Finding Balance Between Charity and Financial Independence

I didn’t plan on sharing the details of my charitable giving, but discussing it is important. We need to do a better job showcasing the intersection between charity and financial independence.

The recent CARES Act stimulus checks are a great example, especially if you’re still waiting to receive yours. Because I still have my job and haven’t experienced a pay cut*, I didn’t strictly need the extra $1,200. So instead I dumped the lion’s share of it into charitable giving. Specifically, $500 to the Greater Boston Food Bank (GBFB), $150 to my town’s library, and $100 to the next-closest library. I don’t say this to seem all that; this is to illustrate that helping these organizations out a little will in no way affect my financial goals.

Plus, they’ll do a lot more net good with the money than I will.

When I don’t get a four-figure windfall I’m still giving regularly to someone dear to me. Every month I send $150 grocery money to a family friend, “Nina”. Here’s why I do it: my parents were trash and wanted the cheapest option for a babysitter for their kids, all under the age of 5 and one having severe disabilities. We could’ve easily ended up with a terrible or predatory caregiver at that time; instead we got Nina, who considered her love for us part of her compensation and worked well below the 90s minimum wage to watch us every day. I don’t think she ever made more than $30,000 a year, and is now approaching her 70s with very little savings.

I happened to find out she was frequenting food banks to get by and started sending her $150, which is what she told me she spends on groceries per month. This month I sent $175 on Mother’s Day because I wouldn’t have known motherly love as a little kid without Nina.

Could I have used that $750 and monthly $150 to pad my own retirement down the line? Hell yes. But not giving back means being maliciously selfish. After having so many other folks help me learn about the world and how to climb my way upwards, there was no way I could ignore that goodwill by refusing to carry it further.

The Basics of Charity and Financial Independence

I’ve seen other financially-minded folks automatically invest their stimulus checks, as they do with every extra penny that comes their way. That’s well and dandy; you SHOULD be putting away a lot more money than you spend, because that’s what will bring you financial freedom. With that said, it’s not going to derail your plans if you give back to your fellow human. And this is coming from someone who was once deep into Rand’s Objectivism.

It seems to fly in the face of the financial independence movement. If keeping that $3 latte means giving up gobs of money, charitable giving would give up THAT MUCH MORE.

Discussions over charity in the context of financial independence always seem hollow. Nobody is that willing to share their charity numbers; it goes back to fears they’ll face the same price scrutiny with an extra layer of haughty righteousness. Nobody wants to make the case for NOT giving to charity at all because they know that’s wrong; instead they silently continue giving 0% with perhaps some smugness over that number.

It’s to those people I speak to now. First of all, you should definitely gun for financial freedom, full stop. Gaining it means your life energy is now free to do what you’re most drawn to; you can work on what truly brings you peace without having to worry about keeping yourself alive to do so. That also means one less person clogging up public transit or the highways during rush hour.

One more job available to someone else.

An abundance of extra time, energy, desire, and means to pursue your ideal world.

Giving too much of your earnings away means the net goods of your FI status are rendered moot. Struggling along by giving too much severely cripples you should a catastrophe happen; same goes for if no catastrophe happens and you live to an old age without a safety cushion to fall back on.

Giving everything you can is not the way, nor is giving nothing at all.

Why You Should Give to Charity Before Reaching Financial Independence

You should give because you benefit outrageously from what others have built and maintain to support your standard of living. That house you live in? The computer you’re reading this on? The food you eat and the clothes you wear? You either got them from other people or were given knowledge to build/grow/make them from other people. Beyond that you’ve also received access to an education, without which you wouldn’t be reading this now. You’ve also got access to several communities, whether they be local or online.

You can argue none of these are charity to you, but if you do you’re not thinking back enough. Humanity progresses specifically because people do good things for a better future. That’s still the case even when they’re not around to enjoy said future themselves.

A society grows great when old men plant trees whose shade they know they shall never sit in.

-Greek proverb

There have been countless individuals who have helped build this setup for me before I was even conceived; none of them did it in my name, but instead for their nameless descendants-in-spirit who they wished a better life for. Why would you not continue their legacy?

If you’re not one to care about legacy, go a little more analytical about charitable giving. Your donations have a priceless ROI that no index fund or next-big-thing could hope to match. The world will only become great if all of humanity is supported and empowered. That will happen much sooner if we can ease barriers and suffering now.

Whether you like to think so or not, you are not self-made. Participating in society and living in a civilization inherently means you do not have to grovel in the literal dirt and claw your way up; we’ve got systems in place to do the heaviest caveman lifting for you. Others have shared their wealth with you to help you reach this time; you should do the same with the guac you have.

Historical Standards of Charitable Giving

Then the question morphs from “should I give to charity?” to “how much should I give to charity?” Finance is all about math and calculating percentages, so I’m going to give you the percentage you should aim for giving if you need to start:

Two and a half percent.

I got this number from Islamic teachings in zakat, the name for one of their most central teachings in charitable giving. 2.5% is the firm amount of your wealth you should give yearly to help those less fortunate, which also happens to use the SMART goals method to calculate an easily doable percentage. Other Abrahamic faiths might suggest 10% tithing, but that number really isn’t realistic for the majority of people. Us finance enthusiasts have a hard enough time getting people to save that much for themselves; how can we possibly add a double-digit percentage on top of that? Consistency is key, and having a higher amount of people consistently giving 2.5% will make for a higher societal impact.

In fact, I personally attribute zakat to being a big reason why the medieval Islamic world was so much more advanced than Europe was. History lesson ahead: because the majority consistently gave that 2.5% they could afford to educate more people who wouldn’t have had access otherwise. These people, in turn, contributed that much more to society at large. Those nations under Islamic rule had hospitals with running water, streetlights, and even the first modern forays into psychology (eat your heart out, Freud). Meanwhile, Europeans were farting around with poor hygienic habits and comparatively few library books to speak of.

That, among other reasons, is why I like using 2.5%. If we go by these metrics, my $87k base salary would support giving a minimum of $2,175. That’s giving less than $200 a month. I spend that much already screwing around with friends and buying myself treats; dropping the equivalent on providing a meal for the hungry or enabling educational initiatives ain’t gonna ruin me. This is no major sacrifice to me, but will mean so much more to another.

Align Giving With Your Values

By the way, money is not your only resource for charitable giving. Your time and energy are also valuable commodities. If you go with the 2.5% rule again, that equates to a little over four hours a week, or one full day of work every two weeks. Volunteering every other Saturday is a perfectly sustainable way to give back. If you want to knock out that 2.5% of time with a mission trip, that’s roughly 9 or 10 days of round-the-clock work. Like everything else in finance, you’ve got options. All you have to do now is decide where you’ll allocate your charity to.

It’s worth it to sit down and consider what charitable goals are most important to you. Do you want to end world poverty? Eradicate diseases threatening humanity’s most vulnerable? Reverse climate change and save the world environment? What’s awesome about charitable giving is that there’s no wrong answer for what you donate to; if it helps better someone else’s life when they cannot do it on their own, it’s another step towards your ideal world.

I have several priorities that will impact my giving in the years to come. Education is massively important to me (hence the library donations) along with civil rights for all, environmental conservation, and ending child abuse. Right now I’m prioritizing getting food on the table (whether that’s Nina’s or for Boston families) but there are so many organizations I plan to donate to throughout my life.

My donations to charity will continue before and after I reach financial independence.

And so should yours, so start it up today!

You might feel overwhelmed at first with the sheer breadth of charitable choices that are out there, which is totally fine! It’s awesome to have so many choices, and it’s not like you have to stick to one forever. Decide what causes are most important to you – don’t worry about “neglecting” other causes, as we can trust other donors to help fill those gaps.

Next, put in a little research to see what charities are out there. GiveWell is an excellent resource for vetting charitable organizations if you’re looking for larger ones. You can also conduct your own audits by gauging how transparent they are with where their money goes. GBFB has a transparency rating of 100% and I know my money is going far to help my neighbors in need.

What causes are you most passionate about? Do you think giving to charity at all should be part of financial independence?

*I actually recently got a COLA raise of 1.7% so my new base salary is $87,000 something. Woohoo!