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An investor's take on how to fix charities (short)

australianinvestor

Bronze Contributor
Aug 4, 2007
467
102
25
Australia
Inspired by this thread (http://www.thefastlanetomillions.com/showthread.php?t=512) about charity, here's my short opinion on what's wrong with the way a lot of charity works, and how I think it should work (and the way I'll be doing it in 2-5 years from now).


Case 1: Current charity model

- Beg for donations on street corners, tv spots, magazines, radio, etc.
- Get $100,000 (for example)
- Pay professional charity "beggers" and advertising bills: -$40,000
- Pay themselves and their overheads: $-20,000
- Keep some "in reserve": -$10,000.
- Send $30,000 to ABC country to "solve" XYZ problem
- Money alleviates pain temporarily, in many cases (a charity's core competencies often lie in moving money, not solving problems forever).
- Wait a few months, repeat.

Case 2: How I'll do it
- Go to ABC country. Design a proper, PERMANENT solution. Work out up-front and monthly cost for this to work.
- Take $x from my own investment profits (enough so that interest more than covers monthly operational costs
- Invest it in 10% (for example) government bonds (good reason for this) in the US/Australia, etc.
- Take 5% interest, pay for operational costs directly overseas.
- Other 5% is reinvested in bonds. This offsets inflation and grows the investment by about 2% (give or take) forever.
- The really cool part: this way, the money NEVER runs out, and increases in real terms (after inflation) by 2% a year (or so).

What I'll be using this for:

- Plan to build a small school in a third world country to teach business (including agri-business) to kids so they can lead their communities, solve their own problems, and teach their own kids how to do the same. Use technology trees to build precursor technologies to help the community grow (eg: what do schools produce? Employees. Employees run economies. Teach kids how to be bankers, merchants, investors, etc. They can then start banks, trade with each other, invest in each others' businesses.)
- Example operating cost of a small school in a third world country per month: $1,000.
- Investment required at 10%: $240,000. Only take half the interest. Pay it to the school monthly.
- Audit the school's performance. Audit the community's performance (ensure improvement)
- Adjust and repeat as required.

Here's my formula for the money: Investment amount = Start-up costs + (monthly costs/(investment return-growth rate)).

Why government bonds? Risk-free investment. The risk is debatable, but their are few investments with this low level of risk. It means that as long as the USA or Australian governments exist, so does the money. It means security for the future income stream for the school. A similar amount invested in stocks might return more, but could do an Enron and turn to shizzle, if you get my drift. No more school then.

Summary: the money lasts forever (does not erode from inflation, but gets bigger). School lasts forever. Kids become leaders and teachers. They solve tomorrow's problems. Their schooling is free, based on a simple promise: when they graduate, they'll "pay" for their education by working on community projects as they see fit, and those who earn money can contribute a small amount to aid in educating the next generation, as well as returning as a guest teacher.

As my investments grow, I will build more schools.

How cool would it be to know that a school I build will be powered forever by a single little investment like $240,000, and will perpetually educate the people of a region to help themselves. One investment can do so much good, potentially forever.

Oh, and a very cool benefit: doing this without a shred of religious ideology being transported to these countries. I'm not religious, and there's a major charity here that I have a major beef with: it takes donations (almost some from me as well, before I did my due diligence), doesn't tell anyone it's a catholic charity (I had to read annual reports. Nowhere on donation web pages does a mention of their religous affiliation exist), and spends lots on admin, and some on overseas projects. Now, during the project, their volunteers/staff, who are there on the donor's dollar, spend some of their time to set up religious "education" programs. I haven't been there, but if the organisation who has more money than you thought existed in the whole world came knocking on your door and gave you some to build a well, housing and schools, would you be able to abstain from participating in their sunday schools and so on? I have absolutely nothing against religion, but it's the issue of the charity's power, and the potential inability of the recipients to obtain aid without hearing religious messages which they may consider to be attached to their receipt of aid. They may have their own religions and culture, and I believe this might even be a form of cultural destruction.

I acknowledge the good work they've done, but I think it needs to be done in a neutral way. That's why I've designed my own.

Sorry, it's late here and this might not be clear (or even coherent! Numbers may also be out, but they're only examples). I can barely see the screen, and after 19 awesome hours of investing, work, socialising, business planning, driving, sport and even a few minutes of Futurama, it's time for bed!


Daniel
 

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kurtyordy

Bronze Contributor
Aug 28, 2007
2,376
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PA
Nice plans. One thing that weighs heavy on my mind when contemplating building sustainable charitable efforts is how to control post death errosion. Living 5 minutes from Hershey, PA, I get a front seat view of how one persons philanthropic efforts have been turned into something much more ugly.

I think I read this in a biography of Rockefeller. Something like it is easy to earn money, the real work is involved in responsibly giving it away. There are three models I see to this.

1. start your own non-profit, have your employees meet your wishes as far as giving it away.
2. do a lot of research on certain charities and give to the ones meet your criteria.
3. give willy nilly under the assumption that at least some money will make it to the cause, so throw the money everywhere.

There are problems with each one, but I am not sure what the best solution is.
 

andviv

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australian investor, I really like your plan and kudos for making it very detailed. Rep++
 

thecoach

Contributor
Aug 29, 2007
125
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23
Regina, SK, Canada
Rep++ for that post! I actually sit on a board for a brand new small non-prof charity that supports local cancer patients financially and we are trying to keep our costs as low as possible (all board members/workers are volunteers, most of the materials we use are donated through inkind sponsorship, etc) to allow us to help as many people as possible without using half of it on admin type stuff. I'm going to steal a couple of ideas from you on that one and make them work for our charity, if you don't mind! :D
 

Jorge

Bronze Contributor
Oct 5, 2007
583
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Mendoza, Argentina
Diane, why don't you bring Daniel with you when you come here? :jiggy:
 

Jorge

Bronze Contributor
Oct 5, 2007
583
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Mendoza, Argentina
No, I meant (kidding) australianinvestor :smx4:
 

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OP
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australianinvestor

Bronze Contributor
Aug 4, 2007
467
102
25
Australia
Thanks for your kind remarks, everyone. It makes me very happy to know that this topic was received well, and even happier to know that many of you are interested in doing good with what you know.


Diane, I use a similar formula in other investments, but haven't done so in a charitable way yet. I am in the process of planning the first school, and hope to be in the position to start construction in mid-to-late 2010. This will give me three years to complete planning, get on the ground in a couple of countries and see where I can help, and then get the whole thing moving. I hope to have blistered hands and splinters this time in 2010. :) How cool would it be to see a hundred smiling kids after you bust your hump building a whole school for them? :) Oh, did I mention Cashflow 101 would be on the curriculum? That was a given, anyway!

Jorge, if you want help, let me know. I'm an ideas machine and am happy to assist where I can. :) - australianinvestor at yahoo dot com.

Kurtyordy, I agree. One of the big risks of my plan is that it evolves from what it was intended to do into something wildly different. Good succession planning is vital. Imagine writing the US Constitution, but instead of outlining how the country will be run, it controls how the charity will be run. It's like a covenant between all staff and the charity and me, saying that we agree that this never-ending stream of money I have created (my "money hose" hehehe) will be used in certain ways only, and if its purpose is fulfilled, the money will be streamed to another one of my charities, or to Bill and Melinda Gates' charity. It will never flow to itself to support a cause which no-longer exists. It's a very complex topic, and warrants a whole thread in itself.

I was thinking about writing a book on how simple it would be to fix problems using this method. I think a lot of the problem is that people who run charities get a great deal of self-identity from what they do, and if they really solved the problem, their jobs would no longer exist. However, I think a bigger problem is the idea of charity itself. It's people's ideas that charity is giving something away, when charity is really about creating something - eternal solutions. It's "we give $10 million a year to feed African children" instead of "we invest $100 million in developing regional African economic systems which feed the children for us". Ten years of giving creates a life time of dependence on hand-outs. One year of creating an economy gives them power over their own circumstances and negates the need to feed them forever. Big difference :)

Anyone want to pre-order the book? ;-) I accept most cards, pay pal, cheques (Australian spelling, get used to it!!), envelopes of cash under my office door, and photos of the good you are doing for the world :)

I'm also thinking about writing a book on a mathematical formula that ALL investors and fast-lane-aspirers need to know. It's the key to how my investment plan is designed, but I can't really go and release a book about being financially successful with this formula until I've completed it myself (I'm going ok, but a couple years are left before I'll be on the fast track). I'll feel like a phony. Even though I love all you guys to pieces, you'll have to wait for the book :)

The formula is not my own, and is known in financial circles for other reasons (and very well-proven), but it's my adaptation of it to personal investing and early retirement which is the fun part! Maybe by then, I'll be a Rich Dad Advisor like Diane :) Hey Diane, want to co-write a book with me? ;-) "The early retirement formula" by Diane Kennedy, CPA, and australianinvestor, MBA. $29.99. Has a nice ring to it. I could have it on shelves by next Christmas ;-)

Anyway, I've gone way off-topic! Back to work!

Daniel.

P.S.: The stocks I told you all that I bought yesterday almost tripled in value this morning, but are down again a little, so I guess retirement is still a couple of years away! Hehehe.
 

Jorge

Bronze Contributor
Oct 5, 2007
583
103
32
37
Mendoza, Argentina
Daniel, thanks, although I think it would be good to keep info on the forum for future reference of the members.

Maybe we could make a 'case study' first with Diane and then write the book? :smxF:

I'm doing the DD that Diane asked in the other thread, I think that with your system, fund raising and work my "give back dream" could become real.

Hugs!

PS: I loveee this board! (its 5am here but I cant sleep, I'm too excited about my life at this point, I feel 2008 will be the best year in my life :hurray:)
 

Jorge

Bronze Contributor
Oct 5, 2007
583
103
32
37
Mendoza, Argentina
Yeah, its hard to explain how good I feel with myself right now. I've changed A LOT in 2007. I think I got to understand myself at last.
 

camski

Contributor
Jul 24, 2007
247
97
46
Noblesville, IN
I read an article or heard it on the radio (I really dont remember) with this guy from africa who was a tailor. He was saying how because of the american charities he was put out of business. When the charities came in and started giving free clothes to everyone people stopped buying produict form him, and putting him out of business. Then he was forced to start accepting charity himself.
I found it very interesting because sometimes even though people have the best of intentions it can sometimes be harmful. as evidenced by this guy who's point was that when we (americans) just hand out free stuff to people it harms what little of an economy they do have.
I just mention this because ever since I read/heard that guys story it has really caused me to pause before giving money to any charity. I want to know that any charity I give to is giving a helping hand and not a handout (which it sounds like your is AI). I guess I am harking back to the old adage give a man a fish and feed him for a day or teach a man to fish and feed him for a lifetime.
Whenever you are set up to accept donations AI let me know and I will be happy to donate something.
 
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australianinvestor

Bronze Contributor
Aug 4, 2007
467
102
25
Australia
Thanks, Camski. You stated another side of the same problem very clearly. The example you gave makes me realise the potential small-scale effects of good intentions with poor execution.

It makes me think that I should at least set up a charity immediately with a description of my vision, plan and progress, and accept donations immediately. In Australia, we mainly use a company structure like US C-Corporations, but there's an option for charities which make the C-Corp equivalent a public company, although no stocks are traded on the excahnge.

Maybe I should go spend $300 and start one, get a website and accept donations. It might also provide me with a little bit of tangibility when everything currently (just plans on paper and in my head) seems intangible. Who knows, in a month or two I might take you up on that donation :) The public nature of the company means more transparency with the finances as well, which I like.

Extra speed for you, my friend! (You're only the second to get speed from me, I only just worked out what it was!)

Daniel.
 
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australianinvestor

Bronze Contributor
Aug 4, 2007
467
102
25
Australia
Perhaps I could use a few of you guys as a sounding board for my planning, and in return, you can use me, and use my plans (if they'll work for you). I might even need a few of you on the charity's advisory board one day soon ;-)

I am going on a short holiday from Boxing Day to New Year's Day, so along with my life planning during this period, I'll also get into the planning for this. I'll be in a remote, rural part of my state, so no computer, but when I get back, I'll translate my scribblings into a PDF for you.

Anyone interested?

Daniel
 

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