2020 has served us a bushfire crisis and a global pandemic, and ignited the Black Lives Matter movement after George Floyd was filmed being brutally killed by a cop – and it’s only June. Yikes.
One thing that has come from all this pain and hurt, though, is a sense of generosity. People who have barely donated a cent to charity in their entire lives have stepped up, and with any luck we can keep that momentum going.
If you have the capacity to donate money, it’s actually one of the most powerful ways you can make a difference. While it might seem like it’s a lazy, hands-off approach, donations actually form a big part of change. When charities and organisations are well funded, they can execute larger scale programs and employ people to contribute to real change on a full time basis. Don’t knock donations!
One off donations are great, and regular donations are even better. When a charity knows they’ve got a certain amount of people on a regular donation cycle, they can forecast better and again, make bolder moves because of the recurring income.
So how can we factor regular charity donations into our spending? Here are four ways to make regular charity donations a part of your financial optimisation plan.
1. Donate a percentage of your salary
Donating a percentage of your annual salary is one of the best ways to ensure your financial growth continues to proportionately benefit the causes that matter most to you. When you donate a percentage, the amount you donate goes up when you earn more – so everybody wins. Plus, it’s an easy way to make sure you don’t lose sight of what matters to you as you reach higher incomes.
Don’t panic, it doesn’t need to be a huge percentage if you don’t have that space in your income.
Even 1% will make a huge difference. If you earn $50,000 and you donated 1%, that’s $500 a year to causes that align with your values. Then, if you get promoted and earn $60,000, and then one day $80,000, your chosen charity(s) benefit from your increased wage, as that 1% becomes $600, and then $800.
How you physically make that donation is up to you. Whether you save it up each month or donate 1% of each paycheck in real time, find what works for you. You’ll notice that you very quickly become accustomed to living without that 1%.
2. Sweep unused income each month
An alternative strategy if you don’t want to commit to a certain percentage is to sweep any unused spending money each month into your favourite charities.
If you budget $200 for spending and the day before payday you’ve got $13.20 left, jump online and make a donation to your chosen cause. Knowing payday is coming provides a nice element of positive reinforcement for your generosity, too.
3. Make spending swaps
If your income is a little more unpredictable, a fun way to get connected to your donations is to reconfigure your spending and make swaps. Let’s say you’re on your way to work and you think of grabbing a coffee. You could decide to skip that coffee and pay it forward instead, by moving that $5 into an account earmarked for your donations.
You can do this in a number of ways. Perhaps if you go to buy something for $49.99 and it’s on special for $39.99, you move the spare $10 into the charity account. Or if you consider a takeaway, but fancy paying it forward and cooking at home instead – donate that takeaway money to your chosen charities.
I’m not saying give up everything you love and donate it all to charity, of course! Even if you donated two of your coffee spends each month to charity, over time it would add up – and any giving is better than none.
4. Match your spending
Another fun way to donate to charity if you’ve got a bit more flexibility in your income is to choose something you spend on, and commit to matching it with a donation every time you buy it. Again, let’s use the coffee or takeaway example.
Every time you buy a coffee or order a pizza, you commit to donating the same to causes that matter to you. You feel extra connected to your chosen charities, plus it’s a way for both you and your causes to benefit from your disposable income.
Charity donation tax deductions
Don’t forget to keep a record of your donations and include them on your tax return if the charity has tax deductible status. If they’re eligible, you can deduct the amount you’ve donated from your taxable income, and reduce the amount of tax you pay. Remember, you’re not getting the full amount back, but the amount of tax you pay will reduce at your marginal tax rate. So, if you earn $50,000 and make $500 in deductible donations that year, you’ll only pay tax on $49,500. Some charities aren’t eligible, so make sure you check their website before you make the deduction.
Note: a number of the charities you may have donated to in recent weeks as part of the Black Lives Matter movement will likely not be deductible. Usually the charity has to be a registered charity in your tax paying country, so American charities won’t be eligible. Some charities also do not have tax deductible status if they’re primarily engaged in advocacy, under rules by the Australian Government. This tool allows you to search if your chosen charity has DGR status.
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