By contributor
updated 7/17/2006 12:23:04 PM ET 2006-07-17T16:23:04

Warren Buffett's $31 billion pledge to the Bill and Melinda Gates Foundation this month earns him a place among the nation's great philanthropists, such as Andrew Carnegie and, well, Bill Gates.

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Even though $31 billion is probably far more than you and everyone you know combined will earn in your lifetime, that doesn’t mean your charitable dollars don’t count.  Far from it, since recent data shows that people with lower incomes give a higher percentage of their income on average than the wealthy.

According to a report by the NewTithing Group, a San Francisco nonprofit encouraging wealthy people to donate more to charity, those earning less than $200,000 a year give more generously than the “middle rich” — those earning $200,000 to $10 million. If those wealthier Americans donated the same percentage as those earning less, charities would collect about 25 percent more, or $40 billion a year.

When comparing people ages 35 and under, the NewTithing Group found that those earning $10 million or more typically give away only 0.4 percent of their annual income, while those earning under $200,000 give away 1.6 percent.

“People earning less than $100,000 a year are the vast majority of Americans, so their charitable contributions have a huge impact,” said Tim Stone, president of NewTithing Group.

Giving less doesn't mean you shouldn't give wisely. Here are some tips for creating the maximum impact of your charitable contributions:

Find your passion
Seek out charities that address the goals nearest and dearest to you. No interest is too petty, says Stone. “You could be a passionate wine-drinker, and that may seem to have little relevance, but there are organizations like the Vineyard Workers Service in California’s Sonoma County that help farmworkers with housing, literacy and education.”

Find a relevant charity by searching Web sites like Network for Good. Another good bet is to check with your local community foundation, an institution that’s dedicated to philanthropic work within a certain region. There are about 900 community foundations nationwide, and the number is growing.

Eugene Miller, assistant director of the Center on Philanthropy and Civil Society at the City University of New York says corporate types like Bill Gates are putting the pressure on nonprofits to be more accountable and clearer about their financials. “Even for those giving smaller amounts, there’s a real need to see what’s done with those dollars,” he said. “Whether your gift is $150 or $5,000, you want to know where your dollar is going.”

That data is readily available. Most major organizations file financial statements, called 990 forms, with the Internal Revenue Service, showing how much it raised and how it spent the money. Nonprofit watchdogs like Charity Navigator and the American Institute of Philanthropy  analyze this data and assign ratings for effectiveness and efficiency. Both organizations list top-rated charities by mission, such as literacy or health. To avoid bad apples, check out the Better Business Bureau’s Wise Giving Alliance, which lists national charities under investigation.

Concentrate your contributions
Donors should have goals for their giving, just as they do in other areas of their financial life. “Most people don’t budget for charity, but if you decide in advance what you can donate over the year, you can be more effective and creative with your donations,” says Stone.

He recommends creating an annual allocation plan for charitable giving. Determine how much you can contribute for the year, then set the approximate proportions to allocate funds among your chosen causes. By concentrating your gifts, you can give significant sums to — and establish long-term partnerships with — the organizations you really care for. Stick to a half-dozen or fewer; if you have a few hundred dollars or less, keep it to one or two. To maximize modest amounts, team up with friends or family members.

Give assets instead of cash
You can take a lesson from the rich and make gifts of appreciated assets, such as stocks.

“If you donate, instead of sell, long-term appreciated assets, you can avoid capital-gains taxes, and then you can either keep or contribute your tax savings,” says Ray Ferrara, a certified financial planner and CEO of ProVise Management Group in Clearwater, Fla.  But it’s key that the charity sells the stock, not you. If the gain goes to a nonprofit group instead of an individual, the capital-gains tax is eliminated.

Create your own charitable fund
If you have a few thousand dollars or more to spare, you can create your own version of a charitable fund. This allows you to deduct your contribution immediately and then decide later which charity will receive the money.

You can set up a so-called donor-advised fund with as little as $5,000 through a mutual fund company such as Fidelity, Vanguard and Charles Schwab.

When you donate cash or securities, your account will be treated as an individual charity, complete with its own name. You can allocate which charities will get your money, how much they'll get and when they'll get it, although you can donate only to IRS-approved charities. The fund managers can also advise you on reputable charities that are worth donating to.

You must donate at least 5 percent of the assets in the fund each year, but you can keep adding to your fund. “If you start with $5,000, you can build it up to a sizable amount within a matter of years,” says Ferrara.

After your death, the fund can be continued by a named successor advisor, or the fund can be liquidated with the proceeds distributed to named charitable organizations.

Another way is to start a charitable fund through a community foundation. For as little as $1,000, some community foundations will let you start a charitable fund. They take care of the paperwork and much of the day-to-day management of the money.

For example, if you’re interested in helping clean up the aftermath of Hurricane Katrina, you can make the minimum contribution of $1,000 to the Greater New Orleans Foundation to establish your own donor-advised non-endowed fund and direct where your money will go.

If you want to start your own fund closer to home, you can find community foundations near you at the Council of Foundations’ Web site.

Send good karma back to you
If you want to do good for yourself as well as your charity, think about a pooled income fund, which is offered by both the big mutual fund companies and community foundations. You start by giving an irrevocable contribution (as little as $5,000 at many community foundations,) which is pooled with other donors’ money and invested in diversified securities. The fund pays you and your designated beneficiaries regular earnings on your donation. When the last beneficiary dies, remaining assets are distributed to the charities of your choice.

Don’ forget something as simple as your time and energy, two assets every organization needs.  If you’d like to donate these to a charity in your area, check sites like, which allow nonprofits to advertise what volunteer skills they need. “Donating your time and energy can be as fulfilling as philanthropy itself,” says Stone.

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