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Charitable giving vs. the value of compounding and debt reduction—a dilemma and temporary solution

On Saturday, Trent at the Simple Dollar blogged about frugality and social giving. I’ve been pondering something related for a few weeks-giving to charity and getting compound interest. You see, I’m 22 years old. This gives me a tremendous edge with compounding. Starting me investing now can make a big difference compared with investing later.


Let’s just assume that we all know the benefits of compounding. If not, this post by Get Rich Slowly has some good videos of Michael Fisher talking about it along with links to charts.


In my financial life, there are two big issues staring me in the face. One is the importance of starting compounding young because of the difference it makes. The other is Mr. Micah’s student loans of over $100,000 (that’s for getting a PhD).


So Mr. Micah are working on living frugally and putting some of the money towards paying off debt and the rest towards saving and investing.


The problem is that I’d really like to add a third party. I believe that it is right for me to give to others. Particularly organizations which relieve suffering. I see this as a religious issue as well as a part of being a decent human. Therefore, Mr. Micah and I try to give $30-50 per month to a couple places we think make a difference.


But I know that I could be giving more. Even if I didn’t cut out of the debt payments, I could cut out some of the savings. What if I die, for instance, before I start really really giving? (I plan to do so by age 30, at which point we should have paid down a lot of the debt and started a decent savings going-so that I can put some money in it and focus elsewhere.) What if the world really really needed my money now?


I know that I want to leave some of it to worthy groups. But if I die young, there’ll be nothing to leave.


Having been a campus social activist, I know lots of places where I could give. I know what I’d do if someone gave me a million dollars to give away. And I could give of my own, if I didn’t think that compounding was worth so much in the long run.


This is, I suppose, the moral and psychological side of personal finance. It’s emphasized each day as I pass by a number of homeless on the way to work and remember how many are homeless and destitute around the world. How many women could really use a hundred-dollar micro loan to start their own business? What kind of returns in quality of life would that bring?


It’s painful to say “not yet.”


The only way I’ve been able to deal is by making a resolution. Until I can give monetarily, I will be particularly involved in other forms of giving-time, etc. Those little Alzheimer’s Art Quilt Initiative quilts or the ones I make for preemies. The latter won’t save the world, but it will provide comfort. The former might someday help people not die a horrible living death like my dear grandfather did. Earlier this month, I did a post on some ways that one might help others without giving money.


Do I feel like that’s enough? Not really. I could be doing all this and also giving the money. But I also don’t feel like a total failure. I could also ask those who are interested to give to charity instead of giving gifts-since I don’t really need anything.


It’s a start. Life is a process, finance especially. It feels like something to be sorted out. Yet it’s not the kind of thing that can be fully sorted, but the kind where you keep working at it. Like some balls of yarn which are endlessly tangled.


Millionaire Mommy Next Door September 23, 2007 at 3:16 pm

Great post. You pose some tricky questions and I commend you for thinking about this at your young age.

Here’s my .02 cents, or rather, what I chose to do:

In my 20’s: first priority was paying off debt and avoiding new debt. I started contributing to my IRA once I was shown the incredible power of compounding. I didn’t finish college, so I explored self-employment options and became an apprentice to learn new skills. Helped others by serving as a volunteer.

30’s: Focused on growing our businesses. Created a lifetime financial plan. Continued to volunteer (a bunch!!!), but didn’t send money to charities because I decided it was more effective to grow my money first, hence have more to share later.

40’s (I’m 43 now): Grew our money to a point that I can now focus all my time and energy (what’s left after caring for my 2 yr old anyway) to making a difference in the lives of others. My time is free to volunteer, blog to educate and empower others- even generate some income via blogging to fund micro-loans to women entreprenuers in developing countries.

It is a fine balance and we all do what we think is best. Again, good post!

Anonymous September 23, 2007 at 10:22 pm

Ya great post. We must remember what we give we get back times ten one way or another. I have done charity work, given food to the homeless, given money to some destitute people and I also like to give to feed the Children. It is a great organization. Children have no control over thier situation and they cannot get a job. No children should ever go to bed with an empty stomach but, they do right here in the USA. We are the land of plenty but, some still live in poverty. That should never happen anywhere. If people can volunteer they should or give they should. Paying debt is wonderful but, thinking of others is just great. When we all set aside our differences and think of others we can find what true love is all about. They say to give 10% if you can. It is also tax deductible. Other things people do is give old clothes or things uneeded to charitable orginizations such as Salvation army. They give coupons for you to buy things there if you wish and you can deduct what you donated from your taxes. You determine what you would have sold the items for at a garage sale and you deduct the amount from your taxes. Debt is not a four letter word ( joke meaning curse word)!! Don’t worry it will be paid. A great deal of people are further in debt than you are!!! Have a great week and good luck!! Annette

Kyle September 24, 2007 at 2:37 pm

Great post! I have found that giving time not only makes me feel like I am contibuting to my community but also contributing to the building of my character.

Catherine Lawson September 24, 2007 at 4:37 pm

At least you’re giving something now. Don’t worry that you won’t have given enough if you die by your thirty. That is a horrible thought – and I’m sure you won’t burn in hell because you wanted to pay off your husband’s student debt!

LISA EMRICH September 25, 2007 at 6:05 am

Good for you!!

As someone who is self-employed, 39, living outside DC, here’s my thoughts. I’ve scanned through several of your posts and think I have an idea of your current needs and future hopes.

You express an interest in making/selling quilts and donating proceeds. Think of your quilt-making as a business which will allow to donate funds AND contribute to retirement NOW. The numbers below estimate what could be possible with your current temp earnings and your husband’s stipend per semester.

Gross Income = $40000
Tempwork: $24000
Stipend: $10000
Sewing: $ 6000
(after cost of materials, advertising, shipping, etc)
Bank Interest: ?

Adjustments to Inc.= $9424
1/2 Self-employ.Tax: $424
SIMPLE-IRA contrib.: $6000
Health Insurance: $1800
Health Savings Acct: $1200
(ie.Carefirst HD-HSA plan)

Adj. Gross Income = $30576

Standard Deducts = $16900
(you likely will not have enough deductions to be able to include Student Loan Interest or Donations)

Taxable Income = $13676

Taxes Due = $1792
Income Tax: $1368
Business: $ 424

So what does that allow you to do with your money?

Gross Income: $40000
Taxes: $ 1792
SIMPLE-IRA: $ 6000
Health Ins: $ 3000
Charity: $ 1200
Roth-IRAs: $ 6000
Student Loan: $ 3000
Savings: $ 3000

Take Home: $16008

Monthly: $ 1334

Rent, Utilities: $850
Food, Household: $250
Gas, Metro: $ 75
Dates, Fun: $ 75
Misc.: $ 34
Emergency Fund: $ 50

Now there are many assumptions I have made in arriving at these numbers. But I hope that it gives you some ideas.

Take care,

LISA EMRICH September 25, 2007 at 1:44 pm

Oops, I forgot to reinsert FICA/Medicare taxes. And with new rules, you are eligible for a credit based on retirement contributions. Here’s a revised breakdown.

Gross Income: $40000
Taxes: $ 3600
SIMPLE-IRA: $ 6000
Health Ins: $ 3000
Charity: $ 600
Roth-IRAs: $ 6000
Student Loan: $ 2400
Savings: $ 2400

Take Home: $16000

Anonymous September 25, 2007 at 5:58 pm

If you have religious reasons for wanting to give more, keep in mind one thing: you can never outdo God in generosity. And His generosity is in all things–not just money and time.

SavingDiva September 26, 2007 at 5:22 pm

I think volunteering your time is a lot more important that donating money. While money is important, a personal touch (especially from some one who cares) is priceless. I participating in a mentoring program last year with a troubled youth (in some trouble with the law) and watching her develop was amazing. When I spoke with the volunteer coordinator, she mentioned that they don’t need any more donations, they just need more volunteers…I guess a lot of kids want to participate, but the program doesn’t have enough mentors…

Norak May 17, 2008 at 8:55 am

I’m in the same situation. So far this year I’ve given $300 to charities but I wonder if that is enough. I need to save it to earn more to give to charities in the future.

I think that when I retire, I will just live frugally and whatever I have left over I will give to charity. Good charities I think are Unicef and World Vision.

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