Saving vs. Donating
I think that effective altruists need a new kind of financial instrument.
I feel inspired to:
- Save 64% of my income so that I can retire after 10ish years of working. Under reasonable assumptions, 25x your yearly expenditure means you can "retire" forever. I wouldn't use this to lounge around on a beach forever, but I could take time off whenever I wanted and only work on things that were very important or very fun.
- Donate large portions of my income to the most effective opportunities I can spot.
Currently, I see these two goals as being in conflict. I want to save but I also want to donate.
I want both, and I could save now and donate later – but I don't fully trust my future-self to stick to the plan.
I think the right kind of financial instrument would align these parts of me such that I could satisfy my cravings for savings and donate much more than I otherwise would have. Win-win.
(epistemic status: I've thought about this for like 30 minutes and it seems reasonable to me).
The basic mechanism
The alternative investment option would:
- Keep all of my money invested and pay me 4% per year (with the option to reinvest this if I chose).
- Donate all of the money at the end of my life to effective charities.
Provided the mechanism for (2) was sufficiently robust, I could reasonably consider every dollar given to this fund as a donation to an effective charity. I would actually donate more this way, I think, because I would not feel the need to save for myself.
For the rest of the post I'm going to call it a Personal Donation Fund, or PDF.
Big Purchases and emergencies
The proposal above isn’t ideal if I want to buy a house, or if I need money in an emergency. Let's deal with each of these individually.
Suppose I need to pay emergency medical expenses. I could give the option to take money out of the PDF with a promise to pay it back later. (Each year the amount owed would be adjusted for inflation). I could spend this money that I've "borrowed" on the emergency expenses. I would pay back these loans later. If I failed to pay them back, then the loan amount should come out of my estate if I failed to pay them back. 
For buying a house I would (at least) need a deposit. I could borrow the same way as above, but this might make it hard to secure a loan for the rest of the house. An alternative would be to co-buy the house. This way, when the house was sold the PDF and I would both receive a portion of the profits. From the perspective of the PDF, this would be just like making another investment.
Open Questions and Opportunities
- I would be personally willing to use a PDF if I could, would you?
- Have I missed any salient features that seem really important?
- I do not currently feel like this would be my comparative advantage to set up, maybe you know someone who would like to set it up?
- It's possible that this would work best as a trust, in which case you might need other trustees. I'm not sure exactly what the best set up would look like.
Jo Small helped shape my thinking on this. Tyrone Barugh and Ismam Huda gave me helpful comments on an earlier draft.
It is possible that my estate would also not be able to pay the loan. In this case, I'm sortof okay with donating less, as long as I genuinely needed the money and made an effort to pay it back. If so, in some sense I really couldn't afford to donate so much – I just only found out later.
Another concern could be that I could borrow money from the PDF and gift it to others (for example my children). So long as my net worth was less than the amount owed, this would retract previous donations. In my own personal case, I still expect the PDF to increase my total donations (in expectation) – so this doesn't feel like an important concern for me personally.