If you one day find yourself in the fortunate position of coming upon a large sum of wealth, you may be at a loss for what to do with it.
Sure there are plenty of choices: spend it, save it, invest it, and so on, but what if these options aren’t enough? Is there some additional way you can put your money to good use?
Yes, in fact, there is. You could give it away to someone who needs it more than you.
Avoiding Lifestyle Inflation
Often, when a person experiences a significant increase in income, whether it be through a raise, inheritance, etc., the first instinct is to increase spending as well.
This is fine when you really needed the extra money to put toward an important expenditure–like a newer, more reliable car, or an apartment that accommodates your growing family — but spending more just because you can, doesn’t accomplish anything worthwhile.
When you find fortune, be thankful, but resist the urge to be wasteful. If your emergency savings or retirement fund are lacking, add to them.
If you are a savvy investor, take advantage of the opportunity to earn higher returns with a larger investment sum. Then, when you feel financially secure, decide who else could really benefit from a little extra dough.
One option for giving away money is to “gift.” The term doesn’t just refer to giving someone a present, it’s actually associated with a specific set of rules surrounding giving another person a large amount of money.
The government isn’t going let you simply hand over huge a wad of cash to another person for free. When you do so, it’s often subject to a gift tax.
The IRS describes the gift tax as, “a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return.
The gift tax applies whether the donor intends the transfer to be a gift or not.” So really, if you give someone anything of significant value without receiving something equal in return, even if it’s not actual money, you will need to be aware of the tax implications.
If you file as a single person, you may give up to $13,000 to an individual tax-free in 2010. The gift tax exclusion amount when married, filing jointly is $26,000. Generally, the donor pays the tax. There are, however, a few instances when a gift is not taxable:
The gift amount is less than the annual exclusion amount
You pay tuition or medical expenses for someone else
You gift to your spouse
The gift goes to a political organization for its use
Donating to Charity
Another way to share your wealth with others is to donate to a charity. Just about everyone has a cause that’s particularly special or important to them, so donating to a charity that shares your values and goals can be especially rewarding.
Kimberley Palmer of U.S. News details the various ways you can donate and also recommends how to do so effectively.
Instead of haphazardly giving here and there, really consider what matters to you most, identify an organization with the same focus and then learn everything possible about the cause.
This way, you will feel a true connection to the group you’re giving to and understand how you can help them best. After donating, follow up with the charity or organization to find out how your money is being put to use and encourage others to contribute as well.
Money is a great thing to have and you shouldn’t feel guilty if you have more than others. However, you will probably find that sharing your good fortune with those in need is much more satisfying than spending it on needless things.
This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.