I Am Not A Generous Person (and The Case Against A Donor Advised Fund)

My sister is extremely generous. As a kid, she delighted in pretending to take the family’s orders one-by-one, then carefully carrying out miscellaneous items from the kitchen meant to represent our hamburgers (me), filet mignon (dad), and lobster a la carte (mom). Every gift she gives is carefully considered and tailored to the recipient. Once, my mom had to intervene after my sister gave away her entire piggy bank to one of her friends on a whim.

When it comes to generosity, if my sister were a fictional character, she would be a Disney princess.

Me? I would be Smaug.

“Conversation with Smaug” as illustrated by J. R. R. Tolkien

In The Hobbit, Smaug is a dragon guarding his hoard of gold. Smaug is described as “a most specially greedy, strong and wicked worm.” I wouldn’t go so far as to call myself those things, but the point is that I had a hard time giving up any of my hard-earned gold.

The habit of saying ‘No’ built up slowly. First, I started getting calls from my alma mater not a week after I graduated. Coworkers would walk around the office passing a hat for donations to a local charity. Cashiers would ask if I would like to round up my order to donate.

No, no, no.

Every single day while working in downtown Portland, people in red vests would block my path as I walked to the food carts, asking if I cared about the environment. I answered with a brisk “No,” and stepped around them.

Of course, it’s not that I don’t actually care about the environment, but every day there was a consistent onslaught of people asking. Each “No,” stacked on itself as a type of armor, like scales on a dragon’s back. I would much rather sit down, make a giving plan, and donate to the causes I care about. Until then the easy answer was “No.”

I would say no even to the cutest dogs with hats.

In high school, I volunteered time with Key Club and my local youth group. I figured that giving money would come later when I was an adult with a real job. Later, when I was more financially secure. Later, when I had time to figure out the causes I want to give to.

Later was so far in the future, I didn’t think about it. Suddenly, I’m realizing that later is now.

Everyone wants to make an impact on the world around them. They want their work to matter. Many people build giving into their lives, by setting aside portions of their paycheck or setting a line item in their budget for giving freely. It’s time for me to stop defaulting to “No,” and start saying yes.

The reality is that I can afford to give. I could afford it all along.Click To Tweet

Should I Open A Donor Advised Fund?

Many experts recommend opening a Donor Advised Fund (DAF) for giving. A DAF is a charitable investment account donors use to contribute money, receive tax deductions, and write grants. I planned to open a DAF for myself and write a post with the steps of how to do it. However, as I researched more I realized that for the average person, a DAF might not be beneficial.

The Pros of a Donor Advised Fund

Tax Benefits
  • A DAF is a great way to do a lot of up-front giving. If you can anticipate multiple years of giving and lump it into one year, you can put it all in the DAF to get a larger one-time tax break, then make your charitable donations from the fund in the following years.
Alternative Methods of Giving
  • You can donate stocks and securities that have appreciated in value.
Record Keeping
  • The DAF provides a single receipt to file with the IRS for all of your giving.

Standard vs. Itemized Deductions: What Do They Mean?

There are two ways to claim deductions annually:

  1. Taxpayers can claim a standard deduction ($12,200 for individuals, $24,400 for couples filing jointly in 2019) without needing to provide a single receipt.
  2. However, if they have tax-deductible expenses that exceed that amount (mortgage interest, charitable deductions, certain medical expenses, etc.) then they can itemize their deductions to claim a larger tax break.

You get a tax break from charitable giving whether or not your money comes from a Donor Advised Fund. The single most important benefit of the Donor Advised Fund is the timing because it allows you to lump all your giving into one year in order to exceed the standard deduction threshold. For example, suppose you know over the next five years you want to donate $30,000. If you have the means to donate it all upfront, you can receive your tax break and then dole out your charitable donations over the next five years.

The Tax Foundation estimates that 90% of people will take the standard deduction over the itemized deduction in 2019, which means that 90% of people will not likely see a tax benefit from opening a DAF.

Who Benefits From A Donor Advised Fund?

You will likely benefit from a DAF if you are:

  1. A high earner planning to retire early, so you take advantage of the tax benefits before retiring, then give generously in your low-wage years.
  2. High earner(s) who can donate over the standard deduction threshold and want an easy way to track all of your giving.
  3. An entrepreneur at a start-up that made it big and want to donate some of your appreciated stock.

I considered opening a DAF anyway, even though I wouldn’t get the tax benefit. The single receipt for all charitable contributions sounded great, and the fact that I could invest the money and conveniently allocate the money to different charities appealed to me. However, when I researched further, I realized that using a DAF also has some drawbacks.

The Cons of a Donor Advised Fund

High fees
  • Fidelity and Vanguard both charge donors a 0.6% annual fee (or $100, whichever is greater) on the first $500,000 in the account. Other DAF providers have similar fees.
  • The money you contribute to a DAF can be invested into mutual funds, which also have management and other fees.

In contrast, I invest most of my money in index funds with fees as low as 0.04%.

The minimum contribution
  • Donor Advised Funds require a minimum contribution. Fidelity has a minimum contribution of $5,000, whereas Vanguard requires $25,000 to open an account.
The contribution is irrevocable
  • Once you donate to your DAF, you can’t take it out for any reason. It can only be given as charitable donations to registered organizations.

I was prepared to irrevocably drop $5,000 in an account. Considering my terrible track record for giving, it would be great to have a completely separate fund set aside for charity. I could do that.

However, the fact that fees would eat away at the money in the account, I wouldn’t hit the standard deduction limit, AND I’m not a hotshot start-up success story meant that a Donor Advised Fund was not for me.

For people like me who won’t get that juicy tax benefit from donating large amounts to charity, there are simpler ways to donate.

Opening a Separate Giving Account

Screen Shot 2019-08-17 at 9.59.43 PM

For a single person who doesn’t have $12,200 to donate up front, it is more effectual to invest the money in a low-cost index or bond fund. Even more simply, creating a separate savings or checking account for giving is a great start.

I’m starting by diverting $100 a month to a separate savings account. In Ally, my preferred bank, it’s easy to open a new account and give it a nickname. Then, I can donate from the account using checks, a debit card, or by hooking it up to PayPal.

I called my account “The Philanthropy Project” and will pick a charity every month—you will start to see it on my monthly expense report.

This is a way to ease into giving. $100 is a rather arbitrary number meant to get the giving going. I can always increase or decrease the amount depending on saving goals.

Investing In Causes I Care About

It’s hard to let go of money I could invest in my future instead. In 40 years time, that $100 a month could grow to over $240,000. That’s a lot of money towards retirement, but it’s not a good reason to hoard. Instead of my legacy modeling after a ‘most specially greedy, strong and wicked worm’ I hope to be remembered as a ‘most specially generous, strong, and kind dragon.’

Screen Shot 2019-08-17 at 10.06.57 PM.png
The results of compounding interest on $100 a month

My first contribution this month is towards the American Civil Liberties Union.

Their mission as outlined on their site:

  • Protecting free speech and the right to protest
  • Defending reproductive freedom
  • Fighting anti-LGBT discrimination
  • Safeguarding the rights of refugees and immigrants

I believe in each of these things, but I wasn’t doing anything about it before. I could speak my mind and hold an opinion, but my actions had no influence on how anything would turn out. However, when I donate, I put my money where my mouth is. I align my spending with my values.

I’m investing in causes I care about. I might not see the exponential curve of monetary growth, but hopefully the money has its own exponential impact on the world.


What about you?

Do you have a giving plan?
Are you a Smaug or a Disney Princess?
Do you ever struggle with your giving?

Share in the comments below!

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  1. Thank you for writing this helpful article. I also liked into DAFs to see if they exist in Canada… and they do! But they’re definitely geared to very high-income individuals. I don’t recall if there were account maintenance fees, but I’m sure that’s also the case up here.

    For now, we’ll continue, like you, to give with plain old cash. But when I have more time, I’ll work on giving appreciated stocks. This is a far more tax-efficient option!

    1. Thanks Chrissy, it’s always good to remember I live in a US bubble and DAFs don’t apply to everybody! Good to know they exist in Canada. I hope one day I’ll have stocks that skyrocket enough to donate 🙂

  2. Very good post. I’ve been thinking about charity recently, and what is “enough” for me. I hesitate to give while I’m still paying off debts, but a conversation with a friend gave me a glimpse at my own financial privilege. They have no emergency stash what so ever. I have a 1k emergency stash (needed it just this weekend when the swamp cooler leaked through the ceiling). They have bad scores that means they can only get loans that are pretty predatory and have shitty interest rates. I have a good credit score that means I can get a personal loan with a low interest rate if something bigger than my stash hits us. If things ever really went tits up for us, my husband’s parents, grandparents, or my parents would all be willing and able to take us in until we could find out feet again. But my friend? Financially they’re in the same boat or a better one than the rest of their family. At least they have good health insurance.

    I’ve got a long ways to reach FI, but the fact that I’m on the path at all puts me in a better position than most. So now I’m wondering what I can do to give back.

    Also, it’s worth clarifying that the list you gave for Itemized deductions is inaccurate. “business trips, charity donations, moving expenses, etc.” Business trips, or any unreimbursed employee expenses is no longer deductible. The moving expenses deduction has also been eliminated under the new tax code(and it was never part of the itemized deductions, it had it’s own line on the old 1040). The only things that show up on the Schedule A, the form for itemized deductions is: Local taxes such as real estate taxes and state income tax, mortgage interest, charitable deductions, gambling losses, and medical expenses. And many of those items listed have limits, thresholds, and other specific requirements that mean they may or may not actually help some one on their taxes.

    1. It sounds like you have good insight into your financial privilege and the safety net you have compared to others. I completely understand hesitating while paying off debts. It can be hard to juggle different financial priorities. Being on the path to FI definitely indicates being in a better position financially, and it can be easy to have blinders on to FI, so it’s good that you’re wondering what you can do while on the path.

      Thank for the correction, I’ve edited the article!

  3. I’m working on becoming a Disney Prince(ss?) because this world needs lots of help, and I feel like the best thing I can do right now is put money in the hands of the right people at the right time (thanks Revanche – AGaishanLife for that one)
    I’m kinda going overboard lately, but it’s all good because it feels amazing to be in a position to help, especially when it helps out friends, too!

    1. I have seen the impact of your ‘going overboard’ and have seen only good so far. I’m so glad you’re using this as an opportunity to help and lift up other people. Outstanding!

  4. Awesome post. I’ve been wondering about the DAF since the standard deduction change last year and you articulated well why the average Jane doesn’t really get much impact from it.

    Giving money is newer to me (though giving generously of time and always being employed through mission-driven, public nonprofits is a natural way to “give” the annual salary difference I’d make in the private sector). i have found it to be a joy. And it helps my finances somehow (magically).

    1. I was hoping that the section detailing the DAF wasn’t too long and arduous, but I thought I might save some people the same research journey by writing out what I came up with when I was looking into it.

      Giving time is definitely a great way to help, but I find that money can reach a bit further–to places I can’t go, or for people with skills I don’t have. It also is way more difficult for me to give up my money as compared to my time! Having mission-driven work is great though, I’m happy that you have that fulfillment in your job AND you’ve found giving money to be a joy so far. I have heard stories of people who give always seem to get in return!

  5. A DAF definitely wouldn’t be advantageous for me but I am trying to start giving. Like you I’m starting at $100 a month. Thanks for reminding me about the ACLU. That may be next month’s recipient. This month it was Feeding America and Planned Parenthood.

    Good luck un-Smaug-ing yourself. I know how tough it is.

    1. Feeding America and Planned Parenthood are both on my list. I started to get decision fatigue but I decided to focus on a different category every month, and not get too hung up on donating “the right way.”

      I’m glad I’m not the only one starting at $100/month! I wasn’t really sure what number to go with, but that seemed like enough in a month to feel like I’m making a little bit of a difference. It’s definitely tough, and I appreciate your encouragement!

  6. We started our DAF with appreciated stock right before the standard deduction rose to 24K. My favorite part of using the DAF is being able to make anonymous donations. In the past a single donation would generate years of phone calls and letters asking for more. Now we can donate anonymously to any charity and never be bothered by them asking for more. It’s amazingly freeing.

    1. Anonymity is certainly a pro. Good job taking advantage of the DAF before the rise of the standard deduction!

  7. My husband and I, who were self were employed our whole 32 years (so far) of marriage, knew years ago that our above average income would drop significantly once we retired in our late sixties, so, while in our early fifties, we opened a DAF with $5,000. In our investment portfolio, a $5,000 purchase many years ago, of Home Depot stock, has soared over the years, so we repeatedly gave some of that gain, as well as of other stocks, to our DAF, in addition to giving annually to local non-profits who we liked, from our regular income. We’re now retired, and are thrilled to be able to have enough in our DAF that we can participate in a wonderful program with The Bohemian Foundation called “Give10”, in which donors commit to donating $10,000 per year to local non profit groups with whose mission we most align. I’m very glad someone told me those many years ago about DAFs. One more benefit: when we donate through our DAF, if we choose, we can remain anonymous. That’s sometimes really the perfect way to give, and, it’s fun!

    1. It sounds like you really made the right choice when it came to your DAF and used it exactly for the right benefits! Good for you for participating in the Give10, what a cool mission.

  8. Nice post, and glad to see you’re contributing to a worthy cause. One comment on the value/advantage of a DAF. If you are planning to set up an account where you accumulate funds that are earmarked for giving, it makes much more sense to do this in a DAF. A major advantage of the fund is its tax sheltered status. If you build your own giving account (or savings account), you will be paying taxes on the interest and gains every year. Our tentative plan is to fund a DAF in a high earn/high tax year so that we can keep giving as we wind down our working years.

    1. I definitely missed the fact that DAFs are tax-sheltered. If that offsets the fees then I might have to reverse my position on this.

  9. My husband and I would normally be in the 90% who would not be able to itemize. But by “clumping” our donations, we exceeded the 25k threshold (adding our state income taxes and mortgage interest to our charitable contributions). I would say many people are in our same boat, that is, that by clumping they could itemize. We didn’t open a DAF this year, but would definitely consider it in future years.

    1. It sounds like you were strategic when it came to your taxes, and clumping definitely seems like the best way for most people to hit the limit and get the best use out of a DAF.

  10. Unfortunately the new tax laws under the present administration do not give the tax breaks for giving that were in place before and so do not incentivize giving which is sad. I am no Disney Princess like your delightful sister but personally, I donate to Medishare and to Project Worthmore. The first helps mothers survive childbirth in Haiti and the other supports education and healthcare for refugees.
    Thank you for this important post. Sometimes I find it too easy in this world of US privilege to become a smaug!

    1. Yes it’s unfortunate that some of the incentives are gone for donating– but that doesn’t mean we should stop! Those two charities sound like very worthwhile causes.

  11. I’m quite certain I’ve referred to myself as Smaug before so yeah, fessing up here. My journey was similar to yours, I started as a hoarder of minute resources and had to actively teach myself to give and support the causes I care about with cash, not just words. Words are important but they have to be backed up with some kind of material support or else there will never BE a later. Depending on our cash flow, since our senior dog is racking up the monthly bills like I can hardly believe, I give in increments of $5. If I can give $100 that month, I do. If not, then $50. If not that, then $25. Or $10. Or $5. But we must give. Whether to help out a fellow blogger or to help homeless puppies or to help the people in our local area, we have to give. It’s a muscle and it will atrophy otherwise.

    1. I completely agree- it’s an important muscle to use. Giving in increments of $5 seems like a good way to get the muscle working.

  12. I learned so much from this! It sounds like you’ve worked out the best way to give without paying fees to someone to manage your giving. And as with investing, if you sock away $100 a month, you’ll never miss it. Love the cause, too. It’s so important in this day and age.

  13. As a conservative, and a supporter of our great President Trump, I also support your causes. Like the president I am pro gay and lesbian, pro immigrant and pro reproductive rights.

  14. Your old self describes my wife’s current self on giving. It was quite the concession when she finally conceded to doing a DAF before the tax laws changed.

    I describe the character more like Mr Burns in the Simpson. He’s given a dollar and told to give it to any charity he wants. Burns responds “On second thought, I think I’ll keep my dollar”

    It takes a long time to change habits!

    1. It does! I find that the more I give the easier it gets. Especially when I have the core “charities” or places I care about giving to.

  15. Thanks for helping us de-Smaug while simultaneously considering some thoughtful Smaug-like pros and cons of DAFs with this post.

    Hoping to see more of your altruistic motivations and actions as you continue your path to financial independence!

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