Freedom Generator 101: Your Guide To The Charity Bucket

This is the sixth and final part of our six-part intensive series on the Freedom Generator. If you missed the first article, you can read it here.

If you’ve been following our Freedom Generator series, congratulations on making it to the end! Today, we’re looking at the final piece of the Freedom Generator—the Charity Bucket. And we’re discussing how funding your own Freedom and setting up a self-sustaining system for supporting the causes closest to your heart works.

How The Charity Bucket Works

By now you know that to support your current lifestyle and pursue Financial Freedom, your Freedom Generator has to include these four buckets:

But the fifth element of your Freedom Generator—the Charity Bucket—is actually entirely optional. Whether you build one into your financial picture is an utterly personal choice that’s up to you and your family.

The Charity Bucket, at its core, is how you can contribute to causes that are important to you. And the beauty of this bucket is you can make a financial difference now and after you die.

How? By housing investment assets that yield regular cash flow for your favorite nonprofits.

You start with an initial investment amount that you’ll leave with your broker to continue generating funds. Then, when those assets pay out their regular dividends, you contribute those sums directly to the charities of your choice. So you create a donation-producing machine that continues to support your special causes indefinitely.

Setting Up Your Charity Bucket

If you do decide to include a Charity Bucket in your Freedom Generator, there are some financially savvy guidelines that you should follow:

  1. Choose an amount. Look at your entire financial plan before deciding how to can contribute to your Charity Bucket.
  2. Choose income-generating assets that will yield consistent returns. These returns represent your charitable donations, so select stable assets with minimal risk.
  3. Decide how you’ll split up your donations. If you’re giving to a single charity, skip this step. But if you want to support multiple causes, determine what percent of your total yield you’ll give to each group.
  4. Learn how your donations fit in with your tax plan. A financial advisor can be invaluable in determining how to contribute to nonprofits in a way that minimizes your tax debt.
  5. Update your estate documents. If you plan to keep your Charity Bucket operational after your death, talk with your financial advisor or estate lawyer. A professional can ensure your investments transfer to your selected nonprofits smoothly.

Choosing Your Charities Wisely

But charitable giving is one part heart and one part sound financial decision-making. Maximize the effect of your donations by fully vetting every organization that’s a candidate for your contributions.

Start by reviewing the organization’s marketing materials to familiarize yourself with the charity’s mission, areas of focus and core values. Then check up on your charity on Charity Navigator. Nonprofits are required by law to disclose income and expenditure details. So you have access to quite a bit of data to inform your decision.

Read up on how much of your cash will go toward organization projects, executive salaries, fundraising campaigns, overhead and more. But do keep in mind all nonprofits need money to keep the lights on. If the 990 shows too little or too much devoted to infrastructure, there may be a systemic organizational problem. Either the management team is using the nonprofit to simply cash a paycheck, or they’re shortsightedly starving support in favor of programs.

In the former case, the nonprofit will have little to no impact. (Social media and organizational websites are NOT good indicators of a nonprofit’s impact) And in the latter, the nonprofit will eventually collapse. Why? Because they’re neglecting to raise the capacity capital required to build a strong organization.

Finally, talk with the charity’s donor liaison in person or on the phone. Large nonprofits have entire departments devoted to educating would-be contributors and keeping existing donors well informed. So don’t be afraid to ask specific questions about the organization’s work and how your money will be used. And don’t be afraid to specifically direct your contribution to fund overhead.

Staying In Touch

For some, the job is done when the check is sent. But after you become a donor, you do have the option to stay in touch. Check your organization’s financial records periodically. And review the donor disclosures, annual reports and project materials if the organization sends them out.

If you want to leave a lasting legacy to better the world, a Charity Bucket is the perfect addition to your Freedom Generator.


image credit: Bigstock/SwanOmurphy

Post a new comment