If you are like many of your peers, you want to create a financially secure future for yourself, but you also want to contribute to helping build a better society for the next generation.
Young professionals have a unique opportunity to shape their financial futures while simultaneously making a positive impact on the world. By integrating philanthropic financial planning into your wealth management plan, you too can contribute while securing your own future. You can do this by combining wealth-building strategies with charitable giving goals.
In this article, discover practical financial planning strategies that empower young professionals to build wealth while making meaningful philanthropic contributions. Then, learn how to take the next step by consulting a financial advisor to align giving with your financial goals.
What is Philanthropic Planning?
In its most basic sense, philanthropy is giving by individuals to charitable entities to do good in the world. Philanthropic planning is the strategic integration of charitable giving into your overall financial strategy.
Successfully accomplishing this is about finding the balance between building personal wealth and making a positive impact on the world. By using a holistic financial planning approach, you are afforded the opportunity to align your financial goals with your personal values, maximizing the impact of your charitable contributions.
You can even potentially enjoy tax benefits while supporting causes you care about.
The 5 Pillars of Philanthropy
When engaging in a financial plan with a philanthropic component, it’s helpful to understand the five pillars of philanthropy:
1. Giving: Giving involves people providing direct money donations or giving specific assets to organizations and causes they care about, providing the nonprofit with a financial boost.
2. Volunteering: Volunteering is a way to give back by offering time and skills to support charitable causes. Many charities struggle with enough personnel to help them operate or provide services and volunteers can fill these gaps.
3. Investing: By using financial resources to support social enterprises, individuals can provide a direct way to financially help charitable entities on an ongoing basis.
4. Purchasing: People can support the organizations they want by making conscious consumer choices to align with their values with how they spend money.
5. Advocating: This involves one’s using their voice and influence to support important causes they care about.
Tip 1: Start Early with Strategic Philanthropic Giving
To initiate and maintain your philanthropic giving goals, try to start planning as soon as possible. As a young professional, you might think you need to wait until you’re more established to make a meaningful difference, but the earlier you begin, the more you can help.
Starting your philanthropic journey early also offers significant benefits. Even small donations can make a big impact, especially over time. The power of early giving lies in developing a habit that can compound over time, both in terms of impact and personal growth.
One way to do it is to integrate charitable giving into your monthly budget. This way, you already know how much you’re going to donate, and it becomes recurring in your budget. To incorporate giving into your budget, consider setting aside a small percentage of your income for charitable donations from each paycheck.
For instance, you might want to try using the 50/30/20 rule, allocating a portion of your “wants” budget to philanthropy. Remember, it’s not about the amount you give, but the consistency and intention behind your giving that matters most.
Tip 2: Align Investments with Personal Values
Socially responsible investing (SRI) allows you to grow your wealth while supporting companies and organizations that align with your values. This approach considers both financial returns and social/environmental impact.
To get started with SRI, research Environmental, Social, and Governance (ESG) funds. These investment vehicles consider factors like environmental practices, fair labor policies, and effective corporate governance, alongside financial metrics.
Tip 3: Maximize Tax Benefits of Charitable Contributions
It’s easy for young professionals to think they can’t afford charitable donations at their age because they’re still getting established financially. What many don’t realize is their donations can do good without impacting their own savings because donations qualify for tax deductions and help to reduce their taxable income.
Understanding the tax implications of charitable giving can help you maximize your impact. While tax advantages shouldn’t be the primary motivation for philanthropy, they can help you give more effectively while decreasing tax liability.
One powerful tool to consider is a donor-advised fund (DAF). A DAF is like a charitable investment account, allowing you to contribute cash, securities, or other assets, take an immediate tax deduction, and then recommend grants to your favorite charities over time.
Tip 4: Explore Workplace Giving Programs
Workplace-giving programs are an excellent choice if your employer is one of the many who contribute a whopping $21 billion to nonprofit causes each year.
According to some statistics, 65% of Fortune 500 companies match employee charitable gifts, and 40% offer policies/grants for volunteer time off (VTO). These initiatives empower their employees to donate time to their favorite charities without negatively impacting their work-life balance.
Check to see if your employer offers workplace-giving benefits and understand any matching ratio and annual limits. When employers help contribute along with your donation, this can double or even triple the impact you’re making.
Tip 5: Consider Impact Investing
While the term “impact investing” is relatively new, the concept of this type of investing has been around for a long time. This is a unique approach to contributing to one’s charitable goals.
Impact investing goes beyond traditional SRI by actively seeking out investments that generate measurable social or environmental benefits alongside financial returns. This approach allows you to align your entire investment portfolio with your values, not just your charitable giving.
The benefits of this approach include generating financial returns while creating positive social change. Examples of impact investing might include investing in:
- Green energy companies instead of fossil fuels
- Tech companies looking to provide solutions for water treatment and purification
- Companies working towards building low-income housing
- Financial institutions committed to providing affordable mortgages for low-income families
- Companies investing in research and development to fund cancer cures
Remember, impact investing involves for-profit companies, so it’s important to understand these investments don’t equate to giving directly to charitable organizations. However, they can help promote your vision of achieving solutions to solve world or societal problems while providing good returns on your investments, which can help to free up more cash for you to donate in the future.
Ready to work with a financial advisor to help you achieve your dreams while helping build a better world? Use Our Free Advisor Match Tool
What is Philanthropic Financing?
Philanthropic planning isn’t something you throw together, you want to set up a clearly defined plan.
A good way to begin is to make a clear assessment of your monetary goals and personal values. This will help you to establish philanthropic goals, identify charitable causes you want to support, and begin making affordable donations or making time to volunteer.
Philanthropic financing refers to the various financial tools and strategies used to fund charitable activities and might include:
- Charitable trusts
- Private foundations
- Donor-advised funds
- Charitable remainder trusts
- Charitable lead trusts
Each of these tools comes with different tax implications, but they can be used strategically in your philanthropic financial plan. An experienced professional financial advisor can help you accomplish your goals by integrating them into your overall financial plan.
The Role of Financial Advisors in Philanthropic Planning
Navigating the world of philanthropic financial planning can be complex. A financial advisor who specializes in this area of planning can help you create a personalized strategy to reflect your values and philanthropic goals.
By working with an advisor, you can ensure your gifting plans align with your overall personal wealth-building financial strategy. Your advisor can assist with structuring donations for maximum impact and tax efficiency, managing donor-advised funds, and choosing socially responsible investment options.
It’s important to find a financial advisor who understands your goals, needs, and overall plan. Get matched with the right advisor to begin planning your future while incorporating philanthropy and a giving strategy.
Estate Planning and Philanthropy
Incorporating philanthropy into your estate planning can help create a lasting legacy. This is a growing trend that goes a long way toward charities getting the help they need to succeed. Including charitable giving in your estate planning might involve:
- Setting up a charitable trust
- Making provisions in your will for charitable bequests
- Leaving your preferred nonprofit organization(s) cash, portfolio assets, real estate, or other remaining assets and/or specific valuables you own
- Setting up private foundations
- Establishing a donor advised fund
- Planning to donate assets to a public charity
- Naming a charity as a beneficiary in your life insurance policy
- Planning ways to reduce estate tax to empower more giving
By working and consulting with a knowledgeable legal advisor and financial professional, you can take a strategic approach to ensure your estate plan aligns with your goals to take care of your loved ones while fulfilling your philanthropic vision.
Give Altruistically While Simultaneously Planning for Your Future
You can achieve your wealth management goals while attaining personal fulfillment when you incorporate philanthropy into your wealth-building strategy.
Philanthropic financial planning is also a powerful way for young professionals to grow wealth while making a positive impact on society. By following the above financial planning tips, you can set yourself up for a future of financial success, along with providing meaningful gifts.
Remember, philanthropic financial planning is a journey, not a destination. As your career progresses and your financial situation evolves, so too will your ability to give back and make a difference. Start small, be consistent, and don’t be afraid to seek professional advice about your monetary plans as you develop your philanthropic strategy.
By using a strategic approach to wealth management, you can effectively altruistically give to causes you care about without sacrificing your personal monetary goals or hurting your own or your family’s financial situation.
Ready to get started? Find a financial advisor today!
