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Cross-posted from the @High Impact Professionals blog - see the original here.
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In my years of working with people on their financial plans for giving, I’ve met many wonderful individuals who feel morally compelled to take a giving pledge. Intellectually, they are fully aware that they are in a position to help others. But emotionally, they aren’t ready to commit to a pledge.
The sticking point here is a common thought many of us have: “Do I have enough?”
In my coaching program for aspiring philanthropists, it’s my job to help people explore this question using their very own financial data.
For many of us, the root of “Do I have enough?” comes from a scarcity mindset: we focus on our limited resources rather than our abundance. I very much understand where these fears come from. When we compare ourselves to peers who earn more or dwell on goals we haven’t yet achieved, it can feel like we still haven’t "arrived."
Here are the 5 practices that have helped me work through my own scarcity mindset.
One of the quickest ways to shift your perspective is to check out @Giving What We Can🔸's How Rich Am I? calculator.
Most people are shocked to find that if you earn more than $69,000 in post-tax income, you are in the top 1% of global income earners! Let’s take this one step further. If you were to take The 🔸10% Pledge, a very generous pledge indeed, you would still be in the richest 1.4% of the global population!
Chances are, you might not always feel rich. Especially if you are surrounded by those who make more money than you. This calculator helps put our income into context, fast.
At $69,000, your income is 17.8 times the global median! Source: Giving What We Can
I love this tool for starting the conversation and offering a quick change in perspective, but on its own, it doesn’t fully solve for feeling financial “enough-ness”. And that’s because it only looks at income. Which brings us to point #2.
Many folks try to answer the question of “Do I have enough?” with just a salary number. For example, they might look at their job potential and say “I’d like to make this much money!” I think I could live happily off that. But this is a very one-dimensional way of looking at money.
It doesn’t take into account:
This is where I think the FI movement (financial independence) is incredibly helpful. Financial Independence is defined as having enough money saved up and invested that you no longer need to worry about earning an active income. In other words, you are financially independent because you can live comfortably off your investment portfolio without the fear of running out of money.
I’ve found that many people who do earn a good salary and do have some level of savings still feel like they don’t have enough because they are not aware of where they are on the path to Financial Independence. Are they five years away? Fifty? Generally speaking, we can all agree, we’d like to be FI by the time we’re old and can no longer/don’t want to work.
So what’s the quickest way to calculate a better awareness of your financial situation? Calculator your FI number!
Here is the mathematical equation that will help you get there: You need 25x your annual expenditure saved up and invested to reach FI.[1]
For example, if you spend $40,000/year, you need $1,000,000 saved up and invested.
Let’s look at this in an example:
According to the FI calculator, it will take you a little more than 23 years to reach FI with a portfolio of $1,750,000 (inflation adjusted). You’ll only be 53 years old.
New awareness unlocked! You realize you could, if you wanted to, retire more than a decade earlier than the traditional retirement age. This might feel very freeing! Perhaps before this exercise, you saw your friends making $150,000 a year and felt much worse off in comparison, but now you realize you’re in a great spot financially.
Now let’s see how this applies to donating:
You’re considering taking The 🔹Trial Pledge of 1% and wondering how it might affect your FI timeline. In reality, it only extends your journey to FI by about 7 months. The difference is minimal, especially in the scheme of decades. Just a moment ago you thought you had to work until you were 65! This is quite the reframe.
Below is a snapshot of what your investment portfolio would look like, even with a 1% donation. It’s a portfolio that’s still worth millions.
Source: The FI-lanthropy Calculator, by Yield & Spread
Hopefully, from this example you can begin to understand why FI is a great tool for building a truer awareness of your financial situation. And may inspire you to come to more meaningful conclusions about coming up with a giving plan.
While the above example is certainly illustrative, it’s not realistic to assume you’ll spend exactly $70,000 per year for the remaining years of your life. Forecasting spending can be challenging, and the uncertainty of what we might need in the future often reinforces a scarcity mindset.
That’s why it’s important to come up with a range of what you could spend. It’s ok to spend more in some years, and less in others, as long as your compass is pointed in the right direction. You simply want to avoid the hedonic treadmill, where you are constantly upgrading your lifestyle and spending more over time.
My recommendation is to spend on what truly brings you value, and to forget the rest. And my favorite framework for thinking about this is from The Budgetnista. She breaks down spending into the following categories:
Here’s a few tips for exploring your spend within this framework that will bring you more clarity of confidence:
Even if you don’t actually change anything about your spending, just start tracking your spending over the next year. You’ll be surprised to find how much you can uncover about your habits simply by seeing real, actual numbers.
P.S. If you want more ideas on how to save money, feel free to check out 68 ways to save a buck by Yield & Spread.
Now that you have a framework for building a truer financial awareness, it’s time to put your giving to the test. My recommendation would be to just start somewhere. It’s not about getting it right the first time, it’s about taking steps forward.
Here are some challenge options for exploring consistent and meaningful giving for the first time:
I recently met with an old friend who’s incredibly good at finances. We spoke in-depth about taking a giving pledge. She mentioned she was “only” donating a few hundred dollars a month, and that she didn’t see herself as someone who was particularly generous. I offered to reframe this for her: “What does this look like if you calculate your donations as a percent of your income?”. She was surprised to find this was actually 5% of her income. And she had been donating at this rate for the past decade!
What are other ways to reframe your thinking, especially around finances? I recommend setting a timer for 5 minutes and writing down all your fears about giving. Then consider what a reframe could look like. See some examples below.
I'm an early retiree (a la the FIRE movement). I spent 12 years in commercial real estate before pivoting careers completely - founding the nonprofit Yield & Spread which promotes financial literacy as a tool for positive change. My work focuses on instilling financial confidence so that people can make the best choices for their careers and maximize their impact, while also achieving their personal goals. I speak from experience on this topic as I have taken The 10% Pledge myself and am working to promote giving pledges to the FIRE world.
This equation is based on” The 4% Rule”, popularized by The Trinity Study. It found that withdrawing 4% annually from a diversified portfolio had a high probability of sustaining a 30-year retirement. The study examined various asset allocations and time horizons to assess the success rates of different withdrawal strategies. It has been highly popularized by the FI movement
