Until this year, Warren Buffett had given away relatively little of his $44 billion fortune. But in June, the world's second richest man pledged to begin donating roughly $37 billion within months to the Bill and Melinda Gates Foundation – and another $1 billion to foundations headed by his children – to improve health, nutrition and education. While it sounds like an abrupt about-face, in reality Warren Buffett had for decades said he would donate his assets to philanthropy after his death. He believed, like Andrew Carnegie, that huge fortunes that flow from society should be returned to society.

Simple Steps to Effective Philanthropy
If you've amassed significant wealth, you too may find it rewarding to give back to your community. Similar to your other financial investments, the key to achieving your philanthropic goals is to have a sound plan. While the details of your plan will depend on factors such as your specific wishes and family situation, as a general rule, you should follow a few simple steps.

1. Determine Your Goals.
As a first step, spend some time thinking about what you want to accomplish. While worthwhile causes abound, consider where your resources can have the greatest impact toward your goals. "Many people will be able to think of a dozen or more causes they would like to support," said Paul Blumberg, senior managing director, Investment Advisory. He encourages clients to decide on their most important missions. "By narrowing your focus, you can be more effective with your contributions," continued Blumberg.

2. Find a Partner.
Once you've decided on your area of focus, do some research on specific organizations. "Your philanthropy is a partnership with a group, and you should get to know them well before you invest your time and money," said Blumberg. "Effective philanthropists do more than just write checks. They become actively involved, developing a true partnership with the organizations and causes they believe in."

3. Establish Parameters for Success.
Spell out the criteria that you will use for evaluating results over time. Rather than counting dollars donated, your yardsticks for philanthropy should be concrete changes, such as a number of houses built or meals provided, which offer more meaningful measures of the effectiveness of your giving. In addition, put those parameters in writing and communicate them to the organization. "Some people feel uncomfortable making demands on a non-profit, but as an investor it's your responsibility to ensure that your funds are used in the way you intended, especially if you are making sizable gifts. Large foundations like the John T. and Catherine D. MacArthur foundation build evaluation criteria into the grants they give. There's no reason families shouldn't do the same with their significant philanthropic investments," explained Blumberg.

4. Work with a Professional.
When explaining why he gave the majority of his gift to the Gates Foundation, Warren Buffett asked, "What can be more logical, in whatever you want done, than finding someone better equipped than you are to do it?" The same applies to planning your philanthropic strategy. A professional advisor can work with you to narrow your philanthropic priorities and identify charitable giving vehicles that can help you make the most of your donated assets.

Teach Your Children the Value of Giving
Reaching beyond the organizations you choose to work with, your gift can ultimately give back to you and your family in the form of a legacy of philanthropy. "One of the most common questions wealthy parents ask is how they can teach their children the value of money and the satisfaction in using it for greater good," said Blumberg. You can help nurture your children's philanthropic inclinations – and hone their money management skills – by giving them a charitable allowance, then working with them to decide which causes they would like to support. But keep in mind that your children's priorities for their philanthropic assets may differ from yours. "Sometimes the older generation has a hard time letting go of control and established patterns of philanthropy. But the goal is not to get your kids to have the exact same objectives, but to foster parallel values," said Blumberg. By instilling your values in your children, you give them the freedom to pursue their own interests.

This article originally appeared in the 2006, 4th quarter edition of the Mesirow Financial Quarterly. Click here to access the current and all past issues of the Quarterly.