If you have more money than you need, you should start giving some of it away. That’s the lesson I learned about a year ago, when I took a gamble and donated $100,000 to a variety of charities, centered around the Effective Altruism movement.
More on Effective Altruism: The Life You Can Save website, and my earlier article on the subject.
At the time, I had no experience with giving to anyone other than immediate family and friends, so I didn’t know how I would feel about it. But over the course of this past year, I have had many late nights to reflect on life and what it means to live one that feels worthwhile. There have been successes and failures, mostly happy times but also plenty of sadness shared with my siblings as our Dad made his departure.
During all this questioning of life, I kept thinking back to the times I’ve been less selfish and less fearful, and more willing to help other people. These were the things that reassured me that my life was indeed a good one, and that I wasn’t squandering the opportunity too badly so far. In short, being a good person was by far the most reliable source of happiness.
So. If hard work and generosity are what bring meaning to life, it makes sense to keep at it, even when it seems difficult. With this in mind, I vowed to make another round of donations of equal or greater size this year.
The Tricky Side of Philanthropy
While most people would assume that giving away money is easier than making it, when surveying wealthy people I have found the opposite is often true. After all, once you build a prosperous business or career, the income becomes almost automatic. You indulge in your natural and joyful tendency to work hard every day, and the money keeps flowing in, often faster with each passing year. There are no decisions to be made, and you know every dollar of net income is going somewhere worthwhile: to you.
But to give money away, you have to overcome a whole new set of challenges:
- Overcome your fear of having less money.
After all, more is always better – you can always benefit from more security, right? (this is actually wrong, but it can be hard to recognize)
- Figure out who is most deserving of your money.
It took so much time to earn the money and overcome the fear of giving – the last thing you want is to see it go to waste.
- Figure out how to get that money to the worthwhile recipient.
You have to find their webpage, mail a check so the credit card company doesn’t steal 3% of your donation, and ask politely that they don’t put you on their mailing list and hound you for the rest of your life.
- Sort out the tax consequences. In most cases, you can deduct charitable donations on the “itemized” part of your tax return, but until you hit the itemizing threshold of around $10,000 you might not get any benefit. On the other hand, certain charitable expenses are deductible directly from your business income, if you run a business.
- “Too confusing already. Forget it, I’ll just keep my money.”
And thus, you end up in the same trap that keeps many people from being generous.
Since I had already pushed through the pain last year, I knew I could handle it and repeat the same thing this year. Just write the same checks and mail them to the same places. Job done.
But then I noticed a few shortcuts that make things even easier:
- Betterment Investing just added a spectacular no-cost automatic donation feature. Using their existing tax-optimized system, they allow you to donate your most appreciated shares directly to any of their many connected charities. This gives you the maximum tax deduction right now, while reducing your taxes further when you later withdraw from your account later in life.
- Paypal has a similar feature: even from within the minimalist phone app, you can click a “donate” icon and transfer out surplus bits of your balance directly to a large selection of good charities. Paypal does its part by not taking any fee for these donations, no matter how large. You can use up existing paypal balances, or have them draw through your connected checking account – I found this was a very smooth and easy way to try your hand at giving.
MMM Headquarters Becomes an Automatic Philanthropy Machine
MMM Headquarters shows off its holiday style, just last night.
I noticed that PayPal feature because I happen to have a constant, growing surplus in my account these days, as a result of starting the MMM-HQ Coworking space right here in downtown Longmont.
The money side of this situation is pretty interesting:
- We bought the property (which now hosts two businesses) for $225,000, which means my half cost me only $112,500.
- Then I spent about $30,000 in materials and subcontractors to whip it into shape. (Plus about 700 hours of my own labor, which I happily donated)
- We now have about 60 paying members at $50 per month each, for a total of $3000 per month or $36,000 per year.
- But the coworking space is still kind of quiet during the days, so we can sign up a few more people and bring this annual number to $50,000.
- Property taxes ($4k), Utilities and Beer ($1600), and ongoing upgrades ($10,000) only consume 30% of this budget, leaving a huge surplus, as long as I keep running it myself and don’t draw any salary.
- Many people and companies have started donating supplies to us, in an unprompted show of generosity. Authors send us books, Nimbus Roasters keeps our coffee stocked, Urban Tribe sent a fancy electric cargo bike, Aerobis sent some cool strength training equipment all the way from Germany, Flatiron Spice Company brought in red and green chili spices, Lefthand gave us a discount on beer kegs, members are donating useful equipment like 3-D printers and weight training equipment from their homes, and the list goes on.So I figured, in the spirit of all this sharing, why don’t we make this building a philanthropy machine? Its ongoing profits can be donated to charities – both local and international – on a regular basis. Along with doing a lot of good, this will probably give all of us members a stronger sense of belonging.
What if I’m Not Ready to Give?
I’m writing this post to encourage people who have plenty, to consider giving it to help people (and parts of our natural environment) truly in need. If I can prompt you, wealthy person, to decide that giving to the world’s most effective charities, is even better than getting a slightly better car or leaving your children an extra-large estate, then this post might be the most effective one on this whole website.
But I do not want to make anyone feel guilty for not giving away money, when they don’t yet have a surplus. If you’re working hard and saving effectively for financial independence, abundance will come. If you’re not there yet, don’t stress out about it. There is no “tithing” in the imaginary religion of Mustachianism.
Details on Easy Giving
Some of the staff of Givewell in San Francisco office perform the “Mustachian Salute”
As part of writing this article, I made part of my $100,000 donation via Betterment’s new system. I have three accounts with the company (my public Betterment Experiment, a rolled-over IRA, plus a personal taxable account with the largest balance of the three). All three accounts have seen rapid appreciation due to the current boiling-hot stock market, so there are lots of capital gains available to harvest.
Donating appreciated shares expands the power of your giving compared to just giving cash, which is quite a neat trick. This quick table from Betterment’s new Charitable Giving Explainer page lays it out very simply:
In this example, your donation nets about 19% more tax savings than a direct cash donation.
So I tried the same thing in real life. The largest of my donations this year ($70,000) was to GiveWell, through the Betterment system. As I fired it up, Betterment automatically estimated my tax savings in real time:
This $70,000 donation will cut my 2017 tax bill by $22,841.. AND reduce my eventual capital gains taxes by $4188. This is the true power of donating appreciated shares.
As with last year’s donation, this biggest chunk went to charities based on the Effective Altruism philosophy. What this means in practice is, “Create the best results for humans possible, on a worldwide basis, with each dollar.”
I believe this is both the most humane and the most logical way to donate money, because of the following course of events which has been proven again and again:
Improve developing world health and education
-> these people have better lives immediately
-> but also the more empowered people also choose to have smaller families
-> world population growth slows and eventually reverses -> everybody wins.
So in this round of donations, here is where the money went. You can click each charity name to get to their own website for easier research.
|World Wildlife Fund
|Doctors without Borders
|Amazon Conservation Association
|Natural Resource Defense Council
Note on giving through GiveWell: I followed up with a note to [email protected] directing that they use the contribution for “Grants to recommended charities at GiveWell’s discretion”. This is a necessary step as it’s not yet shown in the Betterment interface.
Note on Donating Appreciated Shares: you don’t need a Betterment account to do this, it just makes it easier. Several other financial institutions make this possible, and Vanguard has a nifty “Donor Advised Fund” feature.
And don’t forget the possibility Donor Advised Fund: you can set aside a larger amount right now (while the tax rules remain favorable to charitable deductions) and give it away over time. See more details at Vanguard and the Physician on Fire’s article about this great strategy.
Since this is an unusually important topic, I will try to invest extra time into answering questions in the comments section. And if you’re an expert on any of these subjects – philanthropy, investing, tax policy, the developing world, medicine, or the environment, please feel free to do the same.
Thanks, world, for another prosperous year and here’s to the next one!
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