By Dr. Francis Bayes, WCI Columnist

Everyone has different reasons for giving charitable donations. Reasons such as tax deductions or religious duty may be salient for some but irrelevant for others. We also differ on the percentage of income that we donate. After all, even those who donate money out of religious conviction cannot agree on the correct way to calculate the percentage.

Tithing (by definition, donating 10% of income) might be a good goal (for both Christians and non-Christians), but many WCI readers might struggle to give more than 4%-5%. Is it a matter of why or how? That is, do people need the motivation to give or better methods of giving? I think both. But stakeholders address the “why” more because they can combine “why one should give” with “why one should give to them.” The know-how is often an afterthought.

This column, then, will focus on how one could be generous with their money in an effective manner. I will focus on those who are beginning their journey to financial independence. It is also applicable for those who have mature financial habits but feel they could improve their charitable giving. It will have no mention of donor-advised funds or donating appreciated assets, because many WCI posts have already discussed both topics in addition to why one should be more generous (e.g., it is one of WCI's four rules to getting rich).

 

Tithing Is Not the Best Way to Give

I will stick my neck out and say upfront that tithing is no longer theologically applicable to Christians. I am not as familiar with charitable giving in other religious traditions, but as a Christian, I can attest that tithing is a big deal in Christianity (for better or worse).

Tithing is only one of the ways to give in the Old Testament of the Christian Bible. God also commanded Israelites to give the first fruits of their labor and celebrate the year of Jubilee when they set slaves free and returned foreclosed lands to the original owners. But we do not go around telling individuals to donate their first paycheck of each year and forgive personal or business loans. We just like a round number like 10! I could go on about how Jesus was not a Communist and still the early church shared all of their possessions–not just 10%. But I think I have reached my religion and politics quota for a column.

From a behavioral perspective, focusing on the correct percentage prevents someone from (1) building a habit of generosity and (2) reaching their full potential to be generous. Going from zero to 10% is a big jump at any level of income or wealth. To reach their target saving rate, for instance, one should take a step-wise approach of maximizing each available retirement account (e.g., employer match first, then Roth IRA, and so forth). But many WCI readers do not stop saving just because they reached the recommended 20% rate. They continue to save as much as possible and increase their saving rate. Likewise, the process of increasing one’s charitable giving should be strategic, and their giving should not be “maxed out” at any point.

[Founder's Note from Dr. Jim Dahle: This section is a good example of how not everything published at WCI is necessarily approved by its owners. We wish to present a diversity of opinions, and just because there is a post on cryptocurrency, that doesn't mean we think investing in crypto is a good idea. Similarly, like many other Christians, I don't agree with the author's assertion that tithing is no longer theologically applicable in Christianity. We're not going to let the comments section go wild debating this particular aspect of religion. The first rule of tithing is that it is between you and God, so let's leave it there. Like many guest posts and columns by our columnists, this post includes both facts and opinions of the author. What I really love about this post is the focus on intentionality. Too few of us have any giving goals at all.]

 

How Medical Students Can Be Generous with Their Money

Medical students should not donate their student loan money under any circumstance. First, since your federal student loans are meant for education and living expenses, investing and giving away loaned money falls in the gray area. Second, even if you can, it does not mean you should because you are decreasing how much you can donate in the future. If you donate $100 of loaned money now, you will have to pay back more than $100 later due to interest; you might as well wait until residency and donate whatever amount that your $100 of loaned money will be (e.g., you can donate $122 four years later, assuming 5% interest).

While one is in medical school, they can be generous with their time instead. How valuable is one hour for a medical student? I value each hour at $50 for simplicity: $50 per hour for 40 hours per week for 50 weeks per year = $100,000. A “tithe” for a medical student would be “giving away” four hours per week, or $10,000 worth of time for a year.

A medical student can spend four hours per week to support the causes in which they believe. Those four hours per week can be considered charity and also an investment in oneself. One of those hours could be reading a book about an issue that their medical school does not teach sufficiently. Or it might be teaching children in Sunday school. Neither of those activities were on my CV, but they helped me work better with specific patient populations on my clinical rotations. In contrast, I listed volunteering at a local prison for 2-3 hours per week on my CV. I started volunteering because I was interested in learning more about the criminal justice system and working with justice-involved individuals. At the same time, I knew it would strengthen my CV and become an important part of my story on the residency interview trail.

But as “tithing” is no longer relevant, one should focus on building a habit of generosity instead of the number of hours or type of activity. As James Clear, the author of Atomic Habits, recommends, one should start small for their identity-based habit: “Because I want to become a generous physician who helps others directly and indirectly, I am giving away 0.5-1 hour per week for a greater cause.” No one is recording the timesheet during exam weeks. And not every activity can be unrelated to healthcare. Volunteering four hours per week for the sake of tithing only leads to burnout, and altruism is unrealistic given the pressure to have a competitive CV for residency applications. But a habit of generosity during medical school will lead to tangible outcomes because it will become a lifetime habit of giving away cold, hard cash.

More information here:

Why American White Coat Investors Should Count Their Blessings

The Perspectives of an Older Investor vs. a Younger Investor

 

How Residents, Fellows, and Aspiring Givers Can Be Generous with Their Money

Starting or continuing a habit of generosity in residency or fellowship might be even more challenging than it was as a student. Time becomes even more precious due to personal and professional responsibilities. Many trainees also have to determine (for the first time) how to best spend, save, or insure with their dollar. Here are some ways that trainees can set up their charitable giving.

 

#1 Saving for a Charity Like You Would for an Emergency Fund

If you do not know which charities you want to support, you could save for charitable giving as you would for an emergency fund. A natural disaster, a friend’s fundraiser, or a hot-button issue might compel you to give every once in a while. But at the moment when we are most motivated, we often resort to standard, “round” amounts: $10, $50, $100. Instead, you could save a certain amount each month, even if the cash is going to sit in your high-yield savings account or any other account that is not your checking account. You could think of it as an emergency fund for charitable giving. When you come across something that you want to support, you could donate everything that you have saved instead of a random, round number.

 

#2 Be More Intentional with Where You Give Your Money

giving money away instead of tithing

If you want to support specific charities and are open to suggestions, you could start giving to charities with evidence-based impact.

Randomized controlled trials have demonstrated how some charities improve outcomes and are cost-effective. GiveWell is well-known for choosing charities that give you the most bang for the buck, and its “top” charities list includes organizations that help prevent malaria, incentivize childhood vaccinations, and provide vitamin A supplementation in the Global South. You could pick one or support all four by donating directly to GiveWell’s Top Charities Fund. Likewise, CharityNavigator has a list of charities that work in “high-impact causes.” Its list is longer and more diverse in terms of issues, including climate change, mental health, and access to clean water.

Once you can see that your charitable giving is effective, you might be motivated to give more—just as seeing your net worth grow encourages you to save more. You can extrapolate your giving, however small, to the lives that you will save according to the aforementioned studies. For example, your monthly gift of $100 to Malaria Consortium, which is on the lists of both GiveWell and CharityNavigator, might feel like a drop in the bucket. But for each $100, you will protect 14 children from malaria. As the amount needed to save one life is about $5,000 (akin to the “number needed to treat”), you will save one life after donating $100 per month for 4.2 years. With just $25 more each month, you can save one life every 3.3 years. When you update your personal finance spreadsheet at the end of the year, you should visualize how many more lives you can change by increasing your giving rate.

An alternative is to donate to charities that help the people whom you meet as a healthcare provider or volunteer. They can help you imagine where your money is going and strengthen your commitment to your charities. While I volunteered at a local prison, I started donating to the Equal Justice Initiative (EJI). Although the EJI does not operate in my area, I could connect what I saw in person to the problems that EJI was addressing. If you volunteer at a local food pantry, you should give them your money so that you can point to fresh groceries and say, “I paid for that!” If you work at a county hospital and have patients who do not have health insurance, you can donate to charities that pay off medical debt. Whatever you do and wherever you give, the key is visualizing your impact.

 

#3 You Can Avoid Having to Give Your Personal Information

If you do not want electronic and physical marketing mail from your charities, you could use every.org or Charity Navigator’s Giving Basket.

Both every.org and Charity Navigator’s Giving Basket allow you to support multiple charities on a single platform. Not everyone can donate appreciated stocks to a donor-advised fund, but everyone can donate cash using every.org or Giving Basket. I have discussed the benefits of every.org in length in my Financial Products That Are Even Better Than Vanguard's column. Briefly, your money still goes to your selected charities, but you do not have to share your personal information. This way, the charities cannot send you any marketing materials unless you give every.org or CharityNavigator permission. I experimented by giving permission for StrongMinds on every.org, and I have been receiving emails from StrongMinds (but not any marketing mails). Moreover, you will only receive a single receipt from every.org or Charity Navigator instead of receipts from all of your charities. The single receipt is convenient for keeping track of your donations and itemizing your tax deductions.

Charity Navigator’s Giving Basket charges a fee, even for bank transfers, but every.org does not. You might still prefer to use Charity Navigator because it has been around for longer. Either way, both websites allow you to make both one-time and recurring donations and discover more charities. Every.org is the go-to website for my wife and me, because we can find almost every organization that we want to support.

 

#4 Treat Giving as a Regular Expense

If budgeting works for you, you should treat charitable giving as a monthly expense. I suggest budgeting last because how people budget their expenses varies. My wife and I have a category for charitable giving on our budgeting app. We consider it as a recurring monthly expense but not as “basic necessities” for which we need an emergency fund. That is, we would not have a 3-6 month reserve in our emergency fund for charitable giving. The budgeting method would be most applicable to those who have a spending problem but still want to be charitable.

More information here:

You Want to Start Donating to Charity? Here’s How to Find the Motivation to Actually Do It

 

“It Is More Blessed to Give Than to Receive”

This column only scratches the surface of how to give better, and The White Coat Investor has plenty of content on why becoming more charitable improves your life and counterintuitively may even accelerate your journey to financial independence. On a superficial level, giving away money might not make me feel better than a meal at my favorite restaurant. But each month, charitable giving pays me dividends when I see transfers from our checking account to every.org and other organizations. It reorients my attitude toward money and helps me focus on what money cannot buy. This, in turn, empowers me to spend wisely and save more.

Jesus was not a financial guru, but coming from a broke carpenter, his quote above has proved true for me.

Do you think there's a better way to give to charity rather than tithing? Did you start consistently giving when you were in medical school or when you were in residency? How did you do it? Comment below!