Integrating Philanthropy Into Financial Independence Planning
TL;DR
- Early retirement at 32, while achieving financial independence, can trigger guilt and a sense of moral obligation due to awareness of global inequality and personal privilege.
- Donating appreciated stock directly to charities offers a tax advantage by avoiding capital gains tax, making it more impactful than selling and donating cash.
- Establishing a regular, monthly donation habit, even a small percentage like 1%, builds a sustainable giving practice and normalizes philanthropy within communities.
- Global giving can be significantly more impactful than local giving, as a small sum can be life-changing for individuals in extreme poverty elsewhere.
- Donor-advised funds offer administrative convenience for donating to multiple charities and front-loading contributions in high-income years, but tax deductions are available directly.
- Publicly pledging charitable giving normalizes the behavior, fosters accountability, and creates a community that can inspire broader cultural shifts toward philanthropy.
Deep Dive
Rebecca Herbst achieved financial independence at 32, a milestone that, instead of bringing pure satisfaction, triggered guilt and a profound moral reevaluation. This internal conflict, amplified by the stark global inequalities she became more aware of, led her to found Yield & Spread, an initiative promoting intentional and impactful giving. The core argument is that accumulating wealth, particularly in the context of global disparity, necessitates a conscious and systematic approach to giving back, moving beyond reactive generosity to a proactive philanthropic strategy.
The pursuit of financial independence (FI) and the subsequent early retirement can create a sense of disconnection from the struggles of others, particularly when wealth is accumulated through systems that benefit a privileged few. Herbst highlights that even modest earnings in high-income countries place individuals in the global top 1%, underscoring the immense privilege associated with the ability to pursue FI. This realization prompts a moral imperative to share that advantage, shifting the focus from "hoarding money" to defining a secure financial future that also accounts for significant charitable contributions. The "FI-lanthropy" pledge, for instance, encourages individuals to commit a percentage of their income or wealth to giving, framing it as an integral part of financial planning rather than an afterthought. This approach aims to make giving sustainable and impactful, suggesting that even a small percentage, like 1% of income, can significantly increase one's giving relative to the average, with minimal impact on the timeline to FI. For example, donating 1% of income might extend an FI timeline by only half a year, a trade-off many find worthwhile given the potential impact.
Beyond the quantum of giving, the how and where are critical. Herbst advocates for a structured approach to giving, moving away from impulsive or reactive donations. She suggests a tiered approach: first, address personal financial instability; second, for those stable, try a small percentage like 1% of income; then, build momentum by increasing to 2-3%; and finally, for those with sufficient wealth, give "by design." This structured approach can also involve strategic donation methods, such as donating appreciated stock to avoid capital gains taxes and maximize the value of contributions. While donor-advised funds (DAFs) offer convenience, especially for donating to multiple charities or front-loading contributions, Herbst emphasizes that direct donations of appreciated assets can achieve similar tax benefits for those who itemize deductions. The choice between local and global giving is also nuanced; while local giving is emotionally resonant, data suggests that a dollar can often have a significantly greater impact in lower-income regions. Herbst proposes a balanced approach, giving to loved ones, causes with emotional connection (which may be local), and high-impact charities, thereby diversifying generosity across different needs and levels of impact.
Ultimately, the conversation challenges the notion that one must achieve a certain level of wealth before giving is feasible or responsible. The core takeaway is that integrating giving into one's financial plan from the outset, whether through a pledge or a deliberate strategy, is crucial. This not only maximizes the potential impact of wealth but also addresses the ethical considerations that arise from accumulating significant financial independence in a world marked by widespread need. The public nature of such pledges is also seen as vital for normalizing generosity, fostering community, and driving cultural change within the financial independence movement to prioritize impact alongside accumulation.
Action Items
- Create a personal giving framework: Define 3 donation buckets (loved ones, emotional connection, high impact) to diversify charitable giving.
- Calculate philanthropy impact: Use a calculator to estimate the timeline extension for a 1-3% income donation to gauge personal FI path.
- Draft a donation cadence plan: Schedule monthly or quarterly donations to build a consistent giving habit and support charity cash flow.
- Evaluate appreciated stock gifting: Analyze donating appreciated stock versus cash to avoid capital gains tax for donations exceeding $1,000-$2,000.
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View Episode Notes →Key Quotes
"the financial independence community and just like the personal finance world in general is just growing big time like 10 years ago if i told someone that i was into financial independence they'd be like what are you talking about and now it's super mainstream there's freaks like us everywhere and they know what financial independence is at least in abstract so i think the real question is like what are we going to do as a community with all this wealth once we've built it"
The speaker, Katie Gatti Tassin, highlights the significant growth and mainstream acceptance of the financial independence (FI) movement. She posits that as the community accumulates wealth, the crucial next step is to consider how this collective wealth will be utilized. This quote sets the stage for the episode's exploration of purpose and responsibility beyond individual financial goals.
"rebecca exists at the nexus of two communities of optimizers the financial independence community and the effective giving community so both groups whose mantras i would consider could be summed up as work smarter not harder"
Katie Gatti Tassin introduces Rebecca Herbst as a figure who bridges the financial independence (FI) and effective giving communities. She characterizes both groups as "optimizers" who prioritize efficiency and impact, suggesting that Herbst embodies a philosophy of maximizing results in both wealth accumulation and charitable endeavors. This framing positions Herbst as an exemplar of applying smart strategies to altruistic goals.
"i think a lot of people can relate to this who are on the career path of traditional success they find a job they care about they find a job that gives them meaning but then over time it's not like the job it's the operations and logistics of that that tend to get in the way so it wasn't like i hated it i just was kind of like is there more to this than what i'm doing"
Rebecca Herbst describes a common experience for individuals in traditional career paths. She explains that even when a job is meaningful, the day-to-day operational burdens and logistical challenges can become overwhelming. Herbst suggests that this realization, rather than disliking the core work, can lead to questioning whether there is a more fulfilling way to spend one's time and energy.
"i think most people don't realize that if you earn more than 69 000 a year in the us after taxes you are already in the top 1 of income earners globally it means that you're 99 richer than the rest of the world so for most of us and alluding to what you were saying that might not make us feel rich but my hope is that this quick stat should put your financial situation into context"
Rebecca Herbst provides a stark statistic to reframe perceptions of personal wealth. She points out that earning over $69,000 annually after taxes in the U.S. places an individual in the top 1% of global income earners. Herbst hopes this context will help listeners understand their relative affluence and consider their capacity for giving, even if they don't feel personally wealthy.
"to me the reality is at some point you will get old and you will either no longer be able to work or you will no longer want to work and by this time in your life you need to have built a nest egg to live off of it's just the truth of the matter and the way things are here in the us so that means you have to accumulate a portfolio of wealth one that generates passive income and one that you can draw down upon"
Rebecca Herbst addresses the perceived conflict between early retirement and "hoarding" money. She asserts that accumulating wealth for future security is a fundamental reality, emphasizing the necessity of building a nest egg that provides passive income. Herbst reframes the concept from "hoarding" to a practical need for financial security in later life.
"i tend to float in that direction of if i'm going to give money away then i do want it to go to something impactful so i guess the answer is i'm not against esg investing i think esg funds and esg investing in general can be useful and an important tool for investors who care about social and environmental causes and i think to your point like negative screening like investing in funds that just screen out the really bad guys probably a no brainer"
Rebecca Herbst shares her perspective on investing and giving, leaning towards impactful donations. While not dismissing ESG (Environmental, Social, and Governance) investing, she prioritizes direct impact. Herbst suggests that negative screening, which excludes companies with harmful practices, is a sensible approach, but implies that the true impact of ESG funds is limited compared to direct, effective giving.
Resources
External Resources
Books
- "The Life You Can Save" by Peter Singer - Mentioned as an influential book that triggered discussions on the ethics of wealth building and the moral obligation of affluent people to help the world's impoverished.
Organizations & Institutions
- Yield and Spread - Mentioned as the founder of this organization by Rebecca Herbst.
- GiveDirectly - Mentioned as a charity that sends cash donations directly to people in need, prioritizing recipient choice and community-wide impact.
- Giving What We Can - Mentioned as an organization where 10,000 people have taken a public giving pledge, providing community, support, and accountability.
- Morning Brew - Mentioned as the production company for the "Money with Katie" show.
Websites & Online Resources
- Women's FIRE Facebook page - Mentioned as a place Rebecca Herbst sought advice and solace during her early retirement transition.
- FatFIRE subreddit - Mentioned for a discussion thread on charitable giving strategies.
Other Resources
- Financial Independence (FI) - Mentioned as a growing community and concept where individuals aim to accumulate enough wealth to no longer need active income.
- Effective Giving Community - Mentioned as a community Rebecca Herbst exists at the nexus of, alongside the financial independence community.
- Philanthropy Pledge - Mentioned as a concept created by Rebecca Herbst to help people give intentionally, not impulsively, and in a financially sustainable way.
- Trial Pledge - Mentioned as a suggestion to try donating 1% of income for a year to see how it feels and impacts one financially.
- Philanthropy Calculator - Mentioned as a tool created by Rebecca Herbst to help think through the math of how much money to give away and its impact on the timeline to financial independence.
- ESG Funds - Mentioned in the context of socially or environmentally responsible investing, with discussion on their limited research impact and potential for greenwashing.
- Charity Research Organizations (e.g., GiveWell, Giving Green) - Mentioned as resources that have done the work to recommend charities based on impact.
- Donor Advised Fund (DAF) - Mentioned as a financial tool that can help front-load charitable contributions, spread out donations over time, and automate giving to multiple charities.