To do good well, you need to identify and support strong charities doing solid work. You need to avoid the wasters and fakers. We created Five Habits of Savvy Donors to help you.
Five Habits of Savvy Donors
Habit 1 – First check the group’s identity
Not every group that looks, sounds or feels like a charity is truly a charity. Scam “charities” often adopt names similar to legitimate charities, siphoning off dollars needed for good works. Scam “charities” do double damage – they steal from you, and they steal from those you want to help.
The fastest way to check a group’s identity is to get and check the group’s EIN (employer identification number). An EIN is typically a nine-digit number, shown like 12-3456789.
- Every nonprofit has an EIN, which it obtains by applying to the IRS.
- EINs are like charity license plate numbers, intended to be public unlike individual Social Security Numbers.
Even among IRS-recognized nonprofits, organization names can be confusingly similar. You might be donating to a charity, but it might not be the one you intended.
- We searched CharityCheck101.org for “habitat for humanity” and found 1,228 nonprofits in January 2022.
- Searched for “boy” and found 4,790, while and “girl” produced 6,233.
- Then we searched for “veteran” and found 17,275!
But no two charities have the same EIN. EINs are the key to checking charity identity.
Habit 2 – Remember that it’s up to donors to evaluate charities
All charities are not above average (unlike all the children at Lake Wobegon1). While many charities do strong work with the moneys entrusted to them, others (“wasters”) lack focus or management and produce little impact.
To boost the impact of your giving, find and support excellent charities that work on the causes you care most about.
Who evaluates and monitors charities?
Private businesses and their activities, finances and impact are evaluated and monitored by customers and investors.
This is not the case with charities. Although most charities must register with the IRS and file annual information returns on Form 990, the IRS is not set up to evaluate or monitor charities.
A sampling of charity evaluation
CharityNavigator.org is the best-known charity evaluation website. It evaluates charities and assigns “star” ratings to 8,971 of them. That’s less than 1% of the 1.7 million+ nonprofits listed by the IRS.
The star ratings categories go from Exceptionally Poor to Exceptional.
- 41.6% of rated charities received 4-star ratings (Exceptional: Exceeds industry standards . . . )2. You can say that they’re exceptional or excellent.
Conclusion: Not all charities are excellent — they vary greatly.
Evaluating and monitoring – it’s up to us
What about the other 99%+ of nonprofits not rated by CharityNavigator.org or another agency? It’s up to us. CharityNavigator.org urges us donors to do our own due diligence on the charities we seek to support, and look at the financial health of the organization, its accountability and transparency and its results.
It’s up to donors to do the evaluation and monitoring, to find and support excellent charities doing solid work, and to avoid waster charities.
- See Garrison Keillor monologues about Lake Wobegon, “where all the women are strong, all the men are good-looking, and all the children are above average.”
- CharityNavigator.org data as of November 8, 2021.
Habit 3 – Keep track of your giving
Create a giving inventory
Keeping an inventory of your giving is a great way to focus and monitor your donations. Your giving inventory will show you:
- When you gave.
- How much you gave.
- Which charities you gave to.
- Each charity’s cause, issue or mission.
- What geographic area(s) they serve.
- What triggered the donation.
- Who asked for the donation.
For more complete results, include your donations from the most recent full calendar year. Look for donations shown in your checkbook, credit card statements and income tax return.
We’ve attached sample blank inventory form for you.
Your inventory can also be a great help at income tax time. Keep your charity receipts and acknowledgments with your inventory. Always include the organization’s EIN (see Habit 1).
Review your results regularly
Are you giving to causes you care about? Are you responding to triggers that surprise you? Have you been focusing on the geographic area(s) you want?
Habit 4 – Budget your giving annually
Budgets bring big benefits
Setting a charitable giving budget makes you think about what portion of your current income and/or net worth you are comfortable donating to charity. We’ve included a simple budget template below.
- If you already have a budget for your overall spending, be sure to specify a portion for giving to charity.
- Charitable giving budgets help families communicate, and set and meet expectations.
- Having the budget also lets you respond to unwanted requests by truthfully saying something like: “Sorry, I’m not in a position to donate to this – it’s just not in my [family’s] donation budget.”
Consider budgeting dollars for “social” giving
Giving to a charity supported by a friend or colleague – even if the charity isn’t working on a cause that matters to you – is often a part of being social.
- Consider allocating a portion of your budget (for example, 20%) to social The remainder is for causes and charities you are focused on.
- Even though it’s social, check any organization’s identity and tax status before you donate (Habit #1).
Who should decide the budget amounts?
That depends on your situation. If spending decisions for you involve joint decision-making with a spouse or partner or children, the same approach could make sense for the giving budget.
About giving from net worth
Many donors plan to hold onto their net worth (assets minus debts) until they no longer need it for living expenses, and do not donate from net worth during their lifetimes. Others are comfortable that their financial situation can handle living expenses and also allow for current giving to charity from assets.
Allocate budget amounts and decisions
Allocate portions of the budget among those who participate in setting the budget amount.
- Consider allocating a portion of the budget to one or more of your children or grandchildren – for them to decide alone, or with you, or as a group. This is a great chance to get children and grandchildren involved in philanthropy.
Keep track of donations vs. your budget
Don’t forget to keep track with your giving inventory (Habit #3).
Simple budget template
Giving budget for calendar year 20__
|Source||Amount||Percent for Cause-Focused||Percent for Social|
Habit 5 – Give to fewer charities
Fewer is better. When you give to fewer charities, you can focus. Your research can be more thorough and more of your giving can have program impact.
You can research and connect more deeply
Let’s say you’d normally spend 30 minutes screening a charity. Screen eight charities, and you’ll spend four hours.
Focus and spend the same four hours on two charities (2 hours each). You can research more deeply, and get to know each charity better.
More of your dollars can go to charity programs
Let’s say your giving budget is $200, and you give $25 to each of eight charities. If the average charity spends just $12 to process a gift it receives, $104 remains for programs (after the $96 used to process).
Give the same $200, but instead give $100 to each of two charities. $176 remains for programs — a $72 boost over the eight-charity result (36% of your giving).
If your giving budget is larger, $2,000 for example, the $72 boost remains (3.6% of your giving).
Bonus Tip: Skip the plastic for bigger donations
Credit card charges are typically borne by the receiving charity and based on a percentage of the charge. So the bigger the donation, the bigger the credit card charge. When possible, send a check or use your online banking system for bigger donations.
As a savvy donor, you’ll be happy to
- continue to make a difference in the world
- protect your generosity from wasters and fakers
- support strong charities doing solid work
- give wisely and well
- and save time and worry while doing it.