No more donations? Self-funding!
Many of our “Vagabond” friends are committed non-profit workers serving for a mission agency, a non-profit charity or an NGO. Our ministries to the downtrodden – spiritually, physically, educationally, etc. – seem very much worth our sacrifice. We are content to serve at a sub-standard wage, but the weight of raising funding for our work or for the organization we represent can often seem to be an overwhelming, never-ending task.
Does it have to be? Is there some way that you or I could continue to serve abroad in a charitable fashion without having to raise financial support from the USA? Easy? No. Possible? Maybe.
The Missionary Model
For those of you who are not charitable workers, a brief explanation may be in order. While some charitable workers receive a rather straightforward wage for services rendered, many serve under what we’ll call “The Missionary Model” through which they indirectly raise the dollars to fund their own work.
Those in “The Missionary Model” often speak in churches, small groups, and homes to envision others to financially support their ministries. Those gifts, usually given to a mission agency (or local church), are then distributed to cover the costs of the mission agency, the expenses of the ministry, the wage of the missionary, and the costs of travel, visas, etc.
It is a time-consuming and difficult endeavor to raise your own funding, but there are a lot of positives about finding your own financial support. One of the most important benefits is that when we find people willing to invest their dollars in our work or in the work of our organization, we are often also finding people who are willing to invest themselves in the work. I don’t know where I would be if wonderful donors hadn’t provided housing for my kids during their teen years, loaned me a car for my US travels, or prayed me through a seemingly impossible situation at immigration.
“The Missionary Model” is one of raising the funds they need to live and serve. Its roots go all the way back to Paul in the 1st-century church and will continue into the foreseeable future, but there are problems that could make some of us prefer to self-fund our own work.
Why do some want to self-fund?
There are many reasons that “The Missionary Model” might not work indefinitely for every charitable worker. Without getting into demographic studies or generational patterns for charitable and religious giving, let me just note a few practical reasons someone might want to self-fund:
- A diminishing pool of donors: As missionaries age, so do their donors. They may retire, have lower income or pass away. To make matters worse, as missionaries serve many years, new friendships and contacts are hard to make back home in the USA. Over time there is simply a diminishing pool of donors for missionaries who serve longterm in their host countries, so self-funding might be necessary.
- Forced retirement: Some charities and churches have mandatory retirement ages. If your charity stops cutting a check when you reach 65 but you still feel a passion for ministry, self-funding might be an option.
- Legal restrictions: Some of us would like to serve (formally or informally) in countries that don’t allow our charity or NGO to enter. Our host country might not allow an international charity to send teachers, but they might not have any problem with an individual coming in as a volunteer or as a retiree who then teaches English without representing an outside charity.
There are other reasons. Perhaps the workers feel they have received enough in charitable giving and thus want to self-fund. Others may come to their ministry as their 2nd or 3rd career. They feel that their previous savings are sufficient for them to self-fund. Maybe you have other reasons.
Self-funding in whole or in part?
It should be said, of course, that self-funding doesn’t have to be 100%. You may reach a point in your life and in investing that you no longer need all of the support you once raised for your salary. Maybe your children are no longer your dependents or your savings have grown to give you a solid, passive income. In such cases, it is probably quite simple to reduce the amount you raise and receive as a wage. But what if you wanted to completely self-fund your work? Is it possible?
Fully self-funded: How much is enough?
There are, I suppose, two avenues that lead to a fully self-funded life of service abroad. The first is a reliable income stream and the other is sufficient savings.
Developing a reliable income stream
If you decide you want to give up on the income being supplied by your charity or other employer, you’ll likely want to replace it. If you’ve been living, giving, and saving nicely with a $60,000 a year income (or foreign equivalent), you should be able to continue to live nicely on that same $60,000 that comes to you from other sources.
Of course, you are self-funding because you want to continue to serve in your host country in some capacity. Let’s say that you want to work as a volunteer teacher or driller of wells or spiritual mentor. That volunteer “work” likely won’t allow you the time to get a new full-time job. What you are looking for is not income that you “actively” work for but income that is “passively” obtained so that you can continue your service.
Just take a moment to search the internet for “passive income,” and you’ll think the entire internet existed for that one topic alone. It’s a popular concept. Suggestions will range from renting out a home (could be in your home country or in your host country) to selling your photographs of exotic locations online. The ideas are endless, but you’ll quickly be able to eliminate most of them as you see them. Many of them require a lot more “active” time than their proponents suggest, and many things just won’t suit you or your situation.
If you are able to develop income streams that will replace your current employment income, you might just be able to self-fund your work!
Saving a significant sum of money
If you received an inheritance, had a lucrative first career, or saved a huge percentage of your income during your first years as a charity worker, you might have saved enough to allow you to live off the income from your savings and investments.
The math on this is deceivingly simple: Save 25 times your current income to have enough to stop working. This is called “the Rule of 25” and is widely used for people approaching retirement age. So, if you were living on $60,000 per year as mentioned above, you would need to save about 1.5 million dollars ($60,000 x 25).
The assumptions behind this are two-fold:
- You will withdraw 4% from your nest egg every year (but less is better!)
- Your investments will earn 4% each year on average (but more is better!)
Financial advisors call this 4% withdrawal rate “the 4% Rule,” and it is clearly handcuffed to “the Rule of 25.” Investopedia explains the origins of “the 4% rule” like this:
…financial advisor William Bengen conducted an exhaustive study of historical returns in 1994, focusing heavily on the severe market downturns of the 1930s and early 1970s. Bengen concluded that, even during untenable markets, no historical case existed in which a four percent annual withdrawal exhausted a retirement portfolio in less than 33 years.
Four Percent Rule, Investopedia
It is extremely simplistic, especially for the US expat who wants to stop receiving a paycheck not for 33 years (starting at age 65) but perhaps for 53 years (starting at 45!). With some tweaking, the math still works but the longer time frame allows for greater unknowns.
Similarly, the expat faces inflation risks, currency exchange risks, and cost of living risks that the average American financial advisor isn’t taking into consideration.
While we’d recommend caution in retiring with “just enough” to satisfy “the Rule of 25” and “the 4% Rule,” those two rules do help us frame the groundwork for a lifestyle of self-funding that might just be sufficient for our needs.
Two large caveats
Before telling your charity to stop sending you a paycheck, there are at least two significant words of caution. Those are “taxation” and “healthcare.”
International taxation is a topic best left to the experts, but there is no doubt that quitting your job to receive passive income or to withdraw from your substantial savings will bring some change (better or worse) to the amount and kinds of taxes you pay. Many countries tax the people that live there (regardless of citizenship or visas). Your passive income or your 4% withdrawal could be taxed very differently than your employment income was. In some countries, capital gains are not taxed, for instance. Living off of capital gains instead of employment income could significantly reduce your host country taxes and thus reduce how much you need to live on.
Likewise, American citizens (no matter where they live) must file US tax forms every year. Will your change from employment income to your new future source of income have any tax implications back in the USA? It could, and it might not be pretty. For example, you might not be paying tax on your earned income in the USA (thanks to the Foreign Earned Income Exclusion). Unearned income is not excluded in this same way so switching to receiving income from capital gains, for example, may result in a significant increase in your US taxes.
The moral of this story is to be informed of tax consequences before changing your income streams.
Healthcare is another serious complication for the expat (or for anyone who retires in the US before medicare kicks in for them). Your $60,000 employment income may come with the added benefit of fully paid-for health insurance. Before cutting that employment umbilical cord, you’ll want to find out what it will cost you to take care of your healthcare or health insurance needs. Missing this step can be fatal (well, not literally).
Note about “FIRE”: To get some ideas on how to deal with healthcare issues, streams of income, etc., you might want to take a look at the FIRE movement. (FIRE stands for Financial Independence Retire Early.) While self-funding your service isn’t exactly “Retiring Early,” these FIRE enthusiasts do have a lot of experience in reaching similar goals and have felt the full brunt of the healthcare problem. You might find some helpful warnings or tips in their many websites and podcasts. Planning as if to reach FIRE could very well get you to self-funding.
Aiming for the dream of at least partial self-funding
This is a hard road and certainly not for everyone. But if your heart leaps at the idea of serving abroad without having to raise funding or without having to work for a wage, why not aim at the dream of self-funding? Learn the principles of frugal living, save a ridiculously high percentage of your paycheck, and invest wisely.
You may not arrive at being fully self-funded, but knowing that you can at least partially self-fund your work gives you options. If your employment income remains solid, you might never need to self-fund. Imagine how recklessly generous you could be with that extra money you’d stored up!
But what if you did need it? When other expats you know are leaving their host countries for financial reasons, you might have the option of staying, of serving, and of caring for those you’ve come to love in your new home overseas.
When your employment income wanes but your passion for ministry doesn’t, you’ll be glad you planned for partial or full self-funding. Those you serve will be grateful as well!
