2018 marks our first year of having a Donor Advised Fund (DAF) through Fidelity. The effect on my giving patterns over the past year has been a pleasant surprise.
As I reviewed this year’s giving and compared it with prior years, I was struck by the fact that we are giving more generously than ever before – roughly a 20% uptick in donations.
While I’ve never thought of myself as a Scrooge, it’s worth exploring why I started a DAF, and considering why I seem to have donated more after establishing a DAF.
My rationale for starting a DAF was motivated (in part) by financial self-interest.
I was planning to give anyway, and I have a sufficient emergency fund serving as a buffer, so it made sense to batch several years of planned donations in advance as a single large donation to the DAF. This would ensure that the donation, taken in combination with our mortgage interest deduction, would qualify us for a greater net deduction than the increased standard deduction under the 2018 tax reforms.
Humans respond to incentives. Uncle Sam wanted me to start a DAF. No one puts Sam in the corner. I gave Sam what he wanted and started a DAF.
I dislike orphans.
Prior relationships sometimes result in unexpected offspring, leading to complicated situations (just ask the Brady Bunch). After I left Betterment for Vanguard, I brought along orphan shares of funds in my taxable account: funds that, if it weren’t for the capital gains tax I’d have to pay, I’d just as soon have sold off to simplify our portfolio.
By donating appreciated shares of these orphan funds, we culled the winners, avoided paying capital gains taxes, and the DAF received the full contribution.
I’m not a very thoughtful person.
I am not skilled at buying gifts that aren’t practical necessities for others. One of my less proud gifts as Anticlimactic Romeo was buying my wife wool socks for her birthday. I bought them online because malls depress me.
Since many of my friends are in fortunate financial positions, through my DAF I make charitable contributions to celebrate birthdays or commemorate milestones. No unsavory malls. No wasted commute time.
Best of all, I get to support my heroes in medicine as they perform meaningful international medical work.
I dislike hassles.
I can barely tolerate interacting with our hospital’s electronic medical record, and I get paid to deal with that aggravation.
It’s unbelievably convenient to make donations in honor (or memory) of a loved one via Fidelity. It’s convenient, usually 5 minutes or fewer.
In part, the DAF has eliminated the barriers to giving that were present before:
- No need to itemize every deduction on a google spreadsheet.
- No need to track and store letters confirming donations.
- No need to write checks by hand.
Another excuse bites the dust.
I like wins and and I dislike losses.
With a DAF, the dollars have already been donated and we’ve already received the tax break. Mentally, it’s like playing with house money.
Since the cash is no longer yours, the psychological loss aversion that tends to make humans reluctant to cut a check is absent.
Because giving has been front-loaded and packaged as a large deduction, you reframe the net loss to your bottom line as a tax win. Instead of feeling like your wallet is shrinking, you feel like you’ve taken advantage of a clever, entirely legal tax efficiency.
I’d love to say it’s feeding my inherent altruistic tendencies, but I suspect it’s my superior math skills as explained by the Dunning-Kruger effect.
Thank you, Physician on FIRE, for lighting a match under my butt to start a DAF.
No one has done more to put this giving vehicle on the radar of doctors than the notorious Physician On Fire, whose original post inspired me as much as his subsequent face off with the White Coat Investor amused me. It was Ali vs. Frazier for nerds! A finance geek’s Clash of the Titans, sans cyclops. I could go on and on with the metaphors…
I prefer this new, less selfish me.
In the excitement of optimizing finances and pursuing Financial Independence, there’s a real risk of inadvertently becoming a miser. Data consistently show that high-income households give less than low-income households. In other words, “I’ll give once I’m there,” may result in never giving what you know you should.
You maintain charitable fitness by giving those muscles a regular workout. You need to do it with regular donations to folks and groups who help heal our very broken world.
By removing barriers to giving regularly, increasing convenience, keeping me out of the mall and reframing my psychological approach to giving, having a DAF has increased my charitable contributions.
What’s your giving experience, DAF and otherwise?
What tricks and tips do you use to maintain your charitable fitness?