MtoM #149: Doctor Gives Away $1 Million and Finance 101: Charitable Giving

This is the White Coat Investor podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom. This is Milestones to Millionaire podcast number 149. Doctor gives away $1 million. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums, trying to gain a financial education the way the hobbyists do for a fraction of the price of hiring a professional financial planner. The Fire your financial advisor online course will take you from feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school, or residency, but never was. Fire your financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help. All right, welcome back to the Milestones podcast. This is the one where we celebrate your financial milestones and use them to inspire others to do the same. If you'd like to come on this podcast, you can do so. You apply@whitecoatinvestor.com Milestones and whatever you've done, we'll celebrate it with you. I don't care if it seems like a tiny little milestone or whether you've become the next Warren Buffett. We'll celebrate your milestones because there's somebody out there just like you who can relate to you and who will be able to take your experience and apply it in their lives and achieve the same levels of success and happiness, et cetera, that you have through those financial accomplishments. We have a great guest today, new goal that we haven't actually talked about much on this podcast, so let's get Pete on the line. Our guest today on the Milestones to Millionaire podcast is Pete. Pete, welcome to the podcast.

Thanks, Jim. Thanks for having me. Appreciate it.

Tell us what you do for a living, how far you are out of training, and what part of the country you live in.

Sure, yeah. I'm a subspecialty surgeon. I live in Indiana. Finished training in 2012, so I'm practicing here for about 11 years now.

Awesome. And what milestone are we celebrating with you today?

My wife and I have been able to, over a period of years, give a million dollars to charity.

Awesome. Congratulations.

Oh, thank you. Thanks so much.

We're at almost 150 episodes and you are the first person who's come on with a milestone that involves giving to charity. So this is pretty awesome to talk about today. I definitely do not have a script or a set list of questions for this particular milestone. So we're just going to talk about it a little bit conversationally. Let's start with some numbers though. Tell us about your wealth level in broad terms. How wealthy are you?

Well, I guess from a net worth standpoint, we're about $4 million in net worth income. It's kind of has peaked here and maybe will plateau here, maybe even go down in coming years, but just reached about a million dollars in income annually. But starting in 2012 is probably closer to 3 to 400,000. It's kind of gradually increased up to this level and probably at a peak and maybe plateauing or even going down perhaps in the coming years if we work a little bit less. But yeah, I think it's kind of divided into equities, retirement and some real estate type things.

Okay, very cool. All right. So when did you start giving to charity?

Yeah, so we started giving when my wife and I got married. Shortly before actually. No, in my second year of medical school. And so our income at the time was my student loans and then she worked at a non profit and so we started giving as soon as she started making. So that was a very small amount because we had a very small income. But it was kind of more of a principle that we wanted to. That we kind of aspire to give at a minimum of a tithe just from something that had been taught to me and modeled by my dad. And so we thought let's start early. So yeah, ever since, I guess that would be 2004, I gave about $1,500 that year. And then thankfully it's gotten more each year.

All right, what's the most you've ever given to charity in a single year?

I think it was about $110,000 last year and about the same the year before. Those are our two peak years and hopefully we'll be able to continue at that rate and increase.

Very cool. All right, well, why was it so important to you? You mentioned your father modeled it to you. Right? Well, our parents model lots of things to us that we don't actually do ourselves. What was it about this that decided this is important to us, this is something we're going to do with our finances and it got you in that habit. I mean, it's been 20 years almost now that you've been given to charity. Tell us about that.

Yeah, so, you know, I think it probably it did come from a conviction of my Christian faith that that was kind of a, maybe a good guideline for giving. I thought, hey, that's a decent general guideline. And so my kind of goal was like, let's just do the minimum of that much. I saw the fruit of it in my parents life, how they lived below their means. And I think the discipline of that giving also was a discipline of saving. And then they were able to build wealth and have a very generous life. And so I think it was number one, probably a personal religious conviction, but then also seeing the fruit of it in the generation before. And then honestly, I think there was a lot of satisfaction and even in those really lean years to say we're still doing this. So I think there was a lot of personal satisfaction. And I guess a lot of us physicians are just kind of goal oriented and that was just kind of a simple concrete goal that I think has kind of carried us through and has given us capacity to do more since we were able to start out early, I guess.

Can you tell us about some of the charities you've supported over the years?

Yeah, yeah. One of our favorites is World Vision. It's a kind of helping people in poverty. And a lot of them have a kind of a Christian kind of Christian focus, Christian mission focus, Compassion International, local church that we attend medical school, foundation. There's an organization that we were like called the Christian Medical and Dental Association. There's a local homeless shelter that we like to support young life mental health ministry, and then a handful of missionaries who work in various countries, Southeast Asia, Africa, some local and some kind of in impoverished areas in, in the United States and even some kind of in more par church ministries in the U.S. so yeah, it's kind of, it's expanded and I think it, it grows every year that list that we're supporting. And so it's, it's, it's kind of fun honestly, to kind of, you know, I don't know that we're changing the lives of World Vision or Compassion International, but we're able to help our local church significantly. We're able to help a lot of missionaries. Our gifts mean a lot to them and that part has been fun as well.

How do you evaluate a new charity? If you're thinking about, you hear about one, you think you might want to support it. What do you do to evaluate and make that decision?

Yeah, that's a great question. So it's probably we learn about them through word of mouth and maybe from people who are also similarly minded. Who will tell us about, hey, this is someone you should consider supporting, or this is a ministry that might be close to the heart of what you're doing. But I think one of the main focal points is helping people in need. I think poverty is having kind of a global look at things. We realize that we're in America, so therefore we're very fortunate. Right. And then we're having this type of income, so we're kind of, you know, exceedingly fortunate. And I think it. The. The ones that are focused on, you know, helping people in need. And then also because, you know, I have a conviction that, you know, God is real and the Bible is true.

The.

The. The ministries that kind of offer an eternal hope as well, while also helping their material and physical needs, I think those are the ones that really get me the most excited. If there's a component where, hey, well, we're helping someone either physically, medically, financially, but also we're also helping them spiritually and giving them a message that I think may have an eternal value.

Let me share some statistics with you and get your take on them. All right. It turns out if you look at the average American, they give something like 3% to charity. And in fact, the percentage falls as people's income goes up. It can be as much as 13% for people in the poverty range and then as low as 3% for those in the $200,000 plus range. What do you think about that when you hear that so many people out there, even those doing pretty well, are really given a very small percentage of their income to charity?

Well, Jim, you know, it's funny, because when I was young and naive, I'd be a lot more judgmental about it than I am now as a man in my 40s who has a high income. And ironically, it's probably easier to give. I mean, okay, I got to be careful when I say that. And when you. When we made $40,000 my first year in residency, giving those $4,000, like, hurt more, you know, than maybe giving $110,000 last year, because it was like, that was a little bit more of a challenge. But I think as your income goes up, I think your. Not only does your spending capacity go up, but your curiosity with how to create wealth goes up. You're. You've learned more about these opportunities with different real estate investments and syndications. And it's. So I think as income goes up, I think it's just human nature to want more and try to create more. And you do have more opportunities when you make more. So I think, I think we're all susceptible to materialism and we have, we, we spend a lot of money on travel and ourselves now, and so way more than we ever thought that we would. So I think it says something about human nature and it says something about the world that we live in that I think the more you have, the more you can more access you have to get more or make more or invest more and get more creative.

Yeah, it's interesting. If I just look at your numbers, you've given away a million dollars. You're worth about $4 million. So about 20% of your wealth you've given away now over time. Obviously, if I look at those percentages for some very well to do people that you know are known to be pretty charitable, your percentage is way higher, right? I mean, let's take a look at somebody like Warren Buffett, right? He's worth $120 billion and. Oh, I guess that's not necessarily true. He's given away 50 billion, so that's pretty good percentage. I mean, he's given away 30% or so, so it's a little bit better percentage than you. But a lot of these people you look at and they really don't plan to give until after they die. How come you decided to give while you're still alive?

Well, it's a great question, I think. I mean, again, I think it started with a religious conviction, but also has evolved into a philosophy that I think life is much richer when you start to give away. I mean, I think I got a quote that, a classic Warren Buffett quote. And I've come up with my own based on his. He said, do not save what is left after spending, but spend what is left after saving. And that's a great mantra, right? And I think that's one Vince off repeated and a really good one. So I've kind of come up with my own that's kind of following his lead is do not give what is left after saving and spending, but save and spend what is left after giving. And so I also kind of break it like this, break it down like this is you give first, you save second, you spend third. And this is the best part. And you alluded to this as well. You know, giving after your diet, you give last. Okay, so in other words, you know, if you have the discipline to save for spending, right, Then you'll likely be able to save a lot as well. If you're giving before you save, then you save before you spend, and then you're going to continue to grow that wealth. And that way you get to give first and you get to give last. How cool is that? The idea that, okay, the discipline that allowed you to give is the discipline that allowed you to save. And so I'm seeing that as the wealth grows, my capacity to give grows. And I've heard you say this, and I've heard other people that I listen to and respect say, hey, you know, give it while you're alive and enjoy the fruit of that. Seeing people's gratitude and knowing even people you don't see you knowing that you're helping them, there is a great sense of satisfaction to know that you're helping other people.

Yeah. One of the most vocally anti charity folks I've ever met is a fellow by the Name of Phil DeMuth who you may be familiar with or not. And he really gives two reasons. One, he thinks lots of people can't afford to give to charity. You know, he says, americans love giving to charity. I wish they didn't, because charity is a luxury they cannot afford. With 30 years of retirement at coming at them like a freight train and pennies in the piggy bank, their charity had better begin at home. And the second reason is he just doesn't feel like charities spend money very well. He feels like we'd be better off giving half as much directly to people who need it. If you had Phil in your house and you could sit him down for 10 minutes and try to convince him to give to charity, what would you say?

Great question. Wow, that's a challenging one. I'm sure he would outsmart me. And he would. He would win that argument. But I would certainly tell him, you know, Phil, just speaking from my own personal experience, giving has actually created a remarkable amount of discipline in our household. And that was a starting point. And I think it actually has significantly impacted our ability to build wealth because of that discipline, because of that concept of delayed gratification. The personal satisfaction from knowing that I'm helping other people has actually helped me feel rich. In fact, there's a really good sermon series and book by Andy Stanley called How to be Rich. And the concept is, if you have enough to give to others, then you're rich. And so, I mean, don't a lot of people want to feel rich? Well, I'll tell you, when my wife and I were in residency in the later years making 60, 70, 80,000, when I was doing some moonlighting, and we were giving, you know, six, seven, eight, nine, $10,000 away a year, we felt rich at that income. And I don't think without giving, I would have felt rich. So I would argue that the American dream is probably one of them, is wealth and security. And in some ways, I think giving helps philosophically to get a concept that I have enough. I have. And not many Americans have enough. You know, whether that's a salary of 50,000, 500,000, 5 million, or $50 million. I really do believe the concept of having enough is a everybody. You know, you've seen the surveys. If you ask someone, what is it? What type of income do you need to be rich? And a person will usually say about 20% more than they make, whether they make 60 grand or 600 grand or 6 million. And so I feel like, by God's grace, I really believe that I've found the way to feel rich, and that's by having more than enough.

Yeah, I absolutely agree with you. This is a great way to feel wealthier, is giving money away. It sends that message to your psyche that you have enough, you know, and I think that's a good thing. I think it's good for the causes you're supporting. I think it's good for your soul. Well, lots of people want to be millionaires, or at least that's what they think they want. In reality, what they want is to have, you know, is to spend a million dollars. Not only have you accumulated enough to be a millionaire, a real millionaire, not just someone who spent a million dollars. Right. Which is obviously the polar opposite of a millionaire, but you've also given away a million dollars. Congratulations to you. Thank you for doing that.

Thank you.

And thanks for being willing to come on the podcast and inspire others to.

Well, I appreciate it. Thanks so much for your time and keep up the good work. I appreciate all you're doing.

All right. I hope you enjoyed that podcast as much as I did. Let's talk for a few minutes about charitable giving. Charitable giving is awesome. There's lots of ways to do it. You can just give money away. That's okay. You're actually allowed to give $17,000 away to anybody you like without having to tell anybody about it. And your spouse can do the same. So between the two of you, if you're given to another married couple, you could give $68,000 in 2023 without having to tell anyone. To give more than that, you have to file a gift tax return, and that can be a pain. It doesn't actually cost you any taxes unless you end up with a very large estate. But it does involve filing a return which can be a little bit of a pain. But if you give away 68,000 at the end of the year and 68,000 at the beginning of the year, you could pretty easily double that amount. But if you want like a tax break for giving money away, you can't just give it to anybody you like. You can't give it to the kid of your pastor to go to college. You know, that was an email I got yesterday that somebody wanted to know how best to do that, the most tax efficient way to do that. And you know, maybe you can give some appreciated shares to somebody in a very low tax bracket. They get your tax basis on those shares, but they still might be in the 0% long term capital gain bracket. So maybe no one pays taxes if you give something like that. But for the most part, if you want a tax break, we're talking about giving to charities that have registered with the IRS. These are 501s. Okay? So if you do that and you itemize on your taxes, you don't take the standard deduction. If you itemize, you can take the amount you gave away to charity as a deduction, meaning you're basically giving with pre tax dollars. So if you're like many docs and your marginal tax rate is 30, 40 or even 50%, you can basically do, you know, an extra 50% to 100% amount of good with the dollars you give by running them through some sort of charitable organization. Obviously, if you don't itemize, you're very limited in how much of that you can deduct. They did pass a law a few years ago that does allow you to deduct something though. Let's see what the limit is for 20, 23, it looks like you can give. Okay, so it's $300 if you're single, $600 a year if you're married, filing jointly. So you can give that away without even itemizing and be able to deduct that on your taxes. So obviously you got to keep records. You can't receive anything in return from the charity other than very non specific stuff. But if they give you a dinner or something, you have to subtract out the cash cost of the bidder from the amount that you can deduct. All right, what's the best way to give? Well, there's a couple of ways that you ought to be thinking about. Okay, one, if you are 70 and a half or older, I'm convinced the best way to give to charity is what's called a qualified charitable distribution. This Takes the place of your required minimum distribution from your IRA or 401, so you don't have to pull it out, pay the taxes on it and then deduct it to charity and take the, or give it to charity and then take the deduction. It just goes straight from your IRA to the charity. Right? Nobody pays taxes on it. It's great. And lowers the amount you have to take as an RMD. Or it can be your entire RMD up to $100,000 per year. Another really slick way to give to charity is to use a donor advised fund. Now some people use this to do what I call the jerk move, which is put a bunch of money into it and leave it in the donor advised fund. Cause you get the deduction when you put the money in, even if you don't actually give it to a charity. But when you take it out of the fund, that's when the charity actually gets the benefit. But you don't get an additional deduction at that point. The money can grow while it's in the donor advised fund. There's usually some fees, but you can invest it just like you could in any other tax protected account. Right? It grows in a tax protected way. It's tax free growth in a donor advised fund. So you could put $100,000 in it and, and a couple decades away, give away $300,000 and none of that would be taxable income to you or the charity. But the nice thing about a daf, a couple of nice things about it, you can put the money in all at once and then distribute it to multiple charities without having to keep track of all those receipts, all the charities you gave it to, like one big receipt from the daf. That's it. That's all you have to keep track of. And so it's very easy to show in an audit that you, you know, legitimately deserve that deduction. But the reason I really like it is it eliminates what I call charity porn. Okay. If you've given to charity like multiple charities and put your name and address on that gift, you know what happens next. Over the next five to 10 years, your mailbox is filled with glossy brochures from whatever the charity might be, might be the greatest charity in the world, but it still probably spends 5 to 15% of its money trying to get more donations. And you can leave the money in the charity where it does more good rather than being used to market to you some more by not telling them who you are. And the donor advised fund is a great way to do that. Right. You can basically give anonymously. And so I really like that because it got rid of all that charity porn out of my mailbox. And I feel like my dollars go a little bit further when I do that. All right. As we talked about in the podcast itself, I think it's great to give while you're still alive. You get to see the benefits of it. But lots of people prefer to do all or most of their giving after they die. So what should you leave to charity? Well, there's a few types of accounts which are better than others. For example, a health savings account, an HSA is a terrible account to inherit, but it's a great account for a charity to get. If you inherit one, it's all taxable income in that year at your ordinary income tax rates. But is it taxable to the charity? Not at all. It's just like getting cash to them. It's all the same. Same thing with an ira. Now, the benefit of an IRA if you inherit one is you can at least stretch it out over 10 years. But the charity, they don't pay any taxes at all on that, whereas it's taxable ordinary income tax rates to your heirs. So first, best account to leave to a charity is an hsa. The second best account is some sort of tax deferred account like an IRA or 401. So keep that in mind when choosing what to leave to who. If you have a big charitable desire at your death, those are certainly the accounts that ought to go to the charities first. Thanks to all of you who do give to charity. This holiday season, a lot of us, our minds and hearts turn to others and we realize that there are a lot of people that our dollars can help. And many of us truthfully have enough, have enough income, sometimes even have enough wealth already. And we can afford to give away some money. Give some away. If you've never tried it, see how it goes. Give to somebody you care about, give to somebody in need, give to a charity that supports a cause that you support, and you'll be surprised what it does to your psyche. I think it's not only good for your soul, I think in the long run it's actually good for your finances. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums, trying to gain a financial education the way the hobbyists do. For a fraction of the price of hiring a professional financial planner, the fire your financial advisor online course will take you from feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school or residency, but never was. Fire. Your financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help all right, that's it for the podcast. Sure appreciate you guys listening. Without you, it's not much of a podcast, but we want you to keep coming on and keep listening. So let us know what we're doing well, what we can maybe improve on, and we'll keep producing this great content for you and inspiring you to reach your goals. Keep your head up and shoulders back. You've got this and we're here to help. See you next time. The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.