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The 10/10/80 Budget for Philanthropy

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Have you ever felt like you go to work every day, do all the right things, but then look at your bank account and go “WTF!?” (What The Frugality!?)

That’s not Italian there, it’s just another word for economical thinking.

Of course, most of your life and retirement planning clients are facing the same kind of WTF moments. They want to be generous. You may have helped them build charitable giving into their legacy planning arrangements. But they have trouble finding the cash to make the donations they want to make during the course of the year, and at the end of the year.

(Related: Why Whole Life Insurance STINKS!! (Please read this before getting mad))

The silver lining for your clients is that the remedy is a surprisingly simple fix. Your clients are making enough, they’re saving enough, and they’re spending enough. Just all in the wrong order.

I’m a proponent of breaking down a responsible financial plan into three categories-spend, save, and donate. However, that hierarchy often lends itself to a 100/0/0 allocation — bassackwards, with all due respect.

The quick fix is to reverse the order and attempt a 10/10/80 allocation of cash flow: Save 10%, donate 10%, and then spend 80%.

Once this strategy is adopted, most folks will realize they’re living the same lifestyle they did before. Only now though, they’ll watch their savings and investment accounts steadily grow and begin compounding. Each year they’ll feel the incredible satisfaction of tithing.

We can go back as far as biblical times to listen to Paul teaching the Corinthians that charity is the greatest of all three abiding virtues.

Lastly, your clients will still be spending 80% of their income. Once households see how well they do while spending just 80% of total income, most 10/10/80 allocation households start shifting their allocations further in the right direction, perhaps creating a 15/15/70 spending allocation.

Here’s another idea, for your clients who are parents.

They should put three jars in their kids’ rooms. Label one jar “save,” one “donate,” and one “spend.” Each of the children’s birthday gifts, payments from summer jobs, etc. can allocated to one of the jars according to the same budget you’ve implemented.

At the end of the year, or on some other special occasion, the children can use the money from the “spend” jar on a game they’ve been wanting, and use the money in the “donate” jar to support a charity that piques their interest.

Small habits create the biggest successes.

— Try our Life/Health: Term, Whole & Universal Lifeon ThinkAdvisor.

Bryan Kuderna (Photo: BK)

Bryan Kuderna, CFP, is the founder of Kuderna Financial and the author of Millennial Millionaire- A Guide to Become a Millionaire by 30.


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