Doing Good with your Wealth

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

Using your Wealth for Good

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 (who gave away today’s equivalent of $4.6 billion) have hit the headlines with their very considerable financial donations to worthwhile causes.

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 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.

What Wealth do you have to Give

Your wealth at any point in time is not just the money that you happen to have.

As you get older and accumulate more life experiences and technical and managerial know-how, the value of your opinion also increases adding 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 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.  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 as 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 and 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.

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 doorknocking to raise funds for diabetes research.  When you were young and comparatively inexperienced, this might be a worthwhile use of your time.  But when you are older and more experienced, your time could be better used managing the doorknocking of a host of others.  Just like a business with you supervising 50 sales staff can be far more productive than a business that has you as the only salesperson, so it is with good works.  By leveraging your wealth of knowledge, you can get a far better ROI and therefore more personal satisfaction than by giving it away in tasks below your potential capacity.

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.

There are any number of opportunities to get involved in good works.  You might be well advised to reflect on;

  • what you put in your personal business plan as your interest and focus on that area of endeavour
  • how much time you can spare without damaging your own business.  As the leader of your own business, any time you spend elsewhere will impact on your business until you have grown it and made it sophisticated enough that you are at what Gerber (Gerber, 1995) says is the pinnacle of business ownership; when you work on your business, not in it.  By the time I sold my flower business, I had such a good team that I could spend an average of a day a week on the business of the university where I donated my time.  But much earlier in my life, I retired as Mayor because the time involved to do the job properly was such that it would have taken me away from my job and later my own business when both were pretty small and green.
  • Will your investment scale?  If you get involved in this role, can it lead to further and bigger roles so that you continue to get a improvement in the ROI of your time.   If there is no upward path, you are not going to maximize your ROI and the potential contribution you can make.
  • Will you learn in this role?  At the outset, is it bigger than you are used to so that you will have to grow personally to do the job.  Again, you will get more personal satisfaction from continuing to grow than you will from spending your time on things you already know how to do
  • Have you got something to offer in this role?  If you become involved but don’t or can’t contribute, you aren’t doing much for the worthy cause you have chosen and you won’t get much satisfaction from it because you will know you are bludging even if you fool others.

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 as 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.  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 which may not use such sound thinking when it gives the money away.  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 organizations I have donated to over the years.

If you have a nagging concern that the organization 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;

  • I should only fund things close to my heart (as expressed in my personal business plan)
  • I should choose organizations with the most professional management in those areas that I can.  Buffet also made this comment when he gave much of his money to the Gates Foundation arguing that they had a much better delivery system than he did.  Nevertheless, he set them goals on distributing the money to satisfy himself it would not sit around unused.
  • I should trust that organization to manage the funds rather than interpose my own trusts run by lawyers and other professionals who, no matter how well intentioned, siphon off management fees and may not be as passionate about the charity as I am.  Also, as they grow old over time, and are replaced by other trustees, who is around to ensure the new ones don’t lose the plot.

There is also the burning question of how much to give away.  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!

Past, Present and Future Tense

Three questions to ask here;

  • When to start:  you should start as soon as you feel you can spare the time or money.  I talked about the ‘opportunity cost of money” above.  If taking it out of circulation by donating slows down your business growth significantly, you might get a better ROI keeping it for now so you have more to give later.  After all, the Taxation office will claw enough of your money off you early on to slow your business growth down without additional donations before your business is on its feet.
  • What to do now: what ever you think is appropriate.
  • What to do after death: As soon as you start your career, you should make a Will.  There is no knowing when you will shuffle of this mortal coil so a smart business owner will plan for that enviable event.  We discuss more about Wills in the Chapter on Protecting your Wealth

 


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