What percentage of your income should you give to charity?

Here's why this may not be the right question to ask

It’s a common line of thought: Am I being charitable enough? How much money should I be giving to charity? What’s “normal”?  

Answers will range widely. According to the latest Giving USA report, Americans gave just under 2% of their disposable income to charity in 2022, the last year on record.¹ Some religious traditions stipulate that 10% of income should be given away. Other experts split the difference and recommend giving 5% of what you earn.

But what if we reframe the question?

Income isn't always the right measuring stick for your charitable budget

It makes sense that people first think about their income when they think about how much to give to charity. What percentage of the dollars coming in, the thinking goes, can I give back out?

But income may only represent a small piece of your charitable giving potential.

A much better benchmark for how much you can give to charity is your wealth. This approach is more inclusive of younger donors of means who may not yet have hit their peak-income earning years but still want to make a meaningful difference. It can also apply more accurately to retirees, who may have very little income compared to the savings they have stored up over their lives.

How much of your income should you give to charity? A better question may be, "How can you make the greatest impact with what you have on the causes you care about?"

“Many people simply neglect to look at the opportunities that wealth provides,” argues Gene Steuerle of the Urban Institute. “Instead, for most, the habit of thinking of wealth rather than income as a source for giving is a much less advertised and less socially compelled form of giving.”²

Illiquid assets amplify charitable giving potential

Considering wealth as a source of charitable giving will often mean looking beyond cash and cash equivalents. Tax-savvy donors mostly donate appreciated stocks and mutual funds because these assets unlock greater tax benefits, allowing individuals to give more than they could have otherwise. But the most experienced donors consider their full portfolio, including:

• Private equity
• LLC or LP interests
• Hedge fund interests
• Non-publicly traded stocks
• Insurance policies

While it can be challenging to donate these assets directly to some charities, donor-advised funds can accept these assets and turn them into charitable dollars. In turn, this entitles you to a deduction for the asset’s fair market value.

A longer-term perspective may serve you better

Using one’s income as a benchmark for giving implies taking a year-by-year approach to charity. But nonprofits are hungriest for sustained multi-year support, and focusing on the bigger picture can be helpful for donors, too. 

Considering a longer timeframe for your giving can encourage a more strategic, rather than a scattershot, approach. A longer-term perspective can also help you set ambitious goals and adjust course along the way to give yourself the best chance of meeting those goals.

A Vanguard Charitable donor-advised fund (DAF) has proven to pay dividends for donors and charities alike over time. Our 2023 Why Giving Matters report found that Vanguard Charitable donors grant more money and more effectively because of their DAF.

The report also found that these trends were amplified over time, with donors continuing to expand their giving impact the longer they had a DAF. Part of this growth in giving potential is due to the high-quality charitable investment options available to Vanguard Charitable donors, which many donors report has helped them give more than they thought possible. 

But the benefits of a DAF also change the way that people think about their charitable giving, adding focus, organization, recordkeeping, and leading guidance. 

Conclusion: Determining a better charitable budget

How much of your income should you give to charity? A better question may be, “How can you make the greatest impact with what you have on the causes you care about?” 

For more and more donors these days, looking at their entire portfolio and leveraging the advantages of a donor-advised fund is a key part of the answer.

Learn more about how partnering with Vanguard Charitable can help you give more impactfully with your charitable budget.