Whether you’re trying to be more generous with your money or trying to avoid over-giving, charity should be approached like any other expense. By working charitable giving into your budget, you can build a sustainable habit that doesn’t eat into your other finances.
Budgeting for charity can be done in a few different ways, depending on your personal preference and financial circumstances. Here are a few options to consider.
How to Decide How Much to Give
When you fly, 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 causes you care about, your financial situation should be firmly under control.
Make sure you have at least three months of expenses in a savings account and no high-interest debt, like a credit card balance. It’s OK to donate money here and there while you’re paying off debt, but don’t feel pressured to give if your own financial needs are not being met. If you have kids or other dependents, make sure you’re saving for their future as well.
Give Every Month
Most people get asked to donate around the holidays, but you can give to your favorite organization year-round. Instead of making one big donation, consider doling out a little bit every month.
Nonprofits often offer charitable giving on a recurring basis. Every month, the organization will deduct the same amount of money from your bank account or charge it to your credit or debit card. You can include this as a line item on your budget, which may be easier to handle than making a large 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, you may be better off donating manually at the end of the year.
If you suddenly lose your job or have a major financial emergency, you can contact the organization and ask them to pause your contributions. 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 particular goal. Most people use sinking funds to save for car repairs or future vacations, but you can also use them to save for charitable contributions.
If you don’t want to pick one organization to donate to, you can start a sinking fund for charitable giving. Pick an amount you want to save every month and create recurring automatic transfers from your bank account to your sinking fund. When you decide to donate to a particular cause, you can withdraw the money from your sinking fund.
This strategy works best for people who feel like they’re always being asked to donate. Having a sinking fund in place means you won’t feel like you’re going over budget just to be charitable.
Take a Tax Deduction
When you file your taxes, you can decide to take the standard deduction or the itemized deduction. In most years, only those who itemize their deductions are allowed to deduct charitable contributions. For most taxpayers, the standard deduction makes more sense. Pro tip: Use the TurboTax standard vs itemized deduction calculator to decide which is best for you.
But when the CARES Act passed in March 2020, it created a new rule dictating that taxpayers who take the standard deduction can now deduct charitable donations. There is a $300 limit for individuals and a $600 limit for married couples. There is no income limit, and anyone who takes the standard deduction can use this deduction.
This only applies if you donate money to an organization, which does not include physical donations like clothes or home goods. For example, if you donate $300 worth of clothes and accessories to Goodwill, that amount isn’t tax-deductible. If you write a $300 check to your local homeless shelter, that will be eligible.
You can make the gift to one or multiple organizations, and choose to give it in one fell swoop or in increments over the course of the year.
To apply the deduction, acquire a record of your donation from the organization. You can either use the receipt from when you first made the donation or the year-end statement.
The nonprofit has to be a tax-exempt organization, and you can verify its status by searching the IRS directory. If you donate to an organization not on that list, you won’t be able to deduct those contributions.
Crowdfunding sites like GoFundMe and YouCaring count contributions as a personal gift to the recipient, so you are not allowed to deduct anything donated on those sites.
Set Aside Windfalls
If you’re struggling to find money in your monthly budget, you could allocate part of a windfall to charitable giving. For example, when you get a tax refund, immediately donate a certain percentage of it.
You can change the percentage at any time if your goals change! Such as if you’re saving to buy a new house or car.
Choose the Right Organization
These sites investigate both local and national organizations to determine what percentage of contributions they use for their mission compared to executive salaries. Use these resources to decide if a nonprofit is worthy of your money.
Buy from Companies that Support the Right Missions
If you want to go a step further, try buying from companies that support organizations you care about and avoid companies that contribute to causes you don’t support. This can make shopping a little harder, but it also means more of your dollars will be going toward what really matters to you.