What Happens to Your Money When You Make a Donation?

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shutterstock_112875952When we see tragedy, the first impulse is often to help. After devastating earthquakes, tornadoes, and other catastrophes, many of us choose to donate money in an effort to bring relief. But where does your money actually go, and what does it actually accomplish?

CNN Money offers a look at where your donation dollar goes. One of the most efficient organizations is, in fact, the Red Cross. When you donate to the Red Cross, four cents of your dollar goes to administration costs, and five cents of each dollar goes to fundraising.

The good news is that 91 cents of each dollar donated to the Red Cross actually goes to aid.

However, not every charity gets such high marks. There are some charities that spend 40% or 50% (or more!) of the donations they receive on fundraising and administration. On the other end of the spectrum, though, CNN Money reports that there are some organizations with even better records than the Red Cross.

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Feeding America is cited by the post as putting 98% of its received donations toward helping its target demographic. However, the charity receives funding from AllState, which helps with administrative and funding costs; in fact, in the wake of the tornado in Oklahoma, 100% of donations to Feeding America are used for feeding the affected victims.

So, how do you decide which charities to donate to? CNN Money suggests that Charity Navigator is a good place to start. This web site can allow you to check into different charities to see how they spend their money. Using public disclosures, Charity Navigator can show you which charities are spending more on overhead, and which spend more on actually helping with the stated mission.

The suggestion is that you donate to charities that spend at least 75% of donation money on the mission. Once you know where the money is going, you can make better decisions about where to put your money.

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Miranda is a freelance writer and professional blogger specializing in financial topics. Her work has appeared in numerous media, online and offline. Her blog is Planting Money Seeds.