Most everyone can think of at least one time when they gave to a charity. Perhaps it was simply a bit of pocket change thrown into a Salvation Army kettle during the holidays. Maybe it was a one-time donation to the Red Cross for earthquake or flood relief. Perhaps, like many people in North America, you give regularly by sponsoring a child with World Vision or you donate to your church or temple each month.
Charitable giving is important, and something that most people try to do at least once in awhile. For others, charitable giving is a moral or philosophical obligation that they make a regular part of their lives.
If you are one of those “once-in-awhile” givers but want to make donation to charity a regular part of your budget, this advice may help. Many consumers would like to do this but simply can’t figure out how to make it work and still have enough money to live on and to save each month.
That’s where the 50/30/20 principle comes in handy. This idea is one that’s touted by numerous economists and financial advisers. It is the idea that a person, couple or family should allocate their monthly income in 50, 30 and 20 percent increments.
Fifty percent, say the pros, should go to essential living expenses, including rent/mortgage, household, car (and related) and grocery expenses. Regular, fixed bills such as loan payments also fall into this category.
Thirty percent of your monthly intake should be allocated for non-essentials. This includes entertainment (cable, Internet, eating dinner), clothing (other than the basics), and purchases that are not essential to basic living (electronics, jewelry, etc.).
The remaining twenty percent should be left for debt repayment and savings. When it comes to debt repayment, this means applying extra money (over and above your required minimum monthly payment) to your mortgage, car payment, student loan or credit card debt. Anything else should be saved for the future (retirement, children’s college fund, etc.). Some economists break this category down even further, allocating 10 percent to debt repayment and 10 percent to savings.
So where does charitable giving fit in? There are actually a couple of ways that you can work this into your regular budget. Some people add charitable giving under the 20 percent that is also earmarked for savings and debt repayment. They break it down in various ways: 10-5-5, for example.
Others who don’t wish to compromise their savings for the future or their ability to pay off debt faster break down the entire formula differently. They may choose to live more frugally and reduce their living expenses and non-essentials category by five percent, for example. Their overall formula for income allocation would be 45/25/10/10/10 or 45/25/20/5/5.
Whichever way you choose to break this down, it still means that you’ve allocated a specific portion of your monthly income to charitable giving. It means that, rather than giving when you can “afford” to, you can make plans to donate a specific amount of money every month and know you’ll always have enough income to cover it.