[ Question ]

Has pledging 10% made meeting other financial goals substantially more difficult?

by evelynciara 17d9th Jan 20201 min read4 comments

13


I am a student and want to take the Giving What We Can Pledge as soon as I have a full-time job and feel financially secure. However, I am worried that giving 10% of my income (as opposed to a smaller amount like 5%) will make it harder to meet other common financial goals that I might have, such as buying a home (which I'm not necessarily interested in) or saving enough for retirement. I imagine that these sacrifices would look like having to wait until I'm 45 instead of 35 to buy a home, or having 15 years' worth of retirement money instead of 20. I'm especially worried because I don't know how much longer my chosen career path will be lucrative.

Those of you who have taken the pledge, has donating made meeting other financial goals more costly for you? How have you dealt with these issues?

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4 Answers

I gave 10% from my high school job and I give 10% now, but I took a break when I first started working because I needed all my earnings just to pay my bills!

I moved in with my partner and got a better job about two years after university, which made me much more financially stable. At that point I started donating 10% again, which was about £175 per month, and I've carried on ever since.

I feel grateful to be pretty financially comfortable, so donating 10% doesn't feel like a hardship - it feels like just another financial commitment, like paying my rent or student loan*. Although I could have used that money for something else, I doubt my life would really be much different if I weren't donating - I'd probably just be renting a bigger apartment.

*Note: I donated while paying off my student loan. Donating is something I really value and kind of enjoy, and my student loan's interest rate was only 6%, so I felt able to make this choice. If you're a bit on the fence about donating and you have a large or expensive student loan, many people would advise you to pay it off before you start donating 10%.

FWIW I have found it more costly - I think this almost has to be true, as $X given to charity is $X I cannot put towards savings, mortgages, etc. - but, owed to fortunate circumstances, not very burdensome to deal with. I expect others will have better insight to offer.

Given your worries, an alternative to the GWWC pledge which might be worth contemplating is the one at The Life You Can Save. Their recommended proportion varies by income (i.e. a higher % with larger incomes), and is typically smaller than GWWC across most income bands (on their calculator, you only give 10% at ~$500 000 USD, and <2% up to ~$100 000).

Another suggestion I would make is it might be worth waiting for a while longer than "Once I have a job and I'm financially secure" before making a decision like this. It sounds like some of your uncertainties may become clearer with time (e.g. once you enter your career you may get a clearer sense of what your earning trajectory is going to look like, developments in your personal circumstances may steer you towards or away from buying a house). Further, 'experimenting' with giving different proportions may also give useful information.

How long to wait figuring things out doesn't have an easy answer: most decisions can be improved by waiting to gather more information, but most also shouldn't be 'put off' indefinitely. That said, commonsense advice would be to give oneself plenty of time when weighing up whether to make important lifelong commitments. Personally speaking, I'm glad I joined GWWC (when I was still a student), and I think doing so was the right decision, but - although I didn't rush in a whim - I think a wiser version of me would have taken greater care than I in fact did.

Since I started donating 10% (not very long ago), the only part of my discretionary spending that has taken a hit are my “dumb” expenses: nice new clothes, fancy meals, just overall waste. It turns out that stuff added up to 10%. But YMMV.

If you’re worried, and I think it’s reasonable to be, why don’t you start by pledging 1% and notching it up bit by bit? There’s no need to rush to take the 10% pledge. There is nothing special about that number and you need to figure out what works for you.

I've been able to manage fine while donating, though it helped that I was working relatively high-earning jobs (roughly the 70th percentile among U.S. adults, I think) for most of that time. 

I second Gregory's recommendation to wait until you feel certain before you take the pledge, because it is a lifetime commitment. However, Giving What We Can also offers "Try Giving", which lets you sign up to donate some percentage of your income (doesn't have to be 10%) for a finite period of time. Many people start with this before taking the full pledge, and use it as a way to test how donating affects their finances and sense of security.