budget
A financial plan that estimates income and expenses over a specific period, helping individuals and organizations allocate resources and achieve financial goals.
Example
“Her zero-based budget allocated every dollar of her $5,000 monthly income to specific spending or savings categories.”
Memory Tip
BUDGET = a plan for your money. Tell every dollar where to go before the month starts.
Why It Matters
Donor advised funds help people optimize their charitable giving by allowing them to claim tax deductions immediately while taking time to decide which charities receive the money. This strategy is particularly valuable for high-income earners who want to bunch charitable contributions into certain years to maximize tax benefits.
Common Misconception
Many people believe that once they contribute money to a donor advised fund, they lose control of those assets. In reality, donors maintain advisory privileges and can recommend which charities receive distributions, though the fund sponsor has ultimate legal control and must ensure grants go to qualified charities.
In Practice
A business owner sells their company for 2 million dollars and wants to give 500,000 to charity over the next decade. Instead of donating annually, they contribute the full 500,000 to a donor advised fund in year one and receive an immediate tax deduction worth about 150,000 in tax savings. They then recommend grants to their favorite charities at a rate of 50,000 per year over the following ten years.
Etymology
From French 'bougette' (small leather bag, wallet) — originally referred to the contents of a treasury bag.
Common Misspellings
Build a budget and track your spending
Related Terms
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