Scared to Pledge? 5 financial steps for confident giving

Rebecca Herbst is an early retiree (a la the FIRE movement). She 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.  Her 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. Rebecca speaks from experience on this topic as she has taken The 10% Pledge herself and is working to promote giving pledges to the FIRE world.

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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?”

Do I have enough to keep my 🔸10% Pledge now that we’re having a baby?

Do I have enough to take the 🔹Trial Pledge when I have student loans to pay off?

Do I have enough to increase my pledge if I’m moving to a high-cost- of-living city?

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.

1 How rich are you?  

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.

2 Build a true financial awareness

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:

• Your full potential if you built an investment portfolio that grows over time

• Your spending needs both now and when you stop working in your old age

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 ¹:

You need 25x your annual expenditure saved up and invested to reach FI.

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:

• You are 30 years old.

• You have an existing investment portfolio of $150,000.

• You make $100,000/year after taxes. You spend $70,000/year. 

• To keep things simple, let’s assume you plan to spend $70,000/year once you retire as well.

• 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.

3 Uncover your spending values

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:

• Look at your expenses over the past year: how do your Needs, Wants, Likes, and Loves stack up? Are you spending more on Wants and Likes than Loves? This often happens as Loves tend to be bigger ticket, pricier items. 

• Dig back further. Has your spending on Needs seemed to increase over time? Is there a chance you’ve boarded the hedonic treadmill?

• What could you slash right away that brings you absolutely no joy? Ideally these are big and recurring expenses like a gym membership you aren’t using, or car insurance that you can get for cheaper, or unnecessary fees built into your investments. 

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.

4 Challenge yourself

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:

1. Donate 1% of your income for 6 months: This is the lowest commitment you can make with a 🔹Trial Pledge. Ain’t nothing wrong with starting small. At the end of this period, re-evaluate and see if you’re ready for 2%.

2. Donate one share of appreciated securities each month for 6 months: This is a great option for someone who has an existing investment portfolio. Also a great option if you want to get rid of certain stocks you don’t like (perhaps from an old investment). Subject to the country you are located in, there can be big tax benefits to this approach!

3. Make a lump-sum gift into a giving account (DAF or equivalent): Set a date on the calendar for one month from now. See how you feel about the money. Do you miss it?

5 Build confidence by reframing

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. 

Biggest Fears	Reframe - Abundance Mindset
I’m not sure if I have enough	Let me spend some time calculating my FI number and my spend. That way I can be truly honest with myself. I commit to exploring this over the next month.
I only give 1%	I’ve just started this journey. Let me give 1% now and re-evaluate how I feel at the end of the year. There is no rush to get to 10%
I’m not ready for 10%	What does the path look like to make me feel more ready? Do I need to be 30% of the way to FI? How long will it take me to get there?
I don’t want to sacrifice my needs	Do I understand my spending truly and fully? Can I find a big-ticket recurring expense that brings me no value, and replace that with a donation commitment?

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 1. 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.