The financial independence and early retirement community is pretty diverse but if there is a common theme espoused almost universally it is that the way to achieve financial freedom is to spend less than you earn and invest the rest. After that it splits off into many different factions. There are those that major on frugal living, those who emphasize having multiple streams of passive income, the real estate investment crowd, the self-employment side gigging crew and the maximize your corporate career people, like me. But controlling your cost of living by avoiding unnecessary or extravagant spending is generally something almost everyone agrees with. Why then would any of us voluntarily give up that hard earned money in exchange for nothing, or at least nothing tangible?
Giving to others, for faith based, humanitarian or philosophical reasons is a difficult topic to blog about. It is self-aggrandizing to talk about how much you’ve given away to non-profit charities if you are a large giver and it feels uncomfortably like bragging. As a guy who was not a popular member of the in crowd in my youth, but who has had a modicum of success in my adult life, bragging is something to which I am susceptible. Because I succeeded way past my own expectations in life I sometimes feel compelled to share my success story with others, and that is sometimes OK, but all too often is just me propping up my own ego. In other words it is me bragging. On the other hand it is a little like, if a tree falls in the woods and nobody hears it, did it really make any noise? As an anonymous blogger when you post about your accomplishments are you really bragging if nobody knows who you are? So if it looks like I’m doing that then I’m sorry, but I’m going to forge ahead into this sketchy territory anyway.
After reading a couple of blog posts about giving I decided a few days ago to estimate what my wife and I had given away to others over our married life. Since we’ve been married over thirty years that sounds like a huge task, but it was actually very easy. I already have a spreadsheet that includes my actual income for every working year of my life. You also have that whether you know it or not! The Social Security web site my Social Security will let you print out your income for every year of your working life. It does not list what you’ve given away, of course, but in my case I knew the percentage of what we gave roughly based on our gross income. With a spreadsheet I estimated the annual gifts and then calculated what they would have grown to if they were invested like the rest of our portfolio. That’s fair if I assume we would have put the money into investments had we not given it away.
The total was a little over $1.6 Million excluding my wife’s income and special gifts we made above our normal percentage minimum of giving. Adding those in brings the total up to right at $2 Million. I have never revealed our exact net worth and while it is more than my wife and I will ever spend it would be significantly enhanced if I could add a couple of more millions to the pot. In fact when you look at the range of savings rates for this community, which run from maybe 20% on the low side to 75% on the high side, voluntarily giving up a chunk as large as 10-15%, which is what my family chose to do, seems absolutely crazy on the surface. Another way of stating it is that the largest single expense in our family household for every single month we have lived has been our charitable giving. It was two to three times the size of our house payment which was the only debt we ever incurred. So why do otherwise frugal people decide to give away the equivalent of two extra house payments every month for no tangible benefits?
For me it started with my dad. Dad earned a solid middle-class income selling insurance while my mom was a school teacher. We had a comfortable life in a small house and my brother and I had our college paid for by our parents, allowing us to graduate with zero debt. While my dad did not make a lot of money he was a savvy saver and investor. One place he saved money was on our allowances, there weren’t any. From the time we could ride bicycles and mow lawns my brother and I had jobs before and after school or we had no spending money whatsoever. As we grew Dad shared with us his financial spreadsheet that listed all his investments. It was a real shock, as poor as we felt growing up in a frugal household, that Dad was a millionaire. I would guess he never made more than $40,000 a year in his working career but he saved aggressively and always had his money earning more money in stocks and bonds. But the main money lesson he taught, repeatedly and with emphasis, was that he tithed on his gross income without fail. His belief was that if he honored his faith that he would be financially blessed. And he did and he was.
Neither my brother nor myself feel like the connection between giving and financial rewards is an unfailing algorithm. My own theology leans more toward the concept that having faith brings rewards but they are spiritual and not always material. I also feel that giving 10% of gross or net income is only a guideline and not any kind of specific command or spiritual directive. However, I do believe there are solid psychological reasons why giving to others does bring material rewards. Giving a large enough part of your income, say over 10%, is something you can’t help but feel.
Writing out a check that is two or three times larger than your house payment or rent every single month makes an impression on you. Dave Ramsey would say it triggers the pain center in your brain. It forces you to reconcile writing that check with your overall value system. In our case when we gave a large percent of our discretionary income it confronted us each month with the fact that our faith compelled us to give generously regardless of how that felt. It reminded us that life is very temporary, money won’t be making that trip to the afterlife with us and that everything we had did not really belong to us but was a gift we were to use for good. It forced us to admit, every month, that money is not our purpose or our end goal in life.
So what does that do for you, the constant reminder that money is not the big why in life? I can only give you my opinion, I’m not a qualified life expert by any stretch. Putting money in a subordinate position to your other life goals changes your view of wealth. Putting money below your care and regard for other people makes you kind. It makes you generous. It helps make you trustworthy. Those are great gifts, priceless really. My experience in the corporate world is that the people who get ahead in the employment game most often are those who are the most well liked and well trusted. Sure, you need proficiency at the skills required but after you get to a certain level everyone has the skills. Being trusted and likeable are key differentiators. When your value system places people above money then you will be liked and trusted by others. You will be generous and willing to play fair at work. You’ll share credit freely and admit your mistakes. Nothing builds trust and causes others to like you more than those qualities.
My dad credited his amassing a sizeable estate to his giving. To him his wealth was a gift from above. I guess I really do agree with him on that, except I see it being worked out as a result of his giving making him a better employee and person, rather than some supernatural miracle. My dad also thought he got back even more than he gave. I guess I feel that way as well. I do not think it is a guaranteed thing, like my dad, but I do think the odds are in your favor if you give a large enough amount regularly that you feel it. I think I earned at least a couple of million more in my career than I would have if I had not climbed the corporate ladder so fast and so far. And I do not think I would have achieved what I did in my career without the constant impact of putting money in its place. Regular and sizeable percentage giving created that impact on our values.
And then when my parents had passed their estate was split between my brother and me. It was much less than two million dollars each but it was still a very large tax free addition to our net worths. The inheritance, added to the extra income my career netted me due to having a healthy attitude toward money, more than covered our lifetime of giving. It really was a “win win” for us to have given out of our excess to our church, the United Way, our college and university and the many other individuals and non-profit’s we have supported. The groups we gave to changed a lot of lives and having a healthy attitude toward money changed ours.
What was right for me may not be for you. Life is complex and I am not sure there is any part of it harder to write a rule for than the act of giving. And in many cases the gift of your time and your love is vastly more important than giving money. So please do not take this as judging anyone who chooses to give to a different degree or in a different way. This was just written for me, to think back over a lifetime of behavior and to try to make sense of it. And I feel better for having done that.
What do you think about the concept of giving and how it helps or hurts the journey toward financial independence?
If you are in the camp that does follow a percentage guideline in your giving how does that work once you no longer earn an income?
I’m side gigging now and still earning a decent living but at some point I’ll just be living off my investments, should I still give then and how should I figure out how much?
Great post. $2Million is quite generous. We try to give to a few charities every year. We just started a donor advise fund for tax purposes. I think we are going to try to push up to higher levels now.
I need to start up one of those as well. Especially with the new tax code I may not be in a position to itemize as I always have in the past. My CPA is more of a tax preparer, she really isn’t a great tax advisor.
Congratulations on giving away such a huge sum and making a difference. Your logic and reasoning for doing so make perfect sense.
Giving can be rewarding. There may not be a better way to spend your money than to give to a cause that’s important to you.
On the other hand, there is the airplane analogy. Put on your own oxygen mask before helping others. By delaying your giving now, you may end up in a more secure position allowing you to accumulate even more that can be used to give later.
Thanks for writing such an eloquent post on such a complicated topic.
Thanks Jason, good analogy. I don’t think people should be giving money away until they’ve handled all their families needs. To me giving should come from excess funds once needs are met. And unlike me who got out of college debt free with a good paying job most young grads now have debt and may be in a starter job that pays barely enough to scrape by on. Giving is a very personal thing and I would never judge someone else based on their giving. But once someone is stable financially I do think giving is a great way of reinforcing a positive world view regardless of whether they have a personal faith or not.
Whew, that’s some serious giving, great work. I think like saving or investing, giving is something that can be taught during upbringing. My parents werent givers in that way (money or volunteer work) so it wasn’t something I thought much about growing up. Good on you and your parents for making it a priority!
Thanks Adam! It never really felt like we were doing that much. I started out making $18,000 so ten percent of that isn’t all that much. And by the time that 10% of my pay was a lot of money at the end of my career then the 90% that remained still seemed like a huge amount. It was harder, and still is, figuring out how much above that to give. 11%, 15%? And where to give it? We are still working that out right now. Plus maybe setting up a charitable trust, lots of things to decide going forward.
Holy moly! Steveark that’s amazing! I was going to hoard every penny until we die and it will either pass to my kids or if they’re crappy kids – to give back to the world. We can’t take any of it with us – but while we’re here I feel like the “gimme gimme gimme” type. I believe Buffett thought it was a scorecard more than anything else and he plans to give most of everything away – but until then, he wants to keep playing.
Hey Lily, I would have been way uncomfortable writing that if I wasn’t kind of anonymous because it sounds either judgy or braggy or both. It isn’t meant that way, actually I honestly feel that it was one of those things like my distance running that helped me succeed and at the end of my career made me more money than it cost me. Which means it wasn’t even generous on my part, just part of a system I followed because I believed it would work out for the best. But now that my income is much lower since I only part time side gig and at some point if I quit earning at all I really am at a loss as to how to pick a target for giving.
Amazing number. Congrats for being so generous. Tom
Thanks Tom, like I told Lily I don’t really feel like I was generous but was just following a plan. I’ve run well over 20,000 miles in my life and some people called that disciplined, but not at all. I picked running because I hated it but thought it would be good for my tennis and good for me to have to learn to function under extreme discomfort. And it was, but I didn’t run because I was disciplined but because I was terribly lazy and needed to counter that somehow. I ran because it was a value equation that I thought would result in my benefit. I think that’s why I give as well, not just for the benefit but full well expecting it. Like investing you expect compound growth. I don’t think there is credit deserved in my case although many people give selflessly assuming they will get no benefit, I think they are the generous ones!
Wow, I found your blog just a couple posts ago. I have to say, it’s quickly becoming a favorite of mine to read.
I think you are so right. So many people have such an obsession over money, but giving helps us loose our grip on it and see that there is One who gave it to us in the first place. Like you said, giving helps us become kind and generous, seeing others as more important than ourselves.
I began working my first job about a year ago but have failed to tithe to my church regularly. I’m going to be brutally honest here – when it’s your money that’s being given away, that’s a hard thing to stomach. My grip over money is tight, and I need that to be loosened.
It’s very difficult to give because, like you said, it seems like you receive nothing in return. But perhaps it produces an internal and everlasting investment, not necessarily material. If I was wiser, I suppose I’d have seen that those things are more important than material possessions to begin with.
Thank you Steveark. I found this at the right time.
It is hard, especially at first or even later when you are earning more because it can rapidly become your biggest expenditure. In my case my parent’s example made it much easier. Keeping money in its place never gets easy. I have more money now than I’ve ever had, more than I need, but I still struggle with how much to give and where to give it. Frugality is a trait that can get you to financial independence but it also makes giving harder because it is all about trimming expenses, especially those that don’t seem to provide a lot of value. Giving to help others lacks that tangible, immediate proof of value so it feels extravagant. In my case it is a little like my morning runs, I don’t particularly like the running itself. But I do like being able to eat more, feeling like I may live longer and not having to buy new clothes because the old ones stop fitting. Plus I made it a habit over the last 30 years. And I do like the changes that giving make in my non-physical fitness.
Nice post! That is a lot of money which shows a couple things. 1. By putting 10% away of your earnings it really can add up. 2. You both are very blessed and that giving is a sign of larger wealth.
We have always given but when my wife quite her job to stay at home we made a committment to do the full 10% of our gross income. Since then it seems like we are getting random financial surprises. I always considered them blessings and while we don’t give hoping for some magic elsewhere it is clear to me that if you give in faith you will be taken care of and not just financially. It also benefits you to give since you have to be more responsible in other aspects of your financial life.
It is much easier to start giving when you make less too. For some reason it is easier to give $10 of $100 rather than $1,000 of $10,000. As your income grows it is easier to give more and more.
That is true, by my last year before slightly early retiring 10% was over twice my starting salary, more than I had ever paid for a car and even more than our house cost! But we were committed and didn’t even have to discuss it, just did it. I am glad your experience has been so positive, thanks for sharing!
I love that generosity is a big part of what you consider important in the personal finance game. Too many blogs on money are exclusively about “me, me, me!” “Look at me living it up in Thailand!!!” etc, etc, etc.
Impressive! I’ll never be in that position financially to give even 10% of that amount, but I applaud you for your contributions to help others. While we don’t have much to give, we do so on a continual basis and hope to increase that as we grow.
Giving is never about the amount, it is just about giving an amount that you can feel. That might be ten dollars, there were certainly times in my life when I didn’t have that much or when it would have been a stretch to give a whole ten dollars. My ability to have given what I did was just luck, or fate or whatever. My genetic make up coupled with finding the perfect job for my weird mind put me in a place to be a high earner which wasn’t something I deserved, it just happened that way. And it sure doesn’t make me nearly as good a person as you are Kate, but I’m better than I would have been if I hadn’t been taught to give!