Intro:  This is a blog from 2014 so a bit dated but may be of interest

Using your Wealth for Good

What is Strategic Philanthropy?

Back in the Section on Wellbeing, we spent some time discussing reputation and gratitude.

Many very wealthy people like Bill Gates, Warren Buffet and before them Andrew Carnegie have hit the headlines with their very considerable financial donations to worthwhile causes. Andrew Carnegie gave away today’s equivalent of $4.6 billion.

But tens of thousands of other well off people have also given and are giving away very considerable sums of money in a much less heralded fashion.

On the other hand, there are probably just as many well off people who give away little or nothing of their wealth.

Who is right?

It doesn’t really matter because, at the end of the day, it is what works for you that will decide upon your Strategic Philanthropy plan. If you choose to support some worthwhile causes.

Let’s assume you have decided to show your gratitude and possibly to shine your reputation by making donations.  This chapter looks at some of the issues involved.

12Faces has further resources on life planning.
Go to the article: How to Do Your Life Plan

Strategic Philanthropy: What Wealth do you have to Give

Your wealth at any point in time is not just the money that you happen to have. Your philanthropic strategy can be based on a number of elements.

As you get older and accumulate more life experiences and technical and managerial know-how, the value of your opinion also increases. This adds to your personal store of wealth.

For example:

What you learnt starting and running a business the first time means you can probably do it faster and better the second time round. This is due to your increased wealth of knowledge.

In other words, your time and opinion have a value that you can share with the community.

Donating Time

In many ways time is more precious than money because you only have so many hours in a day and days in a lifetime. Whereas the money you can accumulate is effectively infinite.  The reality of strategic philanthropy is that if you give away money it is tax deductible. If you give away time, it isn’t.

That means that giving away your time is a serious undertaking worthy of serious thought.

As part of building your personal business plan back in the Section on Wellbeing, I suggested you identify some of the good works that you were passionate about. They are the things you might get the greatest Return on Investment (ROI) from.

ROI is a business term used to measure what you get back from investing a unit of money or time.  A canny investor would certainly aim to get back more money than they invested. Also, they would probably aim for the maximum amount they think they can get without undue risk.

I argue it is the same for your investment of time.

Strategic Philanthropy Example:

In the sample Mind Map in Wellbeing, we choose a focus on diabetes as the thing you were most passionate about.

You could invest some time – say a day a week – in door knocking to raise funds for diabetes research:

You will earn an even greater ROI if you choose to donate time to an area where you will also continue to learn.  In my case it was to volunteer for local government and later for university governance.  The university had some 10 times the budget and 60 times the staff of my own business so I learnt a great deal.

Strategic Philanthropy Opportunities

There are any number of opportunities to get involved in good works.  While developing your Strategic Philanthropy plan you might be well advised to reflect on:

Donating Money

Giving a portion of your monetary wealth is a time honoured tradition.  It has long been referred to as ‘tithe’ which started out in life as far back as 567AD. These were donations to the Christian Church and the Jewish equivalent.  It was then about 10% of what you earned or made.

You might be thinking that giving away money is easy.  I think your opinion will change when you have money to give away.

Examples:

Well known investor Warren Buffet had this to say about the difficulty of donating wealth effectively:

“… because philanthropy is harder than business. You are tackling important problems that people with intellect and money have tackled in the past and had a tough time solving.  So the search for talent in philanthropy should be even more important than the search for talent in investments, where the game is not as tough.” (Schroeder, 2008, p. 817)

Andrew Carnegie, at one time the second richest man in America and who gave away the equivalent of $4.6 billion during his life time, also wrote that:

I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution”.[1]

A common theme here is that giving away money was (at least psychologically) harder for these men than making it!

I think this comes about because the successful business person, having made their money by the application of sound investment principles, finds it a bit of a challenge to give it to a charity. The concern is that they may not use such sound thinking when it gives the money away.  It is important to note, for your Strategic Philanthropy plan, that the difficulty in the giving away is to find good works that will use the money donated as efficiently as the business person created it.  I certainly found this to be my personal experience with several of the organisations I have donated to over the years.

What Organisation to Give To?

If you have a nagging concern that the organisation you are donating to is not using your money efficiently, trust me, this will grate on your nerves and turn what should have been a heart warming event into a pretty bitter one very quickly.  I think this is what the quotes above are reflecting on when they speak of the difficulty.

It is hard enough when you can manage your donations during your lifetime.  It becomes a real problem when you are trying to give away money after your death in your Will when you have no chance of supervising the process after you are gone.

Frankly, this is still something I am grappling with.  To date, I have come to the conclusion that:

How Much to Give?

There is also the burning question of how much to give away in your Strategic Philanthropy plan.  That is very much a personal question; both while you are alive and after death.

While you are alive, money has what the economists call an ‘opportunity cost of money’ which means, what could you get if you used it for some other purpose.  If you invested $100 in a bank for a year, you might get $5 in interest (5%).  If you reinvested in your business early in its life you might get 200% return while later, because it is spinning off more profit, you might only get 10%..  I personally have found it least nerve-wracking to settle on 10% of my before tax profit.  To make it easier, I always had my accountant Jill write out the cheque and cover the amount when she brought it in for me to sign.. We used to jokingly call it a ‘bandaid cheque’, because a bandaid hurts less if you rip it off than if you slowly drag it off!

Strategic Philanthropy: Past, Present and Future Tense

Three questions to ask here:


[1] The source of this specific quote is not known.  I saw it in an article but it wasn’t referenced there.

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