially stable and more connected to people outside of our main community, so our giving budget has gotten bigger and more diverse.
The All Options Considered (AOC) position on giving is that being generous with your money and your time absolutely does make a difference for other people and it’s also good for you as well — even if you’re currently working towards financial independence and especially if you have already achieved FI or FIRE. If you volunteer or donate money you’re helping others but you’re also getting something in return. It feels good to show gratitude and generosity. People make new friends, sleep better, and feel happier after giving. Our newest giving vehicle is the All Options Considered Rainbow Scholarship, which just came to life last September.
Giving through the AOC Rainbow Scholarship: We created the AOC Rainbow Scholarship in 2020. Our goal is to get more involved in supporting women, people of color, and members of the LGBTQIA+ community who are working towards financial independence. We’re always on the lookout for ways we can offer our support and have a goal for making sure we offer our scholarship a few times every year.
Does giving fit with financial independence?
At some point I read an article on MarketWatch that said, “Especially among the group working toward early financial independence, giving seems to rank even below the lowly topics of insurance and estate planning.” It’s true that there are some well-publicized voices in personal finance that don’t practice generosity. But I don’t think that’s the norm for most of us. Alison and I know plenty of people in the FI community who focus on gratitude and generosity in their blogs, podcasts, and videos, and in their real lives as well. It’s true that giving is an expense, but this is one category in our budget that doesn’t need to be cut.
Here’s my take on why giving is important for people interested in personal finance and FIRE… Because we’re just people like everyone else.
A huge percentage of people all over the world are struggling with debt, hunger, homelessness, and more. Those are not the people who need to give. Those are the people the rest of us can give to.
Spending time or money enriching other people’s lives is a great way to broaden your perceptions of the world and participate in a larger community. Participating in a larger community can teach you about other people’s circumstances. Having an awareness of other people’s circumstances helps you care enough to get involved. Getting involved and contributing to the wellbeing of other people, even in a small way, will give you a unique sense of purpose and make a difference in other people’s lives.
If you have extra time and money it makes sense to be generous and participate in some kind of giving. If you’re wealthy and don’t do any charitable giving at all, you might want to consider adding some giving to your spending routine.
Create Your Own Unique Giving Plan
1. Budget for giving
If you’re someone who likes to have a budget then include a line item for giving in your budget just like you would with any other expense. If you’re someone who doesn’t use an overall spending budget it still helps to have a basic giving plan. Some people start with a baseline of budgeting 10% of their income for charitable giving. From my perspective it doesn’t matter what the percentage is. For some people it will be less and for others it will be more. If you have enough money to give then what matters is giving in any amount and in whatever way works for you.
The AOC giving budget: Giving is normal, it’s planned, it’s in our budget, it’s scheduled, and it’s important to us. We started with a baseline of budgeting 10% of our income to charitable giving and overall our rate of giving has increased slowly over time. Even though we have a budget for giving we typically add something new to our plan a couple of times each year. We like to wait until the end of the year for some of our planned donations so we can stay open to unexpected giving opportunities along the way. If there’s a humanitarian crisis in the world or a crisis in our community sometimes that’s worth spontaneous giving, which we can do since we don’t earmark every dollar at the start of the year.
2. Tax deductions
Qualifying for tax deductions based on charitable contributions became unrealistic for many people because of 2018 tax reforms put in place by the Trump administration. That tax reform package made the number of households itemizing tax deductions drop from around 37 million in 2017 to around 16 million in 2018. At this point in the 2020 tax season more lower- and middle-income families will take the standard deductions of $12,400 for individuals and $24,800 for married couples filing jointly, which is nearly double the standard deductions from 2017. Current tax provisions for charitable giving in amounts below $12,400 for individuals and $24,800 for married couples filing jointly, have no tax benefits. However, the Coronavirus Aid, Relief and Economic Security (CARES) Act for 2020 includes temporary tax benefits for charities, including a special $300 deduction for people who choose to take the standard deduction. And the new bill we are all waiting to have made into law (with or without the current President’s signature) will extend the $300 charitable contribution deduction for non-itemizers through 2022.
AOC thoughts on charitable tax deductions: We itemized our tax deductions up until 2017 while we were still employed. We reached FIRE in 2018, the same year the Trump tax reform package went into effect. Honestly, we don’t miss the hassle of trying to assemble deductible receipts during tax season. But now there’s this dichotomy where many of us make charitable donations below the standard deduction and receive no tax benefits, while wealthier taxpayers donate above the standard deduction and itemize to receive tax benefits. This is just one of many tax advantages for wealthier people that we find frustrating.
3. Donor advised funds
Donor advised fund (DAF) accounts offer tax advantages of up to 50% of adjusted gross income and can hold funds for as long as you’d like. DAFs are charitable investment accounts used for supporting 501(c)(3) charitable organizations in the USA and your contributions of cash, securities, and other assets to DAFs are eligible for tax deductions. DAFs are great options for tons of people since you receive a tax deduction when you first contribute money to your DAF, and then have flexibility for when donations are made and in what amounts. And while your donation funds sit in the DAF they continue to grow tax-free. Pre-funding a DAF when you have access to larger funds can set you up to make donations for years to come.
AOC thoughts on using a DAF, or not using one in our case: Alison’s mom has a DAF and some of our friends do as well. Personally, we don’t have a DAF because we don’t want to be limited to 501(c)(3) organizations for the bulk of our giving. This year we donated money to three 501(c)(3) charitable organizations. We also sent money to Vietnam and Panama, gave to our family members throughout the year, and we set money aside for our AOC Rainbow Scholarship as well. If the bulk of our giving funds were in a DAF we wouldn’t be able to use our money in all of the ways we want to.
Charitable giving isn’t limited to giving money, donating your time is also a great way to give. There are tons of important causes and organizations that need volunteers to support the work they’re doing. Whether you’re passionate about animal rights, homelessness, women’s causes, children’s causes, legal causes, food banks, LGBTQIA+ issues, politics, or nature conservation, you can find a way to donate your time. There might be a community center in your area where you can give back in the area you call home. Even a few hours of time each month will make a huge difference in the lives of others.
Volunteering through AOC financial coaching: This year financial coaching became a much more time consuming activity for us and we’re incredibly grateful for that. Financial coaching is now something we do every week and it’s probably our most rewarding activity at this point. Our discussions in coaching sessions range from retirement planning, financial taboos, money shame, emotional money baggage, taxes, health insurance, allocations and distributions, safe withdrawal rates, finding your FIRE number, designing your personal FI path, and of course lots of time working on spreadsheets and crunching numbers. We aren’t licensed financial professionals and we don’t tell people what they should do, but we’re happy to share our ideas and experiences. We don’t accept money for our time in financial coaching, we suggest specific charities we support and really appreciate when donations are made that help others.
AOC thoughts on general volunteering: The way we were donating time when we lived in Seattle before we reached FIRE in 2018 is still fresh in our minds, including Alison working as a guest instructor at a community college and my time serving on the board of an LGBTQIA+ non-profit. The way we were donating our time while living as nomads in 2019 is also fresh in our minds, including volunteering for an animal clinic in Thailand, and delivering food and clothing to indigenous families in Panama during the holiday season. During the 2020 pandemic year we stayed as isolated as possible so the only hands-on volunteering we did was political activism from a distance/from home. We’re excited to see what kinds of volunteer opportunities we might find for ourselves in the future. I wish I was a nurse so I could volunteer my time giving vaccines to immigrants and other people without health insurance, or an IT professional so I could help seniors and non-profits with their computers, or a licensed clinical psychologist so I could offer therapy sessions for free.
5. Large charitable organizations
Larger organizations often have a broad reach across multiple communities and focus on big picture impacts. Donations to these types of big organizations can fund medical services, fight poverty, fund legal defense, protect the environment, improve social and economic conditions, and so on. Some larger charitable organizations also have enough political power and money to advocate for people’s rights at state and federal levels and move legal protections forward. They are great options for annual giving.
AOC thoughts on donating to large organizations: Our most consistent giving goes to one of the bigger charitable organizations in the USA, Planned Parenthood. I was a frequent volunteer for them when I was in my 20s and we both love donating to Planned Parenthood when times are tough and also when times are good. This organization is truly life changing, and we are incredibly grateful for all of the important work they do. Long live Planned Parenthood!
6. Local charitable organizations
The easiest way to support a local community is to buy from the shops and restaurants in your town, which comes with a bonus since you get something in return. Giving extra tips also makes a noticeable difference for individuals since restaurant staff wages in the USA often assume there will be tips to bring total earnings up to a living wage. Another important option for supporting your local community is donating to the non-profits in your area such as food banks, homeless shelters, battered women’s shelters, unemployment centers, and medical/health centers. Supporting smaller community organizations can make a a very visible, tangible difference in people’s lives.
AOC thoughts on supporting local organizations: This year we decided to modify our typical plan of cooking for ourselves every night. We’ve been able to enjoy a lot of takeout meals from the various communities we’ve visited, and the difference in our budget seems minimal. We know restaurant and shop workers are having a tough time so it feels good to buy local and give extra generous tips directly to people as well. We also sent money to Seattle Counseling Service this year, an organization I was once a board member for (we want to keep giving to them even though we don’t live in Seattle anymore). And since we’re planning to move to Arizona next year I picked a new organization for our giving plan, Native Americans for Community Action and send them our last donation for 2020 this week.
7. The festive period
Christmas and Hanukkah giving are major expenses for many families all over the world. It’s not unusual for families to spend far more than they can afford during the festive season every year, and to pay for their holiday giving with credit cards they can’t afford to pay off. From presents to food, holiday costs can add up. If you tend to do more spending during the holidays it’s never too early to start planning, budgeting, and saving. It helps to know how much you can afford to spend, to make a budget, and stick to that amount.
AOC thoughts on festive season giving: The idea of buying a sweater or new shoes or jewelry and putting it in a box for Christmas doesn’t ring my bell this year, so I guess I’m feeling pretty scroogey. Alison and I are only giving each other a good meal and some fun drinks for Christmas this year and that feels right for us. The only people we’re giving holiday gifts to are our nieces and nephews, and we have a fixed budget for those gifts which are in the form of investments or cash.
8. Family giving
Family giving is one of the most common expenses we hear about during our financial coaching sessions and it’s also one of the only expenses people say they tend not to budget for. Most people talk about giving to spouses, kids, and other family members on special occasions (like birthdays, anniversaries, graduations, etc.). Some people also talk about providing year round financial support to adult family members who are not in their same household, and I’ve been surprised to see how few people put that type of giving into a budget. I think we’ve met a half dozen different people this year who give monthly to adult family members in various countries and feel the stress of that giving both emotionally and financially. If at all possible, family giving should be budgeted and tracked just like any other expense.
AOC thoughts on family giving: The fun half of our family giving is focused on our six nieces and nephews. We have a set budget for their birthdays, graduations, and Christmas gifts and we try to stick to it. But on occasion if one of them needs help we like to jump in with something extra. Our favorite gifts for the kids are investment account deposits or cash to help with student loan debt payoff. I always keep in mind that the most useful gift I’ve ever been given was $100 of Intel stock shares from my grandmother when I was a kid. Alison and I don’t like giving our kids stuff or encouraging consumerism, but we can be persuaded by fun ideas like a new camera lens or music related items since most of our nieces and nephews are creative people. We hope they’ll take an interest in working towards financial independence while they’re young. We try to plant little seeds for them and of course we try to be good examples, but we don’t shove financial independence concepts down their throats and we’ll love them no matter what paths they choose for themselves.
The unpleasant half of our family giving is focused on my mom. I feel awkward about spending money on her because she was abusive to me and my sister when we were kids. My mom received financial support from her own mother until her mother died, and then my aunt stepped in until my aunt died. After that I started giving my mom money, and so did my younger sister. I used to give my mom money whenever she asked for it and to be honest that giving did get out of control really quickly. I’m much more disciplined now and I don’t give my mom money directly anymore. For the last couple of years now Alison and I have set a budget for my mom based on the cost of her utility and phone bills and we pay those bills directly. We still keep an extra slush fund so we can send some occasional grocery deliveries as well, and that’s it now. I’m uncomfortable about how much of our annual budget goes to my mom, but at the same time it gives me some peace of mind to know that I’m being financially generous while also sticking to a budget. I’m honoring my personal boundaries and making sure this specific part of our giving plan doesn’t cause any financial or emotional trouble in our own household. But honestly, I wish that money was going to a charitable organization instead.
9. Political giving
In the USA this is a category worth budgeting for that can have an impact basically every two years if you include midterms and presidential elections. And don’t forget local political campaign opportunities as well. Individual supporters like us are still among the largest sources of funding for local, state, and federal elections, which is how it should be. Beyond financial support there are also tons of volunteer opportunities that can be included in your political giving plan. People who are more politically engaged are more likely to donate and volunteer, and political engagement is once again at a high point in the USA. Considering the soon-to-end era of the 45th President of the USA, I hope more people stay actively engaged in politics in the future as well!
AOC thoughts on political giving: We increased our budget in this category more than average this year and four years ago as well, especially compared to our other giving line items. That was a natural consequence of how chaotic things have felt over the past two political cycles. This year we focused the majority of our financial and volunteer support on the Flip the Senate campaigns, especially in Arizona, Georgia, Maine, and North Carolina. We wrote 550 personal letters to voters encouraging them to show up and vote. I also did phone banking to registered Democrats and Republicans (not as scary as I thought it would be). What an experience! We still have our fingers crossed for good news in Georgia!
Giving is personal
Like everything in personal finance, giving is personal. Hearing about other people giving has always motivated us to give, like when there’s a massive fire or storm and people start sharing how they are helping.
We give to causes that we feel passionate about, circumstances we care about, organizations that inspire us, situations that make us cry, situations that make us angry, and stories that give us hope. The types of causes we want to donate our time and money to include things like immigrants entering the USA in hope of a better life, organizations that fight for the truth that black lives matter, sexual health rights and defending the freedom of women, LGBTQIA+ support services, Native American support services, hospice work, and financial education. Everyone else can decide for themselves what they care about and what they want to focus their giving on.
The End, of 2020 at least!
Merry Christmas, Happy Hanukkah, Happy Holidays, Happy New Year, etc. We hope you are safe, well, and happy. And we wish you the best in 2021!