All readers of personal finance blogs and especially those chasing early retirement have already figured out that money is an immensely powerful tool if you understand exactly what it can buy. For the FIRE community, money can buy freedom. It can buy your time. In a sense, we’re all indentured servants who must pay a massive sum to break the chains of relying on a job. At its simplest, this purchase price is equal to your monthly expenses * 300, for a 4% withdrawal rate. You’ve all heard this before, and hopefully it has sunk in that a sufficient cash hoard, invested properly, can buy your time back from the job market. What else can money buy? Can it by happiness? Maybe, through direct charity.
Charity is one of the most surefire ways to spend money and achieve happiness. For me, the boost in my mood after being charitable is a fleeting feeling, though. Giving money to good causes is a generous and admirable endeavor. How you contribute to charity, though, has different levels of impact on your well-being. Giving $1000 to the American Red Cross is a tough sell, given their negative reputation for their inefficiency with handling donations, i.e. the percentage of that $1000 that actually is used for helping people might be unbearably small for some donors.
I am orders of magnitude more fulfilled when my charity helps people I know, and/or the entirety of the donation ends up in the hands of the person who needs it. GoFundMe is a perfect outlet for my outreach efforts. I’m picky about the causes I support, but when I find the right situation, I tend to give generously.
In the next few parts of the article, I’ll be discussing some specific examples of charity. I have mixed feelings about publishing these, because I like to keep my charity private. Blabbing about how much money you give away is an awfully vain act, one that is frowned upon and for good reason. Charity is intended to be an unselfish act, although I do believe that altruism is inherently selfish, because the end result is the warm and fuzzy feeling that the benefactor achieves. I’m not a fan of leveraging charitable donations to attempt to achieve a boost in social standing in addition to the internal happiness that it buys. Because this blog is relatively anonymous, and my friends and family don’t read it or even know I write it, I feel a bit more justified in sharing these details to help others think outside the box when it comes to their donations.
Direct charity: Case #1 – a random GoFundMe
My first example is a GoFundMe. I know the company takes 7%, but the social media effect far outweighs this hefty fee. In this particular case, social media hadn’t picked up on the request that was submitted. An elderly man, a veteran, had lost custody of his daughter at a young age. We’ll call him Harold. The mother moved a few thousand miles away, and the daughter grew to be 18. We’ll call her Josephine. As soon as she turned 18, Josephine’s her mother kicked her and her infant out of the house. They had nowhere to stay and reached out to Harold for help. Harold posted on GoFundMe an itinerary, estimated cost of gas, and estimated cost of budget motels along the way. His plan included a 20 hour stretch of driving followed by 4 hours of sleep at a truck stop, so that he could save money on motels. In total, he was asking for $800. After a few weeks, Harold had raised a measly $80.
I stumbled across Harold’s request when browsing my local GoFundMe pages. His need truly touched my heart, because I know a woman for whom I’d give my entire balance sheet if she could just see her dad for five more minutes. If I could give a relatively small donation so that this man could see his daughter for the first time in over a decade, and if he could possibly help Josephine and her infant with their housing situation, the price of admission seemed cheap. In the wee hours of the night, my favorite time to be productive and conduct business, I donated $1500.
The joy and gratitude that Harold and his wife expressed the next morning will stick with me forever. With the extra money, they decided to take a small detour to visit Harold’s dying mother, who had never met Josephine. They also broke the drive into more manageable chunks and stayed at a couple motels overnight, allowing them to be rested and safe drivers on their journey. Harold posted regular updates, with pictures, showing the family crowded into an old van on their way back home. Josephine and her baby now live in Harold’s house, just a few miles away from me. Josephine, who struggled to land a job in her mother’s city, found good employment in my town, and the new overall living situation seems to be a happy one.
Without a doubt, I feel much better having sent money to Harold instead of a registered charity. Thanks to Harold’s updates, I was able to follow along with the happiness that my money had bought for both Harold and Josephine.
Direct charity: Case #2 – an annual scholarship donation
Annually, my wife and I donate a small sum to a graduate from our high school alma mater. Unlike the majority of scholarships, we write a check directly to the recipient. We consider and encourage applicants who are not attending college, as long as they’re pursuing immediate employment or a trade school. High school graduates, especially from my impoverished hometown, need money upfront. Sure, a check to their selected college to knock out a chunk of the tuition is helpful in the long run. But that scholarship won’t buy books, or gas, or a laptop, or even beer. We trust the recipient to buy what they need or want most, even if it might be nonessential – although who wants to argue that beer actually is a vital college expense?
Every year, I look forward to picking up a thick manila envelope stuffed with details about enterprising young people who have a chance to show off their high school achievements and their livelong dreams and goals, in hope that a committee will select their application as the most deserving of the bunch. The packet includes parental financial data, an essay written specifically for our scholarship, sometimes a picture, and of course a high school transcript. For me, sifting through the stack of papers is a joyful experience. With this scholarship, I’ve given myself an opportunity to live vicariously through the eyes of a young dreamer, for just a few moments. It’s incredibly fulfilling.
The scholarship is relatively small, and so we haven’t yet setup the proper legal entities to achieve a tax deduction for the donation. We plan to grow the scholarship after early retirement, because I’m planning to have significantly more than I need invested. By not touching some percentage of my portfolio that is eligible for the 4% withdrawal rate, that extra money will compound and snowball into a “Holy shit we’re filthy rich” amount in our golden years. That’s my play money, and much of it will end up in the hands of people in need.
Direct charity: Case #3 – buying time for education
Charity: thinking about it vs making the donation
In this case, I haven’t made a contribution yet. I’m thinking about it. I’m not 100% sure the recipient would accept the donation. With charity, one must be careful, because simply thinking about giving is sufficient to give the donor a dopamine boost almost equivalent to the act of actually giving. Many people consider themselves to be good Samaritans based on their inclination to consider helping someone. I try to keep this biological phenomenon in mind when I’m planning a gift. It’s important to actually act instead of just thinking about giving and being satisfied with the mental simulation alone.
A rough start but a promising career
One of my closest friends (pseudonym is Dale) is a late bloomer financially. He started adulthood with stupid decisions that landed him in trouble, and he is stuck with a felony on his record for life. While serving probation for two years, he began to steer his life back on track. He’s been a model citizen since his run-in with the justice system, and he’s working hard toward having his felony expunged. If he’s successful with that effort, his lifelong earnings ability will skyrocket. The fallout of a felony conviction is an unjust hinderance on criminal rehabilitation into society, because it so severely limits one’s employment opportunities.
Because of his background, Dale must apply to dozens of low paying jobs in order to land one. He’s a diligent worker, and his past employers are overjoyed to have him on the payroll, especially because they can underpay him on the basis that finding jobs is a major conundrum for Dale, far worse than the tedious efforts of the unconvicted. Dale has managed to find a dead-end office job paying about $15 per hour. Combined with his wife’s income, he has just enough money to support his family.
Dale is pursuing a bachelor’s degree at a snail’s pace. He can only take one night class per semester. Within a year, he will complete his associate’s degree from a local community college. Assuming that Dale takes summer courses and is able to bump up to two classes per semester occasionally, he will need about 6 or 7 years to complete the normally-two-year requirements for a bachelor’s degree achieved via transfer from community college.
How I can help a friend with his education goals
I’m strongly considering buying two years of Dale’s time with the expectation that he leaves employment and completes his bachelor’s degree in two years as a full-time student. His $15/hr job nets him about $31,000 annually pretax. I can gift $14,000 to Dale and another $14,000 to his wife each year tax-free for both of us. That nets the household $28,000 completely untaxed, which is pretty close to Dale’s annual salary when you take into account taxes. The total investment in Dale would be $56,000. Because Dale’s wife has gainful and promising employment with good insurance, he’s in a situation where being a full-time student for two years is a possibility, but only if he has enough money to cover living expenses during his schooling.
The degree that Dale is pursuing is one that nearly guarantees job opportunities that can double or triple Dale’s salary after graduation. He works hard at his education, often declining social dates because he has to study. His grades are good. I consider Dale to be family, and I want to use my wealth to lift my inner circle out of their current situations. This particular gift idea has potential to be an investment in my friend with returns that are almost immeasurable: the dollars can be calculated, but the intangible effects on his life could compound far beyond what his balance sheet shows. It would change his life, and for me, it represents just a couple more months I need to work before I retire at a ridiculously early age.
Direct charity: Case #4 – helping elderly family live comfortably
I have a tiny family. In fact, none of my family members are related to me by blood. The only family member in my life who is directly related is my dearly beloved elderly aunt-in-law. We’ll call her Louise. Louise is over 70 years old but is very spry and healthy. If the universe allows it, she should live a good life for a couple more decades. She retired from a government job long ago and lives on a fixed income mostly comprised of her pension and social security. She owns her modest house outright.
The problem is that Louise lives an hour away, in a town that has stagnated and disintegrated into a drug-filled, hopeless redneckville. Louise’s best friend died recently. Before that, she lost her cherished sister and fell into a lonely depression, a mental illness that has plagued her for her entire life. She fights on, though, making strong efforts to get up in the morning, dress well, and attend social events when she feels up for the occasion. One invitation to leave her house, she never declines. She’s most joyous when my wife makes a weekly visit. That standing lunch is the #1 appointment on my wife’s calendar that she will fight to keep, no matter what inconvenience attempts to foil her plan. The three of us love each other deeply, a fondness that rivals the closeness of a traditional nuclear family.
Elderly family at risk, living alone
Because Louise has outlived her social circle, she rarely has visitors to her home. If she were to fall down the basement steps, days could pass before anyone would notice. This risk troubles my wife and me, and we are determined to find a mitigation strategy. We encourage her to carry her cellphone at all times, a device that is most often shut off and stored in a drawer. We’ve even mentioned life alert, but Louise is stubborn. In passing conversations, she has expressed a strong interest in moving to our town, which is vibrant, growing, full of interesting people of all ages, and—most importantly—close by to my wife and me.
Unfortunately, rental and real estate prices in my town reflect the fact that it’s growing rapidly. The prices are significantly above Louise’s housing budget. My wife and I have explored many options to help, including buying a house to rent to Louise. We settled on the strategy of simply giving Louise money regularly to 100% cover the gap between what she can afford to rent and what the rental actually costs. We’ve begun efforts to render the donations by slowly ramping up conversations about a potential move. Today, we’re floating the idea of actually giving Louise money. I’m not quite sure how it will go. As I mentioned, Louise is stubborn, and she’s also very proud. It will be difficult to convince her to take this gift, but we are resolute that it will happen.
Direct charity can benefit oneself
By giving enough money on a regular basis so that my aunt can move nearby, I wouldn’t only be buying benefits for Louise. I’d be buying back the weekly (or more) two-hourlong roundtrip journeys that require my wife (and frequently me) to drive on a dangerous interstate highway. My purchase would eliminate a risk that Louise could have a health scare and be alone, untreated, for an extended period of time. The expenditure would return to me the benefit of having more frequent contact with my closest family member. The contribution is an investment in my quality of life and the quality of life for Louise.
A lifelong charity commitment requires a plan
Unlike Dale’s case, which would be a one-time massive outlay, Louise’s case is highly variable and long-term gift. For this situation, I need to build an investment pool that throws off enough dividends and capital gains to support a regularly occurring expense. Let’s say the monthly amount starts at $500. Rent can be raised, often beyond the rate of inflation, so I must include a ballooning element to the cost. At minimum, I need a $150,000 separate portfolio to support this idea. That would require me to work for a couple more years.
Charity and early retirement
I’m of the Warren Buffett mindset that my charitable efforts will be more effective later in life. I can invest charitable money aggressively, because it’s not money that I need for living expenses. By allowing money to compound at a rate that exceeds the achievements of most endowments, I can build a massive charity fund myself and spend my grey hair years doling out checks to people or organizations in need. That’s my long-term plan, but sometimes people could use the cash infusion right now in order to make their lives significantly better.
Because I’m within sniffing distance of early retirement, I love the work that I do, I work from the comfort of my own home, I don’t have to travel much for business, and the compensation has become ridiculous, I’m in a special position to be extraordinarily helpful to the people I love. The only cost to me is a small amount of time that I tack on to the end of my retirement date. These charitable ideas are the most convincing arguments that feed my onemoreyearitis disease.
Direct vs Indirect Charity
I do give money to organizations, but only in tiny amounts. My favorite organizations include the local food bank and the Electronic Frontier Foundation. In total, my contributions to these types of charities over the past decade have summed up to about $1000, small fries compared to the ways I help my loved ones and people in dire need.
I’m 100% convinced that giving money to someone you know is far more effective and more satisfying than sending off money that seems to disappear into an endowment’s black hole. I believe that later in life, after my inner circle has built a solid foundation for each member, I’ll be sending big checks to organizations. For now, though, I operate on the principle that I need to take care of myself and my family first – which includes achieving financial independence – and then I can help the people closest to me. Only after I’m comfortable that I’ve accomplished those two goals, then will I divert the funds to registered charities.