Begin with your goals
The best charities to donate to aren’t the same for everyone. Start by thinking about your goals as a donor. Do you want to support early childhood education or the fine arts? Is your focus on health care or serving the homeless population? Do you want your gift to benefit a local charity or an organization with a global focus? List the sectors and causes that are closest to your heart and objectives.
Create a personal mission statement using tools from Fidelity Charitable’s four-step approach to smarter giving, Boost Your Giving IQ, to define your objectives as a donor. This worksheet helps you concentrate on what inspires you to give and how you will target your efforts. It doesn’t need to be long. A simple sentence like “I will help veterans successfully transition from the military by funding programs that provide job support services” may do.
Look at the mission
Next, it’s time to research charities. Look for nonprofits with a clear sense of mission and purpose, as well as practices, procedures and policies to make their mission a success.
The best charities to donate to are clear about their mission. They know what they want to accomplish and why their goals are important. An effective nonprofit clearly communicates its mission to its staff, board and donors, and can explain specifically how their programs deliver against those goals. An effective children’s arts group, for example, will be able to tell you specifically what age of children they serve and how.
Evaluate governance and finances
However, a clear mission by itself does not guarantee a charity will make the best use of its funding.
Assess its governance as well, weighing issues like board terms and conflicts of interest. A board can’t exercise proper oversight if it is composed solely of the nonprofit’s staff. It should include members with a diverse range of professional skills who can mobilize others, such as potential volunteers, donors and mission partners. Other signs of good governance:
- Does the nonprofit have a well-defined strategic plan that it follows and regularly reviews?
- Does it have procedures for carefully hiring and managing its staff and running its programs?
- Does it understand its funding needs and financial requirements for the next five years? At larger nonprofits, the fiscal horizon may be even longer.
To make the most of your donation, the nonprofit must be financially healthy. It must also have a well-thought-out budget, diligent financial management and careful cash controls. When you review its annual report or audited financial statements, look at its income sources, how it spends that income, its assets and liabilities, and the state of its endowment income.
And a word about overhead: Although it’s critical that a nonprofit effectively uses its funding to deliver on its mission, it shouldn’t starve its operations. Nonprofits need to invest in good staff, technology that can help staff run efficiently and track effectiveness, and efforts to build a strong base of support. Some nonprofits—such as those operating internationally or that need to employ individuals with specialized skills to deliver on their mission—may naturally require higher overhead to be effective. It is better to ask questions of the nonprofit about how and why they spend their budget in order to understand whether its overhead expenses are appropriate.
You may be able to answer many of your questions by reviewing the nonprofit’s website and printed materials. Look for its annual report or the IRS Form 990, which every tax-exempt organization with annual gross receipts of $25,000 or more must file annually with the Internal Revenue Service.
In addition to the nonprofit’s website, you’ll also want to take advantage of independent charity research resources to aid your evaluations, like GuideStar, Charity Navigator and the Better Business Bureau’s Wise Giving Alliance at Give.org.
However, you may need additional information from your target nonprofits, particularly if you’re contemplating a large donation. Certainly, volunteering is one way to get deeper insight into a charity’s operations. But you will get a clearer picture of the charity simply by calling and asking questions like these:
- What is your most successful program and why?
- Where are the opportunities for your organization?
- Do you have a strategic plan?
- Where do you get most of your funding?
- What are your most urgent needs?
You can download this checklist of good questions to ask nonprofits you are interested in learning more about.
Learn from the experts
In addition to your own research, you may wish to consider the organizations selected by expert observers of the nonprofit sector. For example, the Center for High Impact Philanthropy analyzed charities for impact and cost effectiveness and picked 14 giving opportunities in fields from global health to impoverished youth. You can learn more about its choices.
Choosing the best charities can take time. There are many wonderful organizations, and even if you stay focused on just the ones that align with your giving mission, you’ll want to be fully informed.
A donor-advised fund, like the Giving Account at Fidelity Charitable, can give you the opportunity to be a more effective donor. A donor-advised fund is a dedicated charitable account used solely to support the charities you care about. When you donate cash, stocks, real estate or non–publicly traded assets to a Giving Account you are eligible to take an immediate tax deduction. You can then recommend grants from the account to charities you wish to support on any timetable that works for you, giving you the time you need to research the best charities for your interest areas.
While you are deciding which charities to support, the account balance can be invested according to your preferences and grow tax free, which may enable you to give more. No matter how many charities you support through your donor-advised fund, you will have only one tax receipt to manage. And unlike creating your own private foundation, having a donor-advised fund does not require you to hire staff or investment managers.
Finally, remember this option: Giving money isn’t the only way you can have an impact on your chosen charities. By sharing your time and talent, plus your business and social relationships, with these organizations, you can see firsthand the difference that your donations make.