Here's an idea that I've been thinking about for quite some time and have been implementing the past few years: we need to view our giving in the same way we view our investments. In particular, there are two key principles I think make the most sense when looking at giving as an investment. They are:
1. Planning for giving. Just like we plan for and manage our investments, we should do the same with giving. This starts with putting giving in your budget just like any other "expense" and actually planning to give -- not just letting it happen.
2. Looking for the best return. Just like with my investments, I look for the best return on my giving. For instance, if I decide to give to help feed people with low/no incomes, I want to give to the charity that can feed the most people for my contribution (assuming the food is the same). I want maximum impact for every dollar. I don't want a bunch of it wasted on salaries, fundraising, or anything else -- I want it to go toward helping those it's intended to help.
Given these thoughts, I just had to post on this article from BusinessWeek titled The Most Good for Your Charity Dollar since it covers the same issues. Here are a few of their thoughts that parallel what I've been thinking of:
- Having an investment plan, such as dollar-cost averaging on a monthly basis, is key to meeting financial goals. Charitable giving is no different, but few people make a plan or set an annual budget for their donations. People tend to give spontaneously, when they get a fund-raising call from their alma mater, for example, or when disaster strikes. Big mistake.
- Just as it's important to track your investment portfolio and rebalance your assets, it's important to keep an eye on a group to which you donate your money.
- And just as investing requires the discipline to say "No" to any number of pitches from brokers and advisers, charitable giving demands a thoughtful way of turning aside most requests.
- "At some of the 'blue chip' charities -- the Red Cross and the United Way are probably examples -- the salaries coming out are very significant, and there are layers of bureaucracy and money spent on fund-raising," he points out. So Friess instead looks for "some policeman who, after work, goes out
and starts playing catch with a couple of neighborhood kids. And about four or five years later he's got a little athletic league with 300 kids and their total expenditures are a few baseball bats and balls."
- The principle of investing in a company or mutual fund with operations and a strategy that you understand has an analogue in charitable giving. Jack Brennan, chairman of mutual-fund giant Vanguard Group, told me the biggest mistakes he has made in giving to charity always came back to doing the research -- or not doing it. "Do I think that every gift we make is used as effectively as possible? I would be naïve to say yes," he told me.
Good stuff. This is one thing I really love about BusinessWeek -- they cover a large range of issues. There are tons of great pieces in every issue.
I've written quite a bit about giving here at Free Money Finance. Here are some of my favorite posts: