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WEALTHY AND WISE
BY CLAUDE ROSENBERG, JR., MBA '52
I've been lucky. I fortuitously chose a profession, investment management, in which opportunities were abundant. I worked hard, acquired some special skills, produced exceptional results for my clients, and, in turn, for my business. And I invested wisely for myself and my family.
But some funny things happened on the road to prosperity, the strangest of which occurred as our income accelerated and our assets grew. In short, whatever targets we set for "sufficient" income or assets kept moving away from us.
Fortunately for us, the rising targets did not diminish our peace of mind. We did not let our advancing goals interfere with what we thought was a healthy attitude about money and its constructive uses. We spent what we considered to be prudent, and we also discovered a positively contagious habit: the sharing of our good fortune with organizations devoted to deserving causes, especially those helping people less fortunate than we are.
But I must confess that, despite my investment accomplishments, we were virtually flying blind with our finances. We hadn't modeled our spending to any percentage of our income. Nor had we disciplined ourselves adequately based on our asset accumulation. Finally, while we knew that our investments were growing rapidly, we hadn't concluded how much we might expect them to continue rising beyond our spending and our philanthropy. In other words, we lacked a specific, organized plan.
This left me with two choices: Either I could continue to close my eyes to reality or I could rethink our finances and become better educated about our options. I chose the latter, and one day I set out to prove for the first time what we could actually afford and how our money might best be allocated. I listed our income and the value of our assets, estimated the total investment returns that might be forthcoming over the next year or so from the earning portions of those assets, and then compared the results to a specific budget that included our needs, some luxuries, a reserve for our children's futures, and enough to cover our philanthropic outlays.
The conclusions were startling. It was as if I had literally found money. To my surprise, I discovered that we had dramatically understated our potential. We could afford to spend -- or give -- much more. Since we were basically happy with our standard of living, and since our income and our asset ownership left a sizable cushion for us, we concluded that we could have been sharing more of what we had. A lot more!
Having learned what I had about our personal finances, I decided to determine whether other people of means were far less generous than they could afford to be. I found that, on average, most people had been giving far less than they could. In fact, the charitable donations of the IRS's top income group averaged less than 10 percent of what they could safely afford! And a similar pattern existed for other income categories, particularly the higher earners.
All of this brought me two major challenges: how to show people what is truly surplus money and how to provide them greater financial peace of mind. So, I developed a computer program that allowed an understanding of a person's financial situation over short and longer periods, a realistic model for people to use when considering their financial wherewithal -- whether for better living for themselves or for enhanced giving to society.
The model is a conduit to a solid strategy for the use of money for people of all tax brackets. For my wife and me, it proved to be a further revelation. Using the new format, we formed a more intelligent approach to our assets, to our family's needs, and to higher targets for what we might give away -- all done with a greater sense of comfort than we had ever felt before. This led us to start our own charitable foundation, to focus on the needs of the young and the underprivileged, with a special interest in education. This we have done, to our great joy and sense of satisfaction. It has been one of the most rewarding emotional experiences of our lives.
Getting smarter about your giving
As with many other pursuits, wise giving requires thought. Regardless of the size of your donation or your allocated time as a volunteer, you deserve to feel confident that your chosen nonprofits have the capabilities to carry out their missions efficiently. Here are guidelines to make yourself a smarter judge of nonprofits and a happier contributor to them.
1. Develop a philanthropic plan -- an organized strategy.
2. Start with your values -- philanthropy is based on values. Rank your priorities. Zero in on your most passionate interest. Is it youth or the elderly? Local needs versus national or global? Environment, education, public policy, the arts? Make a list and keep track of how you hope to allocate your dollars and time.
3. Do your homework on the issues. Are the needs that strike you as critical truly so dire? Perhaps they are already being met. Perhaps ample funding is already available.
4. Concentrate your efforts. You will wear yourself out thrusting in a multitude of directions, and your attitude may suffer accordingly. I had just such an experience when I first entered the business world in the mid-1950s. Without proper planning, I became a member of five nonprofit organizations, and I soon found myself resentful of the time their meetings were taking. This resentment turned into criticism of the organizations -- until one day I recognized they were not at fault at all. I was! I was spread so thin I couldn't give much to any one of them, so neither I nor the groups were benefiting. Eventually I narrowed my focus and worked hard for two organizations; this proved successful for both them and me. Concentrating your monetary donations by targeting certain charities can also lead to success. If you become particularly important to an institution, you stand a far better chance of influencing decisions and helping it to achieve its mission.
5. Isolate the potential obstacles that might hamper the organization's success. Ask its leaders what they perceive these obstacles to be. (Beware if they expect none.) Then assess the group's abilities to overcome the roadblocks. You should determine whether a group has the fortitude to buck obstacles, move beyond setbacks, and foster change.
6. Don't be bashful about asking tough questions. Request information on items such as executive and staff compensation, including perks; payments, if any, to directors or trustees (including any business directed to them); entertainment and related expenses incurred; numbers of volunteers and hours worked by them; numbers of paid workers and their salary levels; total administrative expenses in relation to program dollars spent; and even the amount of in-kind donations received (these will presumably lower overhead expense ratios). Do not rely on anecdotes supplied by the organizations. Force them into supplying specifics. As Ira Hirschfield of the Evelyn and Walter Haas, Jr. Fund demands, "Tell me how you know what you are doing is working."
Try also to quantify the nonprofit's accomplishments and the costs of obtaining those results. For example, determine the number of people helped and to what degree, and then assess the organization's costs to make this happen (say, through a per-person-helped or similar ratio).
7. As in business for profit, nonprofits undertake projects with near-term and long-term horizons. Ask the organization to separate its goals into time periods, and then track the results. Probe why the near-term goals have not been met; and be patient, but press for progress reports on those earmarked for the future.
8. Study the organization's past accomplishments and relate them to the dollars spent. Did the group achieve what you would expect? Financial position is important. Funds may be needed, but an organization should not be so strapped that it is likely to fail in its mission.
9. You may want to insist that your donation be directed only to a specific project; in fact, you can even make your pledge contingent on some specifically defined successful conclusion. Similarly, if you are a large donor, you might consider leveraging your gift with either a "challenge" or a "matching" grant. The former motivates the nonprofit to attain a certain total sum from other contributors: unless the prescribed total is reached, your donation may be withheld. With a matching gift, you may set a ratio of your potential donation to an amount to be raised elsewhere by the nonprofit; for example, you might require that one or two dollars of others' money be raised for every dollar of yours, up to some stated maximum.
10. When you assess the organization's "financials," use three prudent rules of thumb:
- Do not accept any one ratio of effectiveness as the gospel.
- Treat any one ratio that seems improper as a serious cause for concern.
- Look elsewhere if an organization refuses to supply information.
Incidentally, annual reports of many charitable organizations do not list the endowment funds held. Do not be bashful about requesting this or other information -- including, in rare cases, copies of the organization's tax filings. The revelation that the chairman of United Way of America was being paid over $400,000 per year should have been discovered long before 1992. All anyone had to do was ask. (Happily, this situation has now been remedied.) A cash flow analysis of a nonprofit's past year and its budget for the current one are also revealing statements.
These guidelines are intended to make you a more careful and skillful contributor -- to prepare you to take control of a process that is frequently out of control. After all, most philanthropy is triggered by someone, often important to you, who may not know whether his or her chosen nonprofit truly produces good value relative to its funds. You are parting with money, and you owe it to yourself (and perhaps even owe it to the government that allows you tax deductions for charitable donations) to strive for effectiveness. You are entitled to know that your dollars and your time are likely to be successfully deployed.
Putting it all together
Since I began my research, I have gathered additional data and have developed more insights into the subject of financial adequacy, spending potentials, and affordability. And the conclusions I have reached, published in my book Wealthy and Wise, are filled with fascinating opportunities for a large number of people -- opportunities that extend far beyond charitable giving alone.
The focus of the book is happiness -- the happiness that comes from the comfort of understanding more about money, from possessing a better financial strategy, and from knowing what people of means can or cannot afford to spend on themselves or share with others. The book provides strategies to help you make far better use of your resources and get much more out of life while still benefiting society. In fact, you may develop a taste for giving -- a habit certain to produce an array of constructive effects on our society.
The future and our fate are in our hands. We have the obligation to reach out to help others, and those who can afford it must lead the way. Now, in the changing political climate of 1995, is the time to impose a small voluntary "tax" on ourselves. In other words, now is the time to invest wisely, to invest in something that is bound to end up being for ourselves and our loved ones, as well as for so many others who deserve an improved environment and whose elevation will strengthen our nation's present and future. You, your family, your community, and our populace can be happier and more fulfilled than ever.
About the Author
Claude Rosenberg, MBA '52, is the founder and senior principal of RCM Capital Management of San Francisco, which is responsible for over $20 billion in bond and common stock investments for its clients. RCM also founded the RREEF Corporation, which is now the fourth largest independent real estate adviser to institutional investors. Rosenberg published four books about investing before writing Wealthy and Wise.
Rosenberg, the 1984 Arbuckle Award recipient, and his wife, Louise, have been involved in philanthropic pursuits for many years. They have focused on the needs of children, opportunities for the disadvantaged, and education, including the establishment of the Business School's Rosenberg Corporate Research Center. Income from Wealthy and Wise is being distributed to charitable organizations.
From Wealthy and Wise by Claude Rosenberg. © 1994 by Claude Rosenberg, Jr. By permission of Little, Brown and Company
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