We live in an amazing country, in an amazing time. We are also bombarded by choices every moment of every day. So much so that entire movements have sprung up in praise of simplicity. The Minimalists, the Life Hackers, the Marie Kondo Magic of Tidying Up sock organizers, etc. are all focused on removing distractions and reducing the mental energy associated with decision making. Steve Jobs and Mark Zuckerberg famously wear the same attire every day to avoid the effort of choosing clothes (they may have stolen this approach from my grandfather, who did this throughout his entire legal career).
In conjunction with this, psychologist Barry Schwartz authored a now famous book called the Paradox of Choice: Why Less is More. In it, he delves into the effect known as “analysis paralysis”, where too many choices overwhelm us and actually cause us to avoid making any decision at all. I have suffered from this myself.
A few years ago I decided to set up a brokerage account. I started researching my options – which firm should I use? What fees are acceptable? Should I choose high transaction fees but low account costs or high account costs with free trades? How many trades was I going to do? Did I like the website interface? Could it link to my bank account? What funds would I buy when I put the money in? Was it a good time to buy? Oh man. Do you know how long it took me to open an account? 1.5 years. That’s right. It took me OVER A YEAR to get my act together. In the meantime, my money sat in a credit union savings account earning a pittance instead of being invested in the rocketing stock market. <sigh>
Embarrassingly, I did the exact same thing when faced with preparing a will. Ridiculous. Both of these things – opening a brokerage account and ensuring my hoard gets distributed in the way I want – are incredibly important to me. And yet I had analysis paralysis about both. I had a hard time overcoming the logistics-based choices and getting to the part that actually mattered! Acting in line with my values! Lame!
The same thing happens when we are faced with an unlimited array of charities. We can immediately weed out causes that we don’t support. But that still leaves over half a million charities to choose from. Five hundred thousand choices?! Ugh. How do we find the right one? And how much should we give to them? How do we maximize our impact? How do we minimize our taxes? The options quickly spiral out of control, which is why many of us revert to default giving.
The Dragon’s Approach
I learned a lot from my brokerage experience. The key to finally opening the account was to clear away the mental clutter. To do this, I:
- Used the same brokerage firm that housed my Roth IRA knowing that I could change it later
- Invested in a basic stock and bond allocation knowing that I could change it later
- Made a plan to regularly invest in my account regardless of the market
For my will, I finally got actionable with this plan:
- Reminded myself that my family needed me to do it (motivation!)
- Decided to give myself a completed will as a birthday present (deadline!)
- Used an online service, knowing that I could always employ a lawyer later as my assets grew
Are these the most optimized approaches? NO. But were they the right ones? Yes. Because doing something is almost always better than doing nothing. And taking away the options allowed me to get started.
Furthermore, I had to remind myself that we shouldn’t let the perfect be the enemy of the good.
It’s tempting to get wrapped up in finding the BEST solution when really, in many cases, the SIMPLEST solution is better.
Evolving Your Giving
I don’t have the same paralysis challenges with my giving strategy for one primary reason: I have been doing it for a long time. Every year I review my previous year’s giving (while I am doing my tax planning) and then I research ways to make it incrementally better. I don’t overhaul it; I just focus on ways that I can be more effective, whether it’s through changing the organizations I give to or using a new tax strategy. Now that I have a brokerage account, it’s easy peasy to reallocate. Now that I have a will I have an easy place to make edits. It’s the same with my giving strategy.
That said, I also follow the following rules:
- Give to fewer than three charities (less accounting, less energy, less junk mail, more impact!)
- Decide only once per year what my plan is (autopilot!)
- Give as much as I can to offset my state taxes (fixed goal!)
This approach works well because I have a set of guidelines and a deadline, and I only have to care about it once a year! Some years I change nothing. So easy! Some years, as my tax situation changes, there has been more opportunity to optimize. For example, buying a house allowed me to take the mortgage deduction which in turn affected my ability to give money at a smaller incremental rate. I took advantage of that!
Over time, I have evolved my strategy into a truly sophisticated machine. I can now grow and give my hoard simultaneously!
But it didn’t start out that way. In the beginning, I did the same thing I did with my brokerage account and my will; I chose the simplest approach. And man, am I happy I did! Last year I earned a 9% rate of return on my brokerage account. I slept soundly knowing I had a notarized advanced medical directive. And I turned every charitable dollar that I gave into nine dollars for my charity.
All it took was getting started.