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If you were to choose one word to describe my Christmas shopping habits I would not use the word "early." The problem this year is not that I've procrastinated – which is usually the issue with my shopping. The problem is that my kids and Carolyn have everything they need. After I purchased them that mooning garden gnome this summer what else could they possibly want?

I want my kids to understand the importance of giving back, so this year I'll be giving each of them money that they can donate to a worthy cause. That's right, I'm giving them the gift of giving. It's a good time of year to contemplate your own charitable giving. How do you make decisions about how much to give, when to give, where to give, and how to give?

Tax breaks

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Sure, donating to a registered charity can come with tax breaks. In this way, the government partners with you in your giving. For each dollar you donate you can expect the government to pay for about 46 cents of that gift (for a taxpayer in the highest tax bracket in Ontario; the actual amount varies by province).

But let me encourage you to donate for reasons other than tax savings. After all, you'll still be paying some of that gift out of your own pocket. (I'm not going to talk today about various charitable donation tax shelters or schemes that propose to get you back more in tax savings than what you donate.)

Giving principles

There are a couple of guiding principles around giving that I'd like to share. First, give until you feel it. My experience has been that those individuals who truly experience the rewards of giving are those who have donated such an amount that they feel as though they've sacrificed something. I still remember the words of a generous and fulfilled woman who once told me "I will not make a gift that costs me nothing." The right amount, of course, is a personal decision and is different for everyone. Many use 10 per cent of income as a guide, and I can share from experience that the most accomplished and fulfilled givers make gifts even larger than this.

The second principle is this: Give cheerfully. While giving until you feel it is excellent practice, don't give grudgingly or until you're panic-stricken. Be cheerful about the gift. In practice, I've seen how giving can progress from one level of giving in a particular year to higher levels of giving in subsequent years. It's like stepping into a tub of very hot water; it may feel uncomfortable at first, but soon you'll be accustomed to it. If you aim to give a little more each year you'll be amazed over time at the increasing good you're doing and the growing impact you're having. You'll also experience higher levels of satisfaction and fulfilment as you give more, and you'll discover that you're richer than you think (to borrow a Scotiabank phrase).

Social capital

When it comes to giving back, there are two ways to give: Out of your income, and out of your capital. That is, you can donate part of your income each year, and/or you can set aside part of your capital, or assets, for charity. The most accomplished givers do both, but the approach you take will partly depend on your financial independence.

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I'll define financial independence as a state where you have enough liquid assets to cover your costs of living for the balance of your lifetime, and the lifetime of your spouse or partner. If you have more than you need, then you're in a perfect situation to consider giving capital in addition to giving income. And the greater your financial independence, the greater the opportunity to give out of capital. I like to call this "social capital."

Let's face it. A portion of your income and capital is going to be used for the betterment of society whether you like it or not – through our tax system. Most accomplished givers choose to self-direct their social capital. Wouldn't you rather make your own choices about what causes to help rather than have your social capital filter through the hands of the government and then end up helping society in a manner that may not be consistent with your values?

As we approach year-end, consider what you might do make a difference in the world, and follow the lead of the most accomplished and fulfilled givers. Oh yes, and then there's the tax savings.

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About the Author
Author and founder of WaterStreet Family Offices

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices. More

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