I have something special for y’all today! You seemed to enjoy the times my partner dropped by to give his perspective like in this Q&A post and this one about traveling coffee so today he’s here to talk about giving. Take it away my dude!
I grew up believing I should give money to good causes, but didn’t have to do anything about it until I suddenly went from making no money to making decent money. I ran into the basic FIRE realization that I don’t need that much money to live happily, and that I earn more than that amount, but then had to grapple with the fact that other people probably need that extra money more than I do. Still, for years, I didn’t do much more than feel vaguely guilty and occasionally donate a hundred bucks here and there.
I’m going to assume for the purpose of this post that you agree that it’s good to help other people, and that it’s possible to help other people with your money. I’m not going to try convincing you of that here, this is more a review of my personal experience getting myself to actually start donating.
If I should give, how much should I give?
An interesting parallel between getting your finances in order and donating is that both can feel so big and scary that it’s easier to just avoid it entirely – how can you ever do enough?
My intuition was always that the most ethical choice was for me to donate basically everything beyond absolute subsistence. When thinking seriously about it, it felt extremely hard to justify each luxury in the face of very real suffering I could be doing something about, so thinking seriously about it felt overwhelming.
I don’t beat myself up over it too much – we’re human. We want to avoid experiencing suffering (even the mild suffering of considering the ethics of our actions). And we compare ourselves to everybody else – why should I give up all my money if nobody else is?
Purple and I have tried to approach finance with an eye to how human brains work – sometimes the purely numerical optimal strategy isn’t the humanly optimal one. We’re not rational economic agents, in that we’re not optimally rational, but we’re *also* not economic agents in that our values are messy and human and often contradictory.
While facing this trap of feeling overwhelmed and then just doing nothing, one solution that I really like is the Giving What We Can Pledge, where they’ve set an “arbitrary” goal of 10% of your income to donate.
Once you hit that amount, you can stop worrying about your ethical obligation to give more. It just so happens to line up nicely with the teachings of some major world religions. It’s honestly not asking for too much of a personal sacrifice.
And it makes sense to choose an approachable goal, because it would be better for all of us to meet in the middle than for only a very few of us to donate everything.
If a lot of this sounds familiar to you, you’ve probably read the same blogs I have. I first heard about the Giving What We Can Pledge and this lens of “agree on an arbitrary point to absolve you of further guilt, to get you to donate at all” from the blog slatestarcodex way back in the day, I think from this post?
But I also don’t like working, and want to retire early.
I believed in all of the above 8 years ago, but still didn’t start consistently and seriously donating until 3 years ago. What happened?
I think it was because of my focus on saving for FIRE. Even getting to 10% donated felt like too much.
We (FIRE people) want to save exactly as much as necessary to immediately retire (within estimated safety bounds to avoid failure). This means there isn’t surplus money in the budget even with high paying careers – I’m not weighing donating against video games or first class seats, I’m weighing it against actual days of my life I’ll have to keep working. 10% of your income might actually look like 20 or 30 or 40% of your savings rate.
It’s the psychological principle of loss aversion. Because I already had all my FIRE charts and calculations, inputting what 10% would do to my savings rate and retirement date hurt too much, even though I believed it was obviously ethically better.
The thing that finally worked to bypass that sense of real loss to my life plans, was deciding to donate income that wasn’t already accounted for in my budget and projections – raises. I accepted my current retirement timeline, and committed to donating half of any future raises I received (post-tax) to charity going forward, until I reached that 10% of income donation goal. I trapped future me into it (fuck that dude, he’s always coasting off of my hard work!)
I still got to look forward to and enjoy raises, since I got to keep (and save) the other half. Also, I just had to budget for it once. I took out the painful brain work of considering each donation. I made the choice once, for future me, and then just regularly followed through on it.
I could have and probably “should have” just committed to bumping it by 1% per year ten years ago, but didn’t. This way at least it *never* takes away money I already had – there’s no psychological feeling of loss, just slower gains.
This has worked really well for me! My career and raises are luckily chugging right along, and I’m proud of the amount I’m able to give. I’m now past giving 10% of my post-tax income, and not quite at 10% pre-tax (I’m shooting for the latter as the final goal).
Obviously this specific commitment mechanism might not work for you, depending on your brain, where you are in your career, etc, etc. But I think the general principle of trying to use the same tricks and commitments we use to save drastically for early retirement, can be used to convince our weird, inconsistent, selfish brains to give a lot of money away too. A much shorter version of this post is probably “don’t immediately spend your raises”, “set a budget”, and “pay yourself first”, except for donating instead of saving.
So where do I give money?
My thinking here predates donating by a while. I generally buy the arguments of Effective Altruism, that we should direct our donations based on the best available evidence of what has the greatest benefit for the most lives.
There’s interesting parallels between FIRE and budgeting and effective altruism – trying to closely examine how to spend and allocate money in ways that actually align with our values, and either actually make us happy, or actually save or lives, in each case.
But careful research is a ton of work (I assume. I’ve never directly done it!) I love Givewell.org for this! They do constant work on which charities have strong evidence they can save or improve the most lives, and importantly, have a clear path to use extra money to continue or expand that work. They then make it easy to donate through them, and pass along 100% of your money to their suggested charities.
I don’t have to constantly review evidence, I don’t have to have my heart strings pulled every year while deciding between the well crafted marketing campaigns of each big charity. I just make my regular donation to Givewell.
This has the benefit of not having to worry if I’m just donating to the causes that have the biggest marketing budgets (and maybe executive salaries). I don’t think it’s wrong for charities to spend significant money on advertising, if the rate of return actually works out for them, but I get to completely sidestep the concern because Givewell is seeking out those charities rather than the charities advertising to me.
Givewell sends out regular, helpful and detailed reviews of where your donations went. It does turn out that things like anti malarial bed netting keep winning, which aren’t always the sexiest of causes, hahaha. Which leads to:
How sexy are my causes?
This is a fair question! I think of the “sexiness” of a cause as the emotional reward you get for donating. And if part of how we convince our weird squishy brains to donate is playing on our emotions and psychology, how does sexiness play into it?
I think there’s kind of a spectrum here.
Far on one side, I think about the example of youtubers who film themselves tipping a waitress $500 bucks, and then they all hug while she breaks down in tears because she really needs the money at this moment. Is it kind of exploitative? Yes. Is the youtuber earning more from the video than they donated? Probably? Does a person who needed $500 now have it? Yeah, so I have a hard time being a hater.
On the other side of the spectrum, there’s paying for anti-malarial mosquito netting in a country you’ve never been to, that has a statistically calculated return of lives per dollar.
One is nearby and emotionally and socially rewarding, while the other is distant and vaguely cognitively rewarding if “doing the rational thing” is in line with your self image.
In my opinion, you should go as far down that spectrum as you can trick yourself into.
(I guess it is also possible to be both distant and emotionally unrewarding and useless. Imagine donating to send essential oils to office workers in Norway.)
But! I do like to leave myself a discretionary chunk of my donation budget for random causes, maybe 10% of the 10%, for friends raising money for a local charity, etc. Maybe it’s not optimal, but I still believe it’s worthwhile and it gives me a lil’ dopamine hit.
Why am I writing about this?
On the theme of FIRE parallels, I think donating, like personal finance, is culturally understood as very private. You shouldn’t brag about how much you make, like you shouldn’t brag about how much you donate. “Do not let your left hand know what your right hand is doing.”
But I think there’s also a lot of value in having open cultural understandings and expectations of both. People online talking openly about their personal finance has been hugely helpful in my own life, and we’ve come a long way normalizing the idea that you can live modestly and retire early.
Similarly, I think we should talk openly about donating, even if it can feel like it is challenging other people’s personal choices, or might make you look like you’re bragging. I think you should donate 10% of your income, and I think you should try to convince other people to do the same, because the world would be better if we do both.
It’s totally possible many of you donate significantly already, and I just don’t know about it. I wouldn’t at all be surprised by a significant overlap in the Venn diagram of EA and FIRE people. (I stopped reading FIRE content every single day a few years ago, so I’m probably out of the loop). If so, that’s fantastic, and I hope we can talk about it even more.
And just to be super clear and maybe preempt some valid criticism, I don’t think charities can solve everything. And philanthropy shouldn’t be used as an excuse not to fairly tax billionaires. There are many things that are easier to solve with policy. We can do both! (And a number of Givewell’s recommended charities work closely with government organizations on research and policy recommendations.)
Some other thoughts on donating and FIRE
Donating now vs in the future?
I mean, if you’re actually going to donate all of your money to charity when you die (or when you’re older and past sequence of returns risk and find savings generating more income than you need), that’s great. But in my opinion, good done now has a higher rate of return than the market.
Will I keep donating after retirement?
The giving what we can pledge says “until retirement”, but I’m assuming that was imagined for regular retirees. I’m currently thinking a good baseline is donating 10% of any investment *gains*, while considering the principal already covered. I’m also interested in if there’s useful and effective ways I can donate my time as well.
Should one keep working instead of retiring? What about donating your time after retirement?
The Effective Altruist position is basically that you should find a high paying career and work to give, rather than donating your time, since the literal value of my time is *significantly* higher programming than doing something I’m personally bad at, like donor relations.
Will I have discharged my ethical obligations by the time I retire, having only donated significantly for a few years? Honestly I think I’ve been avoiding considering this because the “right” answer might make me shy away from thinking about donations right now. That’s another problem for future me. If I’m still liking my job when I hit my FIRE number and want to have “one more year” syndrome to donate more while riding out sequence of returns risk, maybe?
But also, “por qué no los dos”?
I’m also open to the idea that I could program *for* a charity or good cause.
Thanks for listening to my soapbox rants
Obviously all of this thinking is a work in progress. I’m definitely interested in hearing your thoughts on how you balance donating and FIRE yourself!
How do you approach giving?
An interesting post, and on a topic I don’t typically see much in the FIRE space, and don’t experience at all in my personal one. I don’t know anyone who does it in my corner of the world; it’s not even raised as a potential thing to think about or to aspire to. A very generous act, and it’s insightful to see your tricks to continue giving while also pursuing FIRE. It’s clearly important to you, and your money is doing good in the world.
Thank you! We’re glad you found it interesting. And yeah maybe lots of people are doing it and we just aren’t hearing about it!
Long before we ever heard about FIRE or considered early retirement we tithed, plus a little more. (We were late bloomers, we didn’t retire until our mid 50’s.) I always felt charitable giving paid off because it “forced” us to be mindful of our spending and if felt good. We still tithe plus more and it still is a good thing.
Thanks for the post, worthwhile thoughts.
Awesome! That’s another interesting take that tithing forces you to think about your budget. We’re glad you enjoyed the post.
I also think there’s a lot of overlap between the EA/FIRE space; I remember a super active thread on MMM back in the day. Since I got all my first job experience as a volunteer, I’ve always donated regularly to causes I care about. I love your ideas about donating a portion of raises, and will likely do something similar. For the donation of professional/highly skilled work, there’s the (hyperlocal) Volunteer Match for San Jose, and I recall that there was a startup in the Bay who was going to try to do something similar.
Thanks so much for the guest post!
My Partner says thanks for the info and that he’ll look up that thread! Those are interesting examples – it does seem like it’s easier to donate highly skilled work to local causes.
I sincerely appreciate your “soapbox rant,” Purple’s Dude, and I am grateful to you and Purple for providing some dialogue on the topic of charitable giving. Before FIRE, I was a tither (10% giver) and additional giver, and after FIRE I still am, but keeping the PERCENTAGES relatively the same, while simultaneously giving markedly lower DOLLAR amounts was an uncomfortable adjustment for me at first (since income is so much lower than when I was actively working). There have also been some good conversations in my local FIRE group around whether or not a donor advised fund (DAF) is a good move for charitable giving in early retirement, whether it makes sense to give money vs. appreciated assets, whether to give now vs. later, etc. Anyway, all of that to say, thank you again for sharing your musings on this; I value conversations like this that help us remember that, regardless of dollar amount, there is much we can share from our own rich lives and journeys.
Purple’s partner here – yeah, I’m definitely unsure about what to think about giving after retirement since it will be significantly less as a total amount.
I considered adding some short thoughts about DAFs to the post – it seems great as a tool *if it encourages people to give more*, but personally if I needed the tax break in a specific year I’d probably just donate all of the money in that year rather than putting it in a DAF and donating it out over time, since I think the donated value is higher up front. As I understand it there are edge cases like liquidating the value of a property, etc, where DAFs are also super useful.
Thanks for your comment!
Love this! “donate income that wasn’t already accounted for in my budget and projections – raises.” Really, really clever move.
Gosh… my percentage probs comes out to like 1% of income but i am slowly stretching myself to give more in each chunk. So I used to donate like $,5, 10, 20, now I’ve gone as high as a couple hundred for a single donation.
Thank you! It’s great you’re donating. Good luck finding the right balance for you 🙂 .
I second the donor-advised fund option. While I was working, I set up a DAF with Fidelity and made a couple of big annual donations to it, then sit back and let it grow for a few years. Now that I’m retired, I give from the DAF to eligible charities at a 3-4% withdrawal rate.
It’s the best of both worlds. When you’re working, you get the tax efficiency of making large donations to deduct against your income while you’re in a higher tax bracket. When you’re retired, the DAF money is locked up and can only be used for charitable giving, so you’re not tempted to hoard it or give less than you should.
Purple’s partner: That’s super interesting – I haven’t run into a tax year where I think a DAF would make a difference for me yet. Do you have plans to fully liquidate and donate all of the DAF at some point? Or keep up with the withdrawal rate indefinitely? Thanks!
It depends what tax bracket you’re in, but one of the goals I set for myself before FIREing was to get my DAF to $100K. I did that with a series of annual $25K donations from my brokerage account. I counted that transfer as my giving for the year, and it put me above the standard deduction amount so I was able to itemize. (Plus you can donate appreciated stock, so it wasn’t exactly giving away $25K out of my own pocket.)
I like the idea of being able to give to charity for as long as I’m FIREd, so right now I’m planning a perpetual 3-4% withdrawal rate from the DAF. If it starts growing to absurd amounts, I may consider giving away larger sums.
We have always given over 10% of our gross pretax income. On paper we would have an extra two million in our portfolio had we invested what we gave, but I don’t think it works that way. Being generous makes you a better person, and better people earn more money because they are easy to like and trust.
Wow – that’s a pretty wild calculation, great work!
I was raised christian, lost my faith in the meantime but yes, during my childhood I was taught to donate 10% and I have continued that good habit. I think that in general if you have a good income and no huge expense burdens like a disabled child, 10% should be easily doable.
So given that I’m happily childfree, have enjoyed a nice income since finishing my studies… that’s what I’m doing.
What I love is that the Dutch government gives tax benefits for donating to registered charities and that thus, I actually can donate about 17% of my pretax income for a posttax donation of 10%.
I know that many other governments also give tax benefits for doing charitable donations, so if anyone’s reading this for the first time: please research whether you could get tax benefits as well.
Purple’s partner: Great point about an area I didn’t touch on in the post at all! I’m only recently giving enough that it makes sense to itemize my deductions in the US, meaning that my donations are now able to effect how much taxes I pay. I’m avoiding the extra math work of figuring out what 10% post tax equilibrium would be by just sticking to the 10% pre-tax goal.
It totally depends on your country and individual situation, if I had mortgage interest deductions as well the itemized deductions would really add up.
Belgium also has tax-free donations to certain charities, which is pretty sweet because otherwise I would be taxed 45% on that income.
They also allow tax-free investing in certain local companies that are good for the environment/clean energy/etc, so I’ve been putting some of my “fun investment money” into those as another compromise between FIRE and altruism.
A question about donating that I’m still grappling with is whether giving to family and friends should count within the 10% rule. For now I do include it in the 10%, but it means I rarely give to EA causes because giving to family members already requires more than 10% of my income.
Solidly mid career here and trying for that 10%. I’ve joined a local giving circle. 100+ members pooling $1000 each goes a long way! It allows me to feel like Oprah once year due to impact of the combined gifts. It has also given me an up close look at my community since the grants from the giving circle are only to local groups.
I have a DAF but it is a deposit and grant account. No intention of building a legacy there. I hear about people doing DAF’s in retirement. I wouldn’t give a financial advisor 1% AUM fee. Why the DAF? Let’s say you have a $100000 DAF. You could give away $4000 a year and pay $1000 in fees for the privilege of doing that. I like the “good done now” perspective.
THANK YOU for this great perspective and conversation!
Purple’s partner: I hadn’t heard about giving circles, that’s really interesting! I think I’m aligned with your thinking on DAFs. I’m especially averse to giving financial advisors percentage fees and would absolutely avoid letting them earn fees on money earmarked for donations. Thanks for the comment!
I’m so glad to see this topic brought up on a popular FIRE blog! Like Petra, I was raised to give 10% from a young age (along with saving 10% for retirement – thanks mom & dad!), and I’ve been giving regularly & intentionally ever since. When I first got into FIRE in 2019 after college I reduced that down to $100/month in order to save 50% of my income, but I realized especially after the George Floyd protests that doing so wasn’t aligning with my values and I bumped it back up to 10% (post-tax) and immediately felt less tension between my pursuit of FIRE and other values I believe in (though the tension still exists sometimes!). I also gave 100% of my stimulus checks and aim to give 20% of any family money like Christmas money etc.
Giving is so rewarding. Especially as my income has grown, I now regularly give donations in the hundreds of dollars instead of the $20 or $50 at a time I did during college. I have several recurring donations to support my local abortion and bailout funds, an anti-gun violence group for youth, and even $5/month for wikipedia (their marketing a few years ago got me but I realized it is truly incredible how we all have access to such a wealth of free quality information at our fingertips). Then there’s plenty of room in the budget for one-off donations too. I prefer to give locally, and I earmark 50% of my giving to organizations led by people of color (my take at individual reparations as a white person).
I do hope to see more people in the FIRE sphere commit to giving a dedicated percentage the way it’s so easy for us to commit to a dedicated saving percentage. If we set goals, we’ll hit them! And I do honestly believe that in our deeply inequal world, those of us with money to give have an ethical obligation to do so – not all of it, as you pointed out, but we can all carve out room in our budget. I’m glad to see the steps you took to make hitting that goal possible for you!
I feel good with 10% now but my partner is interested in increasing our giving further in the next few years, so we’ll see. My brother isn’t following FIRE but he’s currently giving 15% (while still saving 20% for retirement) which is awesome.
Adding a few comments to the subject of giving, rather than Purple’s Partner’s post in particular (and after all those p’s, I feel an irrestible urge to say ‘pppppp, pick up a penguin. Anyway….)
Consider family in the giving and friends. The kind where it won’t get weird and damage relationships. After dad died I discovered he was giving 10% of his income – which he didn’t have the extra for – while I had been desperate and he’d given me nothing. I had assumed it was because he didn’t have money to spare, but while he did not have spare money he was still donating large sums to his church. It took months for me to work through how he was in need but gave to his church but his own family did without.
Whenever I get a lump sum coming in, I give some of it to a good friend who has been in really bad shit. She’s always been there for me so I always give her some.
A close family member is well off and regularly donates a lot. The money I have received from that person has turned my life around although they don’t know it (because things would get weird if I said something).
For donating in wills, find out the charity rules in your country. It is almost always tax effective. On the other hand, the paperwork can be awful, so I personally won’t be executor of a family member’s will if they leave money to charity because the charity often requires full accounts and I don’t want to be personally liable for that plus the extra burden. It’s bad enough when someone one loves dies anyway and the paperwork is hell, without adding extra stuff on top. Instead I ask they leave a letter with the will of what money they want to go to where.