A few years ago, we became mortgage free and our net worth crossed over $500,000 for the first time. This was a huge milestone for our young family because just seven years earlier, we had a negative net worth.
We felt incredibly happy knowing that our financial house was finally getting in order. This type of financial security and wealth building practice made us feel like we were headed in the right direction.
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I had an overwhelming sense of gratitude for our position and a desire to give back. So I decided to calculate how much we were actually giving back through charitable giving and gifts to our local church.
My quick math showed me that we were giving away less than 1% of our after-tax income.
This realization made me feel like we could do a lot more.
From Giving 1% to 3%
The following year, we made a goal of increasing our charitable giving to 3% of our income. Given that this was above the average of giving percentage for our income level, we felt like this was an attainable goal to ladder up to.
By increasing our income and lowering our expenses, we factored in the new line items for our monthly budget. We automated the process by giving to our church and favorite charities on a monthly basis. This way, we wouldn’t forget to donate!
When the year came to a close, we ended up giving around 3.5% of our income to charity. It felt like this action was allowing us to progress toward the true wealth we wanted for our family.
From Giving 3% to 5%
After increasing our charitable giving and finding charities that aligned with our values, we decided to ladder up to 5% the following year. With the blessings we’ve been given in our lives, it felt right to give back even more.
We decided to modify our giving to follow a structure of local, national and global.
- Local Giving: Contributing to organizations that provide a real impact in the community where we live.
- National Giving: Supporting charities that are fighting an issue that affects our entire country.
- Global Giving: Giving to nonprofits that are working on important issues that make the world a better place for all of us.
With this new strategy, we got excited about researching organizations through sites like Charity Navigator. This helped us to understand each of the charity’s backgrounds and how much of our donations are really going to the cause we’re passionate about.
As our financial lives continued to prosper, our giving amount did as well. We hit our goal of 5% giving that year!
From Giving 5% to 10%
Although we were enjoying ourselves, we did struggle with giving away our money and not seeing the impact it was making. This may appear to be a selfish thought, but it was (and is) a real thought of ours.
So for our next goal, we decided to increase our giving further, but do it in a new way:
- 5% Charitable Giving
- 4% Family Giving
- 1% Random Giving
We kept consistent with our 5% charitable giving, but thought it would be fun to give to others like our family and our neighbors.
I always wanted to be the uncle that gave my nephews and nieces nice gifts. Or the guy that would go to the wedding and give a big cash gift to the bride and groom.
That’s what this new 4% category has allowed us to do. We give away 4% of our income to our family in the form of gifts and cash.
When my nephew expresses an interest in learning how to invest in the stock market, guess who is ready to buy him his first ETF? We are.
It’s a lot of fun!
There’s an early ’90s movie called My Blue Heaven where the main character played by Steve Martin is a very generous tipper.
I always thought that was so cool. Giving out big tips to people working in the service industry as a way of expressing our gratitude was something I wanted for our family.
So we decided to give away 1% of our income each year randomly.
This is our first year trying this out and man, we’re enjoying it.
Last week, I gave a $100 tip to the workers at my favorite donut shop. They were elated with the gift! They both had huge smiles and gave each other high fives. It was awesome.
Keep Reading: My Charitable Giving Strategies as an Early Retiree
Is There a Right Way to Give?
Just like investing and personal finance in general, I believe giving is super personal. There is no one right way to give.
We just got to a point in our lives where we felt like we could do more. So we did. We learned a lot about ourselves, our values and our preferences along the way.
Over the next few years, I bet our giving methodologies will change a lot more. It’ll be a process of discovery and I think we’ll have a lot of fun figuring it out together.
The best part of all is that our two young kids are a part of the journey as well. They save a portion of their chore money each week and give to their favorite charities, family members, friends or even just randomly like we do.
We hope our example allows them to discover their own special path for giving. This way, we create a legacy of generosity that carries on well past our time.
What do you think of our alternative way of giving 10% of your money? How do you prefer to give?
Please let us know in the comments below.
Personal Capital compensates Andy Hill (“Author”) for providing the content contained in this blog post.