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Here is a helpful rule of thumb for donating to charities this holiday season: Take your time.
People waste billions of dollars on inefficient, poorly run or downright fraudulent charities because they do not bother to research where their money is going.
And even donations to legitimate causes can be squandered by last-minute, impulsive or scattershot giving, said Daniel Borochoff, president and founder of nonprofit watchdog Charity Watch .
Given that so many people and causes need help, such waste cannot be tolerated. Here is what you might be doing wrong and how to do it right.
1. Giving less than $25
Because of processing costs, proportionately less of a small donation can be used for good causes. If it costs $2 to process a donation, that is just 2 percent of $100 but 20 percent of $10.
And once you are on their radar, charities typically will start spending marketing dollars to chase you for more donations.
“It’s like you’re teasing the charities,” Borochoff said. “They think: ‘They gave us a little; maybe if we ask, they’ll give us a lot.'”
Another way charities increase their “yield” from small donors is to sell their names to other organizations, which leads to even more solicitations.
2. Trying to fund too many causes
Rather than responding to emotional appeals, determine what causes you are passionate about, said Sandra Minuitti, vice president of Charity Navigator , another watchdog.
Then narrow the field further by thinking about how you want your money used. If you want to fight cancer, for example, do you want your money to go for advocacy and awareness? To fund research or treatment for people who cannot afford it?
3. Giving to strangers
We are not talking about handing a few bucks to a homeless person but about giving money to the solicitors with clipboards outside Starbucks or the telemarketers who cold-call you.
Until you do some research on a site like GuideStar, you do not really know where the money is going or how much is spent on fundraising. (A hint: Those solicitors outside Starbucks may be on commission.)
If much more than 25 percent of donations go to overhead, you may want to look for another charity, Minuitti said.
Whatever you do, avoid telemarketers.
On average, only one-third of the money donated this way gets through to the charity, Borochoff said.
4. Avoiding charities whose executives make big bucks
Maybe you have done enough research to discover the nonprofit’s leader makes six figures, and that left a bad taste in your mouth. Get over it.
“Many donors have this unreasonable expectation that CEOs should volunteer their time,” Minuitti said. “Salaries shouldn’t be the only metric.”
A better way to judge if a salary is excessive is to find out if the charity has a compensation committee that reviews what similar-sized nonprofits pay their top leaders. That committee should not include the CEO.
Another safeguard is a board of directors with at least five independent voting members, Minuitti said. “Independent” means they are not related to or reporting to the CEO.
5. Waiting until the last minute
Many nonprofits get a big chunk of their money at year-end, when the holidays remind us how blessed we are – or how we need to reduce our taxes.
But it is a lot easier on your wallet, and on the charities, to set up monthly payments that spread your generosity throughout the year.
“Charities love these monthly gifts,” Minuitti said. “It helps with their cash flow.”
6. Giving and forgetting
You should re-evaluate your favorite charities at least once a year to make sure you are still comfortable with their efficiency, ethics and effectiveness.
A growing number of charities, in response to donor pressure, are starting to measure and report their actual impact – not just the good they do, but how well they do it.
“Go beyond the heart-wrenching story that caught your attention,” Minuitti said, “to see some real data.”