According to Charity Navigator, Americans gave over $370 billion to charitable causes in 2015. That’s a lot of money, and not only was it a lot of money, but it was a lot of people too. The vast majority came from individuals, with over 95% of American households donating in some way.
Given that statistic, it’s likely that you gave money to a charity as well. What happens after you cut that charity a check though, or you give them your credit card? Is the money well spent? Did it do much good?
There is no way to know for sure, but with a little legwork up front, you can increase the chances that your dollars will have the greatest impact. After all, if you are wise in your own personal money management, shouldn’t you be wise in your donating as well?
Here are the steps that will help you feel confident that your dollars are working their hardest.
The first step to finding a charity to donate to is finding one whose mission you believe in. Would you like to help the working poor, homeless veterans or even orphaned animals? For just about any cause that you might care about, there is likely to be at least a few charities that are trying to help. They may be local, national or even global in scope.
If they are a local charity, you could stop by to see them in action. If not, you could go to their website to learn more about their mission and to see if it’s the type of cause you would like to support. If you’re going to be giving them your hard earned cash or labor, you better make sure you’re as passionate about the cause as they are.
Once you’ve found a charity, how can you tell if it is legitimate? Stories abound of well-meaning people getting scammed, usually over the holidays, by fake charities soliciting last-minute end of year donations. Don’t let it happen to you!
If you want to make sure that a charity is legitimate, simply go to their website and look for or request a copy of their Form 990. Legitimate charities will have these official tax documents on hand and file them regularly with the IRS.
Once you’ve selected one or more charities and have established that they are legitimate with the IRS, the next step is to look at their financials. This is actually easier than it sounds because there are many websites that do this work for you. Three popular ones include:
These sites will give you varying levels of detail about a non-profit’s financials and this is where you’ll want to focus. According to Charity Navigator, a typical charity spends 75% of its budget on programs. Another 15% goes to administrative costs and 10% goes to fundraising costs. Why does this matter?
Well, this is what your money is funding. So, if you are looking at a charity with the above percentages and you give them $100, then $75 would go to the programs they support and the other $25 would be spent on overhead. If you want your dollars to work hard for your cause, look for a charity with at least 75% of their budget for program costs. Higher is better, but that can be tough for some smaller organizations to achieve.
Some charities will get grants to cover their overhead and then 100% of donated funds get put towards program costs. That’s the best scenario.
A final step to consider is checking out the charity on a site like GiveWell. They do in-depth research on various programs and determine which ones have the greatest actual impact on people’s lives. You’re not going to find your local food bank here, but you will find lots of big global charities. They also make recommendations on the groups that do the best job at delivering various programs.
One caveat here, if you feel strongly about a cause, you don’t need to worry too much about the financials. Maybe it’s a small organization or maybe it is relatively new. You don’t have to live and die by the financials. If you want to support a cause and you feel good about the organization, then you should support it. However, if you are trying to figure out how to make your donation dollars work as hard as possible for the causes you believe in, then the financials are key.
Why Give at All?
Giving is a personal decision and you might think that giving money away is counter-productive when you are trying to build your nest egg. Certainly, if you have lost your job, or are having trouble even paying your bills, now is probably not the right time to pick-up a charitable habit.
If you have a job and can pay your bills, I would offer this perspective. First, you don’t have to donate a fortune to make a difference. Second, you are probably better off financially than millions in the U.S., let alone globally. Third, if you need more reasons, there are even health benefits to giving as outlined by the Cleveland Clinic.
So, why not? …and if cash is tight, you can always donate your time.
What do you think about giving back while trying to meet your own financial goals? Are the two goals counter-productive?