He’s a very interesting character, quite down-to-earth and prone to saying things so full of common sense that you have to laugh because no one has said them before.
Towards the end the audience was invited to approach a microphone and ask him questions.
I was sitting a few rows back with a clear view of the microphone stand. I saw the Physician on Fire get into line to ask a question.
“Oh, this is going to be good!” I thought to myself. No matter what the question was, it was bound to be interesting to see the interaction between these two blogging titans.
It turned out to be even better than I expected.
PoF asked MMM about the latter’s donation of $100k, his plans to do it again, and so on. What ensued was a few moments of conversation about a topic we often hear very little of in the personal finance community: giving.
A Lost Topic
If politics and religion are the two topics it’s not polite to discuss in public (or at least they used to be), the subject of giving holds the same prominence in the world of money management.
Especially among the group working towards early financial independence, giving seems to rank even below the lowly topics of insurance and estate planning.
Now I haven’t done a study to confirm this opinion, but I used to read hundreds of posts every week to select features for Rockstar Finance. I did this for over a year, so I saw thousands of posts (probably tens of thousands). Believe me, the giving posts were few and far between.
One of the exceptions is Physician on Fire. He has emphasized giving for as long as I can remember, donating half his profits to charity. In fact, his post on donor-advised funds was what encouraged me to finally open a DAF myself.
Unfortunately, this is the exception rather than the rule.
As we enter into this season when many are planning their year-end giving, I want to share some observations and present a case for how we should all consider giving whether we’re on the path to FI or already there.
Three Ways to Give
There are three ways to give that get the most attention. My pastor refers to these as “time, talent, and treasure.”
In short, a person can volunteer to help an organization with any sort of task, use their special abilities (such as medical training) in service of others, or donate money to a cause.
While all of these are valid (and worth doing IMO), I’d like to focus this post on the last — giving money.
It’s my belief that even if you do the other two, you should be donating money. And, of course, giving money is the only one that has direct financial implications, so it’s the most appropriate for a financial blog.
Opposed to FIRE
One thing puts giving money in direct confrontation with the FIRE movement: math.
After all, which is easier: hitting FI saving all you can or hitting FI saving all you can less whatever you give? The answer is obvious.
To a community known for high savings rates and low spending, giving is often just another expense. It’s something to be cut. It’s not necessary. It’s a drag on the ultimate goal.
And it’s so easy to leave out of a budget. You don’t even have to give up anything to save!
BTW, let me say that it’s not just the FI community that has this issue. I’m well over 100 millionaire interviews and I’m surprised at how few of them give money — the percentage of givers is much lower than I would have guessed among such a wealthy group.
Two Big Reasons for Giving Now
Given these facts, I know I’m bucking trends and simple math when I suggest that we all should be givers.
But there are a couple big reasons why giving is worth it even while pursuing FI.
1. You will help others.
Let’s face it, people are hurting/hungry/dying/etc. now, so our giving needs to be now. To wait would be to leave so many behind while we simply accumulate more in our lives. How can we enrich ourselves when others are suffering? Can’t we see our way clear for at least a bit of charity while we strive toward the financial heights so few ever achieve? Does compassion for others have to die on the altar of financial freedom?
Of course this logic could be taken to an extreme and become an argument that “giving it all away” is the only logical path (ever see the end of Schindler’s List?).
If you want to dismiss this argument, there’s a more self-interested reason for giving that even the most jaded person might consider…
2. You will help yourself.
How would you like a longer, happier, healthier life?
How about less trouble sleeping, less anxiety, less helplessness and hopelessness, better friendships and social networks, and a sense of control over chronic conditions?
Well, according to both the Cleveland Clinic and the Chicago Tribune this is what giving (time and money) can do for you.
A summary from the Cleveland Clinic:
We all know giving helps others, whether we volunteer for organizations, offer emotional support to those around us or donate to charities. But studies show that giving is also good for the giver — boosting physical and mental health.
Studies find these health benefits associated with giving: Lower blood pressure, increased self-esteem, less depression, lower stress levels, longer life, and greater happiness.
And from the Chicago Tribune:
If there’s a magic pill for happiness and longevity, we may have found it.
Countless studies have found that generosity, both volunteering and charitable donations, benefits young and old physically and psychologically.
The benefits of giving are significant, according to those studies: lower blood pressure, lower risk of dementia, less anxiety and depression, reduced cardiovascular risk, and overall greater happiness.
“Volunteering moves people into the present and distracts the mind from the stresses and problems of the self,” said Stephen G. Post, founding director of the Center for Medical Humanities, Compassionate Care, and Bioethics at Stony Brook University School of Medicine in New York. “Many studies show that one of the best ways to deal with the hardships in life is not to just center on yourself but to take the opportunity to engage in simple acts of kindness.”
“If you are a recipient of a good deed, you may have momentary happiness, but your long-term happiness is higher if you are the giver,” Ariely said. For example, if you give people a gift card for a Starbucks cappuccino and call them that evening and ask how happy they are, people say they are not happier than if you didn’t give it to them. If you give another group a gift card and ask them to give it to a random person, when you call them at night, those people are happier.
“People are happier when they give, even if they’re just following instructions,” Ariely said. “They take credit for the giving and therefore are happier at the end of the day.”
Of course there’s a benefit to others, but the research shows that it really is better to give than receive.
So if for no other reason than you’re looking for a way to improve your own life dramatically, you should consider giving!
How to Start Giving
As you can see, there are some great benefits to giving for both the recipients and the givers.
Plus the negatives to giving are not as bad as portrayed. While the math does tell us it will slow down your FI journey, obviously it won’t completely stop it. You’ll still get there. And if you’re a giver, studies say you’ll be happier about it when you do. 😉
That’s why I’m asking everyone reading this to consider where giving fits in your finances, whether you are on the path to FI or not.
To help you in this effort, I want to offer some suggestions for how to incorporate giving into your FI plan. These are tips that worked for us on our path to financial independence (where we gave 26% of our gross income and still achieved FI in our early 40’s).
Whether you’re giving now or not, these steps can help you start giving or give more:
1. Start small and grow over time.
I’m not asking anyone to go from zero to $20k a year overnight. That would be impossible for most and a burden that likely wouldn’t stick.
Instead, just start with a small amount — $3 a day, $100 a month, $1,500 a year. Whatever works for you.
Then increase it a bit here and there over time until it grows into something substantial. In this way it’s very similar to growing your savings — small changes over time can have a big impact.
I was giving very little when we got married. Afterwards, we started giving some (my wife is far more generous than I am) — a few percentage points of our income.
As time went on we decided we wanted to give at least 10% of our income, so we did.
From there, we increased a percentage or two each year and our rate grew steadily over time.
On top of this we added special appeals that drove the percentage even higher.
It would have been hard to go quickly from zero to 26%, but with gradual increases over time, I can honestly say that we never missed it or felt giving was a burden.
2. Get involved in causes you care about.
Doing this will make you a giver faster than anything else because you’ll see the needs firsthand. You’ll witness people in tough situations and your natural tendency will be to help as much as you can.
From there, most of the financial hurdles will disappear.
My wife and I did everything from work with kids (which she still does) to sitting on boards for sizeable non-profits. Doing these things showed us the need up close and personal and made giving that much easier.
As a side bonus, you can volunteer in a way where you learn new skills, which will help your career and grow your income. Many charities will give you responsibilities that a boss might not as he thinks you’re “not ready for it.” Once you develop the skills from volunteering and demonstrate them at work, he may be convinced otherwise. And if not, you still have a new skill which will help you over-perform, something he most likely will recognize.
3. Budget for it.
On the practical side, giving is just like any other “expense” — you have to plan for it. If you do, you’ll pay it.
We always put giving into our budgets just like we included food, clothing, and housing. Since it was planned for, giving was never a surprise and we were always prepared for it.
Sometimes we even cut other expenses so we could give more, and my guess is that you’ll end up doing the same.
4. Grow your income.
A large income solves a lot of problems. Where to find “extra” money for giving is one of them.
This is one reason I am such a big advocate for growing your income. It opens up so many great possibilities.
5. Use tax-advantaged options to make your giving go farther.
Specifically I like the donor-advised fund as a giving vehicle. It’s a great plan our government offers to encourage people to give.
So why not take full advantage of it?
The Giving Cop Outs
Before I close I want to address the three most common excuses I hear for not giving. They are:
1. I give taxes and these cover charitable efforts.
Don’t get me started on this one.
You do not give taxes. You pay taxes.
In case you don’t believe me, here’s the definition of “give” from Dictionary.com:
Freely transfer the possession of (something) to (someone); hand over to.
And the definition of “pay”:
Give (someone) money that is due for work done, goods received, or a debt incurred.
So while “give” is in the definition of “pay”, the difference is in the compulsion. In giving, you do so “freely” (you are not compelled). In paying, you do so for “money that is due” (you are compelled because you owe something).
If you really feel you “give” taxes, I suggest you stop paying them and see what happens. The IRS will help you discover quickly that “donations” of taxes are not “freely” given, but rather owed, and they will collect one way or another.
Yes, some tax money goes to helping people. But look around, do you think these funds are sufficient to cover all the suffering in the world? Not even close. This is why we as human beings need to step up and be givers.
And the Chicago Tribune has some bad news for you if all your “giving” is in taxes:
The way we give is important too, Ariely said. Taxes are a form of giving that typically does not make Americans happy. “If you give directly from a paycheck, we don’t pay attention to it,” he said. “It’s the way we give and how we give that makes us happy. The key is to give deliberately and thoughtfully, so that other people benefit from it.”
By the way, here’s who else used the “my taxes cover my giving” argument:
When Ebenezer Scrooge is approached by two gentlemen and asked to make a donation to the “poor and destitute,” his response was that the poor and destitute should go to the prisons and workhouses because his tax dollars already support those.
2. I will give once I reach FI.
No, you won’t.
I have seen this time and time again as we’ve counseled people. They are all committed to giving once _________ (fill in the blank) happens.
But as soon as that issue is resolved, something else comes along. I have never seen the “I will give later” plan work. Ever.
I see millionaires say this quite frequently. They will give once they reach X milestone. They will start volunteering once they retire. And on and on.
While I admire and encourage their optimism, odds are the vast majority of them won’t fulfill even the smallest of these desires.
The fact is that we all need to develop our giving muscles earlier rather than later. It’s much easier to give when you make less and have time to build it up. Going from zero to something substantial later when you’ve spent a whole lifetime not giving just won’t work.
3. I’m suspicious of charities, how they spend money, and if they even do any good.
Believe it or not, I’ve heard this from some millionaires.
Really? You can’t find one charity that you think does good work? Or one that is effective? I find that heard to believe.
But I’ll give these people the benefit of the doubt that they’re having trouble finding worthwhile causes. It just so happens that I have a solution for them: there are organizations that have done the work of finding great charities for all of us.
Check out Charity Navigator and Charity Watch if you want to find some organizations with good records. There are so many listed on each site that anyone would be hard pressed not to find an option they can support.
IMO these three are lame excuses from people who don’t want to give but would like to have an excuse to make themselves feel better. While I would like us all to give, if you don’t want to, that’s your personal decision. It’s your money and your life. Just say you’re not interested. But don’t use a weak excuse to make yourself feel better about it. No one’s buying it.
Ok, that’s enough blabbing from me. I think you get the point and are smart enough to take it on your own from here.
As we go into the holiday season, please consider giving to the charity of your choice.
Your FI journey won’t be that hampered and you’ll make life better for both yourself and others.
P.S. In my post What I’ve Learned from 150 Millionaire Interviews (which posted after I already had this post completed and scheduled), one reader linked to this article which had an interesting perspective on giving time versus money. The highlights:
A high earner in the corporate world who is giving away large sums can create more social gain than if they did charity work, said Peter Singer, who teaches at Princeton University.
“If they are able to live modestly and give a lot away, they can save many lives,” he told the Thomson Reuters Foundation.
Just wanted to include a bit of this here as I’m sure someone will bring up the subject of giving time instead of money.
FYI, I am 100% good with giving time and believe it can be valuable as well. But as I said above, I also think giving money is important. I personally give time and money and have for over two decades. I highly recommend them both. 🙂
This post originally ran in a previous form on Physician on Fire.