Many philanthropists believe that saving money in their charitable efforts reflects good stewardship. However, cutting costs in the wrong areas can significantly diminish your impact. In this post, we’ll explore five common ways that frugality in philanthropy does more harm than good, and why strategic investment is essential for achieving lasting change.
1. Not Investing in Technology
One foundation CEO, responsible for overseeing more than $200 million in assets, refused to allow his staff to take company laptops on business trips. His reasoning? To avoid the $1,700 expense of replacing a lost or broken laptop. As a result, staff couldn’t be productive while traveling. They were unable to prepare grant recommendations, research funding opportunities, or even respond to emails efficiently. This lack of investment in basic technology led to decreased productivity and wasted valuable time—far more costly than the price of a laptop.
The lesson here? Without the right tools, even well-meaning philanthropists can slow down their progress and impact.
Investing in technology for nonprofits is crucial to ensure your teams and grantees can operate effectively. When organizations are deprived of up-to-date tools and systems, they struggle to fulfill their missions.
2. Short-Term Grants That Hamstring Long-Term Impact
Another example comes from a nonprofit grantee’s perspective. A nonprofit requested a three-year grant to advance an innovative approach to drug treatment through policy advocacy. However, the donor approved only one year of funding, severely limiting the nonprofit’s ability to plan long-term. Policy advocacy requires sustained efforts over time—research, raising public awareness, organizing communities, and influencing policymakers.
Because of the limited funding, the nonprofit couldn’t hire top talent. The CEO’s ideal candidate wasn’t willing to leave a secure position for a one-year role. As a result, the CEO hired someone less experienced, who ultimately wasn’t as effective.
The lesson here? Short-term thinking leads to short-term results, and it’s nearly impossible to achieve lasting change without a commitment to long-term nonprofit support.
This is a perfect example of why effective grantmaking must involve an abundance mindset and multi-year investments to create real, systemic change.
3. Underfunding Nonprofit Overhead Costs
One of the most common ways philanthropists cut corners is by refusing to fund nonprofit overhead costs. Many funders believe that all their money should go directly to programs, leaving little for essential infrastructure, staff development, or evaluations. This approach is short-sighted. Nonprofit organizations cannot thrive without investing in their own infrastructure.
For instance, one donor insisted that grant funds should not be used to pay for personnel costs. While she was willing to fund programs, she refused to cover the salaries of the employees running those programs. How can nonprofits deliver effective services without properly compensating the people who make those services possible? The answer is simple: they can’t.
The lesson here? Without supporting essential overhead costs, you risk starving the very organizations you’re trying to help. Nonprofit funding must include operational support to ensure sustainability.
To support nonprofit capacity building, funders need to rethink the false dichotomy between program expenses and overhead. Both are essential for nonprofits to function effectively and create lasting impact.
4. Not Seeking Guidance from Strategic Advisors
Another common pitfall in philanthropy is the reluctance to seek outside expertise from strategic advisors. Many philanthropists believe that they should manage every aspect of their giving on their own or rely solely on internal resources. While this might seem like a way to save money, it often leads to costly missteps and missed opportunities, particularly when navigating complex decisions such as creating a new foundation, developing a strategic philanthropy plan, or managing succession planning for foundations.
For example, one family foundation decided to sunset its operations but did so without a clear plan. Without guidance from an experienced advisor, they struggled to balance current grant-making with future commitments and were uncertain how to involve the next generation in the process. As a result, the transition was fraught with confusion, and they missed opportunities to maximize their final impact. A strategic advisor could have helped them develop a thoughtful plan that aligned with their long-term vision while ensuring a smooth transition.
The lesson here? Strategic advisors bring valuable expertise that can help you navigate pivotal decisions, avoid costly mistakes, and ensure your philanthropy is aligned with your long-term goals. Investing in the right guidance can elevate your impact and set you on a path to success.
5. Neglecting Nonprofit Capacity Building
Philanthropists often focus solely on funding direct services, forgetting that nonprofits also need to invest in their own capacity-building efforts to deliver those services effectively. Capacity building includes upgrading technology, improving financial management systems, conducting evaluations, and developing leadership. Without investing in these critical areas, even the best-designed programs will struggle to grow and achieve lasting impact.
For example, one nonprofit dedicated to addressing food insecurity developed an innovative program that delivered fresh produce to families in need. However, because they lacked the funding to invest in better technology and operational systems, they couldn’t scale their operations. Delivery schedules were chaotic, and they often ran out of food, leaving some families underserved. The innovative nonprofit had vision and a plan, but without investment in their internal capacity, they couldn’t expand their reach or operate efficiently.
The lesson here? Investing in nonprofit capacity building is crucial to enabling organizations to deliver on their missions effectively and sustainably. By supporting infrastructure and leadership development, you help ensure that your grantees can scale their work and maximize impact.
Frugality may seem like a responsible approach to philanthropy, but cutting corners in critical areas can have long-term negative consequences. From underfunding overhead to avoiding investment in technology and talent, these five common pitfalls hinder your ability to create lasting change. To achieve meaningful impact, philanthropists must be willing to invest in the right places, even if it means spending more in the short term. The next time you’re faced with a decision to save, ask yourself: Are you saving money on all the wrong things?
This article was originally written and published on Forbes.com.
