Avoiding A Scam
Giving money to charity can be very rewarding and is a great way to contribute to a cause you believe in. But before you bust out the checkbook, do your homework and make sure the organization is legitimate. After all, there's no use in shelling out money if it won't go toward the people who need it most.
The following are tips for smart donors collected from Charity Navigator, an independent charity evaluator.
Don't make it a pattern to give reactively, and don't just respond to the first organization that asks for your help. Instead, take time to identify which causes are most important to you. And don't be afraid to get specific. For example, instead of donating money to a generic cancer-fighting organization, try targeting outcome goals for your giving, such as providing mammograms to at-risk women in your community.
Eliminate the middleman
Did you know that for-profit fundraisers -- often used in charitable telemarketing campaigns -- typically keep 25 to 95 cents of every dollar they collect? Cut out the middleman and give straight to the organization of your choice. That helps ensure that 100 percent of your donation actually goes to the charity. Never give out your credit card info or social security number over the phone. If you need more help investigating a charity, check out Charity Navigator's ratings pages.
Be weary of sound-alike names
Don't be confused by charities with similar names. For example, the Children's Charity Fund and the Children's Defense Fund sound alike, but they actually have quite different missions -- and their performance ratings are polar opposites. According to Charity Navigator, the Children's Charity Fund has a zero-star rating, while the Children's Defense Fund gets four stars. Pay attention to these differences and educate yourself on the individual organizations.
Confirm 501(c)(3) status
Though tempting -- especially around the holidays, when the red-hatted person is ringing a bell at you as you walk out of the grocery store -- don't just drop money into a tin and assume it will go where it's supposed to go. A good amount of these people are genuinely with the organizations for which they claim to work (in which case, it's okay to ask for additional proof), but sometimes they're there just to take advantage of your good will. Donate only to organizations that have been granted a 501(c)(3) status, because it indicates they are a legitimate organization. And that's also the only type of giving that qualifies for a tax deduction.
Check the charity's commitment to donor's rights
Examine the financial records
The financial standing of an organization is a strong indicator of its performance. The most efficient charities spend at least 75 percent of their budgets on programs and services, and less than 25 percent on fundraising and administrative fees. Understand that a charity still needs to pay its director a competitive salary to remain viable, but don't take an executive's salary at face value. Instead, compare it to similarly sized organizations with a similar mission. In general, it is better to contribute to an organization with a better-paid CEO that is meeting its goals than an organization with an underpaid CEO that is just getting by.
Communicate and focus
One of the best ways to learn about an organization is to connect with a representative to learn about the charity's accomplishments, goals and challenges. Be prepared to walk away from the organization if it doesn't turn out to be what you were expecting. And when you've taken the time to investigate a couple of different charities, pick one that you are absolutely passionate about and focus on it for a predetermined amount of time. This helps prevent you from stretching yourself too thin and helps you make a significant impact.