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How Much Money Should You Give to Charity?


As we near the end of charities’ fiscal years, you might notice nonprofits reaching out to supporters—like you—to assist with their year-end fundraising goals. So you may be wondering: as a person who cares about the world around me, how the heck can I organize my charitable giving efforts?

It’s a natural question for ambitious, organized, and caring women—much like yourself, we’d imagine. You want to make your giving efforts count. 

You don’t want them to feel scattershot. Rather, you’d prefer to have a structured plan for your charitable efforts. That way, you can iterate on that plan in the coming years, until you finally settle on a process that feels great to you, in addition to doing good for others.

When we talk about this topic with our charitably inclined clients, many feel at a loss when it comes to setting up a consistent and repeatable approach to giving.

A Simple Way to Plan Your Charitable Giving

Chances are, you might feel similarly overwhelmed. To ease that overwhelm, we break this conversation down into three bite-sized pieces:

  1. Determine what values you want to uphold via your giving.
    This is very personal, and requires reflection! Meg detailed her own personal values as she put together her own giving plan, and offered some tips for thinking through your own values in this post.
  2. Optimize your giving using the strategies/tactics that are most applicable for your particular financial situation.
    We walked through some of those strategies and tactics in this post.
  3. Settle on how much you actually want to give. That’s the trickiest question for most people—and the subject of today’s post.

Three Calculations for How Much Money to Donate

If you’re charitably inclined and want to come up with a rule for how much money to give away, you’ve got a few options.

Option 1: Donate a percentage of your income.

This option is ideal if you have a fairly traditional financial situation: you have a job, for which you receive a salary. On the surface, this option sounds straightforward: choose a percentage of your income to give away!

That begs two questions, though. 

  1. What percentage should you choose? 
  2. What if your compensation also includes “lumpy” forms of income (a bonus, public-company RSU vesting)?

When it comes to picking a percentage, remember that any number you pick will be arbitrary. So let’s focus on making sure your choice feels, yes, arbitrary, but also reasonable:

  • If you’re new to charitable giving, 1% of your income might be a painless initial choice if you’re worried about the impact on your budget, or you simply want to build your charitable giving skillset before committing a larger amount of money.
  • 10% of your income would be a classic upper-end choice; this is the number most often used by folks who tithe. This is a pretty serious commitment to giving, if you feel ready for that.
  • If 1% feels like table stakes, but 10% feels overwhelming, how about a happy medium? You could start with 5% of your income. It’s enough to feel meaningful and impactful, without overwhelming your budget as you get started.

If you’re compensated with a bonus, or public-company RSUs, you’ll want to consider how this “lumpy” income fits into your arbitrary-but-reasonable plan. 

When your bonus check hits, or you sell your RSUs, will you set aside 5% (if that’s your target) to give away, or are you only considering salary income in your plan? 

Another question to consider: Will you target 5% of your gross income or after-tax income? 

Whatever you choose is valid. But it’s important to intentionally choose some answer. Otherwise you’ll get hung up on the details when it’s time to actually implement your plan.

Option 2: Donate a percentage of your wealth.

Whether through years of careful investing, or through a one-time wealth event like an IPO, you’ve built up your portfolio. Maybe you’re even taking some time off paid work…or you’ve taken a big pay cut to do more meaningful work. 

You have wealth, but maybe not much income. How should you think about deciding how much to donate?

If you are financially independent

For those of you in this situation, here’s a simple framework: 

  1. Pick a day of the year.
  2. Pick a percentage of your wealth that you will give away each year. Let’s say 0.25%. You could view that  as a meaningful-but-not-overwhelming cut from your 4% withdrawals from your investment portfolio.
    1. Again, start small if you’re uncertain! You can always give more later as you learn and adjust.
  3. Each time that day rolls around, calculate how much money 0.25% is.
  4. Give that much money away. 
    1. Gifting appreciated investments (investments, like company stock, that have grown in value) could be a strategy that comes in especially handy for those of you in this boat!

If you just received a windfall

And then there are those of you who’ve come into lots of money, all at once, by way of your company stock (IPO, anyone?). 

In addition to the option above, you might choose to donate a percentage of your windfall as a one-time gift. Using a vehicle like a donor-advised fund means that you wouldn’t necessarily have to figure out which charities will get the money immediately. You can donate to the DAF, get the tax break…and dole the money out to charities at your leisure over the ensuing years. 

We’ve written before about how to think about the upper end of how much you could reasonably afford to give away. But if you’d like a reasonable target to start with on the lower end of the scale, how about 1% of your company stock?

Option 3: Donate as much as you spend on a selected budget category.

Sure, you probably fit into one of the categories above. That said, for some people, picking a number in the manner outlined feels so arbitrary that you might not feel emotionally connected to that goal. 

If it feels simpler, or more resonant, to calculate your charitable giving target in a different way, this next option might be better for you!

First, pick one of your discretionary expense categories—maybe restaurant meals out, or your vacation budget. Then, simply match your monthly or annual charitable giving target to that number. 

There’s no magic to this target, just as there isn’t any magic to any other target. However, if you can afford to spend X dollars on something fun, as the logic goes, you can probably afford to give X dollars away, too. 

If you already track your spending, or start loosely tracking for this purpose, it should be pretty easy to identify a gifting target once you’ve picked a spending category to map to.

Or, like one of our clients, you might consider picking a non-discretionary category that feels meaningful, and match to that instead. 

This client took her monthly rent figure, and made one annual gift in that amount. For her, matching to this category made charitable giving feel more like a non-discretionary spending category—that is, non-negotiable. And if you choose a fixed spending category like rent, that’s much easier to track, since it won’t change from month to month.

How to Choose

We’ve presented a menu of options above. But if you don’t want to hem and haw about your choices, most people could reasonably default to one of the first two menu items, depending on whether you have more income (Option #1), or more wealth (Option #2).

The great thing about any of these choices? They’re not permanent. Commit to trying one method out, reflect on how it feels, and tweak your choice from there. 

Whatever approach you pick, you can rest assured that you’re making the world a better place, one gift at a time.

Do you want to give more money to deserving people and causes, but you’re stuck…out of fear of giving away too much or just being random about it? Reach out and schedule a free consultation or send us an email.

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Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Flow Financial Planning, LLC, and all rights are reserved. Read the full Disclaimer.

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