How to Choose the Right Charity
Donating to a good cause can be one of the most rewarding and humbling experiences when it comes to personal finances. But, how do you know your money is actually going to help? While the goal of charitable giving is to do good, choosing a charity can be daunting.
As is always the case when money is involved, you want to apply some strategic thinking, in this case, to ensure that your donation is going to a cause and organization that feel right for you.
There are so many worthy charities in need of funding that chwoosing just one can be a difficult task. We’ve compiled some tips to make the charity evaluation process a little easier and help you feel confident about your decision. And don’t forget to talk to a tax professional about how to deduct charitable contributions.
Choose a Category That’s Meaningful to You
The first step in the charity evaluation process is to consider what type of cause is most important to you: Is it the environment, cancer research, feeding the homeless, animal shelters or protections?
This initial step requires some honest reflection about your own values in order to decide what matter is closest to your heart at this moment.
Remember: You can’t possibly help every charity out there, so don’t feel guilty about choosing one or focusing on just a few. Ideally, this practice of charitable giving becomes a habit you can fit into your financial plan and you will be able to help many organizations in the coming years.
Narrow Your Search
Once you’ve chosen a broader category you’re interested in supporting, narrow down the search by considering some other criteria. Do you want to support a charity that is local to your neighborhood, in your home state, or international? Should it be a small organization or a large one? An older, established charity or a start-up that’s doing something new?
These are questions that only you can answer for yourself and some may be easier to answer than others. For example, there may be a certain city or country you have a personal connection to and know immediately that you’d like to support a cause there.
Do Your Research
Now that you’ve narrowed down the type of cause and organization you’re looking for, it’s time to find charities that match your criteria. There are two nonprofit databases that are really helpful in the charity evaluation process: Charity Navigator and GuideStar .
While both will provide a basic overview of a charity, Charity Navigator is more helpful in the initial research phase because it provides a star rating for most organizations—note that they don’t rate nonprofits with less than $1 million in annual revenue.
Charity Navigator’s rating is based on an organization’s financial health, accountability, and transparency. This allows you to skim through the charities that match your criteria and quickly weed out the ones with lower ratings.
Once you’ve picked out a handful, it’s time to get more details about each organization and do some further research into what specific accomplishments or qualities have contributed to their higher rating.
You may also want to talk to friends and family members to see which organizations they support and what their experiences have been.
Check the Numbers
Once you begin to get into the more detailed profiles of your charity candidates, GuideStar can be a helpful tool to gather financial information. GuideStar is a database of 2.7 million nonprofits registered with the IRS.
The site offers a free version of their service where you can view an organized profile of any given charity which states their mission and gives an overview of their endeavors, similar to Charity Navigator, however, in addition, these profiles outline a nonprofit’s income, spending, and even salaries of executives.
All nonprofits will have overhead costs, and the amount a charity actually donates to, or invests in, its cause can vary significantly depending on a variety of factors. According to Charity Watch —another valuable search tool—the top-rated charities spend 75% or more of their budgets on the actual cause. This may be a good indicator when looking at the financial information for your selected charities.
Confirm They Are on a Mission
If the financial information we mention above is available to you, the percentage of the budget spent on the actual cause is a fairly clear indicator of a charity’s legitimacy. However, it can be a bit more challenging to judge whether the organization’s goals are being met even if the money seems to be in the right place.
One of the key things to look for on these database websites is a mission statement: a summary of the nonprofit’s ultimate goal. Once you read and identify with a charity’s mission statement, see how their efforts on paper align with their mission. If part of an organization’s mission is to fund cancer research, then check if, and how recently, they’ve followed through on this.
Consider All Options
The databases mentioned are very helpful if the charity you’re interested in is reputable or meets a certain financial criteria. However, if you are passionate about a local or smaller charity, don’t rule them out. You can always contact smaller charities via their website or by calling them. Ask them questions about their mission or where your donated dollars might be going.
While it is admirable to support a smaller charity, be sure to take extra measures to ensure their legitimacy if you can’t find them on GuideStar, CharityWatch, or Charity Navigator. If it’s a local charity, you can contact the charity bureau or state attorney general to confirm their credentials.
Trust Your Instincts
While you want to make the right choice when choosing a charity to support with your hard-earned money, remember that this choice is a personal one. It’s important to do some research and check the facts, but, ultimately, charitable giving should be a rewarding experience, not a stressful one.
Plan Your Giving
Deciding how your charity contribution fits into your goal planning is an important aspect of your financial future. If you’re someone who regularly donates to charitable causes, or would like to be, consider opening a SoFi Invest account to make your life easier. You’ll be able to get complimentary advice from human advisors.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA /SIPC .
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
GuideStar, CharityWatch, and Charity Navigator are not affiliated with SoFi.