My budget lesson: charitable contribution

I bring charitable contributions as a budget item for attention, as I noticed it has been popping up on the radar of my own budget. Boston, the marvelous city it is, had countless charitable organizations. You may also receive asks from friends bravely running or biking endless kilometers for worthy causes who would like your support.  There are never ending public policy issues requesting backing. Often memorial gifts are charitable donations, rather than flowers. There are fun charity fetes, which are anticipated with delight that typically range from $75 to over $1200 for a ticket. The budget dilemma comes in when there are more events than anticipated.

A key in budgeting is to prioritize your goals with balancing your fixed and variable expenditures limited by income. Retirement planning is top of the list for many of my clients. Let’s say your salary is $125,000. If you’re saving a respectable 11% of that income to your 401(k) plan, $13,750 ($18,500 is the limit in 2018) will go to paying yourself first. Remember you get the bonus of your contribution being pre-tax money going directly to your plan. You’re looking at $111, 250, which for a single woman could be a 24% tax rate in 2018. So, you’re really looking at $84,550 to live on. In Boston, your rent or mortgage could easily be $3500 monthly or $42,000 per year.  So, you’re now down to $42,500 for everything else. Fixed expenses like utilities (including internet, mobile phone), insurances, food and health related expenses need to be factored in. I didn’t even mention clothes, alcohol, entertainment and travel as we start to get into the variable and more enjoyable part of the budget. You can now see why charitable contributions need to be planned out.

If you’re making one contribution for $500, you may not blink. However, look at the yearly schedule of events and memberships and see what your estimated total contribution may realistically look like.  Unanticipated donations are tricky. Consider a greater pool of funds for unexpected asks.  A possible way to add more heft to your own charitable donation is to ask your employer if they have a matching program. Employers match programs vary and there are deadlines to pay attention if you want to be considered.  Closet cleaning can be a nice in-kind donation and not count against your budget.  

Your heart may be in the right place, but make sure your budget can hold up to your generosity.  If you really want to contribute to a cause you care about, the beauty of a budget is you could take from other variable expenditures. So, maybe you spend less on travel or wine to compensate for the expense. Budgets and financial goals are highly personal, so take time to think about what matters to you most in life. I suggest revisiting your budget and financial planning at least annually to make sure you are working toward what is important to you and have re-evaluated life changes, which inevitable can happen1.

 

1: Example is hypothetical and for illustrative purposes. Your situation may vary. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.