The Oracle of Omaha, Warren Buffet, has said, "Philanthropy is one of the toughest business there is." He should know; he has plenty of experience with business, has a lot of money, and gives a lot of it away. Yet for all of the challenges, there is almost universal acknowledgement in behavioral studies, brain research, and every major religious tradition that charitable giving makes us feel good.

Americans are particularly generous with their financial resources, ranking No. 1 in the world in 2013 based on the percentage of people who help strangers and give their time and money to charitable causes, according to Gallup surveys conducted for the Charities Aid Foundation. The current trends in giving favor more philanthropic planning, making charitable gifts through vehicles like private foundations or donor-advised funds, and cooperative giving with groups like giving circles. These developments help families plan for donations with impact, influence philanthropy for the next generation, leave a legacy, and maximize tax benefits.

However, the desire to donate is restrained by a lack of confidence that we can give effectively. Setting up a fund for giving may be a challenge, and deciding how to use it skillfully can be even harder. That is true at the scale of Warren Buffet's philanthropy as well as yours. It's quite an undertaking to determine how much to give, in what form gifts should be made, which causes our money should support, and which organization we should sponsor. The number of worthy causes and organizations out there is overwhelming. To make the biggest difference with your giving and gain the most personal satisfaction, here are three good steps to take.

1. Reflect
Most people start with their personal passions to identify a cause to support, and this will help with the long-term sustainability of your charitable giving. However, creating the most effective gifts goes beyond that, and this is a step that many people miss. Reflect on your own goals for giving and the culture from which you give: your economic level, family culture, and demographic context. For instance, if you have spent your life in an affluent urban area, you may need to do some extra research if you want to benefit the circumstances of rural economies. Then go deeper by examining your own biases, motivations, and affinities. This can help you avoid assumptions about the population or environment you are trying to benefit and can sometimes reveal projects that are the best fit for you.

2. Do your due diligence
Before you make a gift, learn enough about the nonprofit you are considering to build your knowledge and trust. The Learning By Giving Foundation's RISE framework is good for this:

  • R for Relevance: Is the organization meaningfully connected and well-informed on the context of the issue?
  • I for Impact: Are they making a difference? How much and what kind?
  • S for Sustainability: Do they have a viable business model, and do they use resources effectively?
  • E for Excellence in management and operations: Do they have the capacity to do work well?

To learn more about this tool, consider taking their free online course, "Giving With Purpose."

3. Engage
The best donations are made with a combination of head and heart. To get a good feel for the organization, connect and engage with them. You can volunteer, go to their public meetings, and seek out their personal stories to experience their work directly. No matter how you do it, personal interactions will give you information that you cannot get any other way.

The joy of giving cycle
Seeing a disadvantaged student graduate from college because of your donations to a scholarship program, or knowing you helped preserve a beautiful landscape by supporting a conservation effort, can put a shine on your whole year. And giving to causes that seem too challenging or far-reaching to solve easily can grant an even deeper level of satisfaction. In this way, philanthropy is a virtuous circle in which your giving does so much good that you want to give more, which leads to more social impacts and more joy for you.

Thinking strategically about philanthropy and taking the time to give effectively will develop your understanding of the nonprofit sector and build your confidence. You may gain some insights about yourself, find high-performing nonprofits, connect with beneficiaries, and be a key player in creating tangible social impacts. After you put some effort and resources in, your donations will not only do good, but feel good as well.

As a Motley Fool reader, you are interested in learning and being smart about your investing. Mark Ewert helps people to be as skillful with charitable giving as you are about investing. You can purchase his new book, The Generosity Path: Finding the Richness in Giving, through his website or at your local bookstore.