Having a savings target seems important. (Not financial advice.)
I sometimes hear people in/around EA rule out taking jobs due to low salaries (sometimes implicitly, sometimes a little embarrassedly). Of course, it’s perfectly understandable not to want to take a significant drop in your consumption. But in theory, people with high salaries could be saving up so they can take high-impact, low-paying jobs in the future; it just seems like, by default, this doesn’t happen. I think it’s worth thinking about how to set yourself up to be able to do it if you do find yourself in such a situation; you might find it harder than you expect.
(Personal digression: I also notice my own brain paying a lot more attention to my personal finances than I think is justified. Maybe some of this traces back to some kind of trauma response to being unemployed for a very stressful ~6 months after graduating: I just always could be a little more financially secure. A couple weeks ago, while meditating, it occurred to me that my brain is probably reacting to not knowing how I’m doing relative to my goal, because 1) I didn’t actually know what my goal is, and 2) I didn’t really have a sense of what I was spending each month. In IFS terms, I think the “social and physical security” part of my brain wasn’t trusting that the rest of my brain was competently handling the situation.)
So, I think people in general would benefit from having an explicit target: once I have X in savings, I can feel financially secure. This probably means explicitly tracking your expenses, both now and in a “making some reasonable, not-that-painful cuts” budget, and gaming out the most likely scenarios where you’d need to use a large amount of your savings, beyond the classic 3 or 6 months of expenses in an emergency fund. For people motivated by EA principles, the most likely scenarios might be for impact reasons: maybe you take a public-sector job that pays half your current salary for three years, or maybe you’d need to self-fund a new project for a year; how much would it cost to maintain your current level of spending, or a not-that-painful budget-cut version? Then you could target that amount (in addition to the emergency fund, so you’d still have that at the end of the period); once you have that, you could feel more secure/spend less brain space on money, donate more of your income, and be ready to jump on a high-impact, low-paying opportunity.
Of course, you can more easily hit that target if you can bring down your expenses—you both lower the required amount in savings and you save more each month. So, maybe some readers would also benefit from cutting back a bit, though I think most EAs are pretty thrifty already.
(This is hardly novel—Ben Todd was publishing related stuff on 80k in 2015. But I guess I had to rediscover it, so posting here in case anyone else could use the refresher.)
Relevant: I’ve been having some discussions with (non-EA) friends on why they don’t donate more.
Some argue that they want enough money to take care of themselves in the extreme cases of medical problems and political disasters, but still with decent bay area lifestyles. I think the implication is that they will wait until they have around $10 Million or so to begin thinking of donations. And if they have kids, maybe $30 Million.
I obviously find this very frustrating, but also interesting.
Of course, I’d expect that if they would make more money, their bar would increase. Perhaps if they made $1M/year they would get used to a different lifestyle, then assume that they needed $50M/$150M accordingly.
It feels like, “I don’t have an obligation or reason to be an altruistic person until I’m in the top 0.01% of wealthy individuals”
A friend recentlyshared this reason for not giving (fear of an expensive medical crisis). I think if a good resource existed with the base rates of events that can cause financial hardship and solutions for reducing their likelihood (e.g., long term care insurance), this might help some people feel more comfortable with giving.
I passed this along to someone at GWWC and they said this is on their list of ideas to write about.
I like the thought, but would flag that I’d probably recommend them doing some user interviews or such to really dig at what, if anything, might actually convince these people.
I’d expect that strong marketing people would be good here.
Typically the first few reasons people give for why they aren’t more charitable are all BS, and these sorts of people aren’t the type willing to read many counter-arguments. It can still be good to provide just a bit more evidence on the other side, but you have to go in with the right (low) expectations.
That said, I do think that solutions (like insurance) are a pretty good thing to consider, even to those not making these excuses.
The biggest risk is, I believe, disability resulting in long-term income loss. My US-centric understanding is that private disability insurance that is both portable (not bound to a specific employer) and broad (e.g., covers any condition that causes a significant loss in earnings capacity) can be difficult to find if you’re not in particularly excellent health.
Basefund was working on the broader issue of donors who subsequently experience financial hardship, although I haven’t heard much about them recently. My assumption was that limitations imposed by the project’s non-profit status would preclude the Basefund model from working for people considering larger donations but worried about needing them back down the road if a crisis happens.
Meeting those needs for those unable to access general-purpose private disability insurance would probably require some sort of model under which the donor paid an insurance premium and reduced their would-be donation accordingly. If there were enough interest, I could see one of the big disability insurance shops underwriting a product like that. Probably wouldn’t be cheap, though. Of course, if someone were willing to financially guarantee claims payment, thus removing any financial risk from the policy administrator, that would make the program more attractive for a would-be administrator.
Yeah this was what I found too when I looked into private US long-term disability insurance a while back. My recollection was:
there’s a surprising number of health exclusions, even for things that happened in your childhood or adolescence
it’s a lot more expensive in percentage terms if you’re at a lower income
many disability cases are ambiguous so the insurance company may have you jump through a lot of hoops and paperwork (a strange role-reversal in which the bureaucracy wants to affirm your agency)
I had the impression that it was a great product for some people, meaning those with high income, clean medical history, and a support network to wrestle with the insurance company. But at the time I looked into it, it didn’t seem like a great option for me even given my risk-adverse preferences.
Planning to look again soon so could change my mind.
One dynamic worth considering here is that a person with near-typical longtermist views about the future also likely believes that there are a large number of salient risks in the future, including sub-extinction AI catastrophes, pandemics, war with China, authoritarian takeover, “white collar bloodbath” etc.
It can be very psychologically hard to spend all day thinking about these risks without also internalizing that these risks may very well affect oneself and one’s family, which in turn implies that typical financial advice and financial lifecycle planning are not well-tailored to the futures that longtermists think we might face. For example, the typical suggestion to save around 6 months in an emergency fund makes sense for the economy of the last hundred years, but if there is widespread white collar automation, what are the odds that there will be job disruption lasting longer than six months? If you think that your country may experience authoritarian takeover, might you want to save enough to buy residence elsewhere?
None of this excuses not making financial sacrifices. But I do think it’s hard to simultaneously think “the future is really risky” and “there is a very achievable (e.g., <<$1M) amount of savings that would make me very secure.”
That’s a fair point, but a lot of the scenarios you describe would mean rapid economic growth and equities going up like crazy. The expectation of my net worth in 40 years on my actual views is way, way higher than it would be if I thought AI was totally fake and the world would look basically the same in 2065. That doesn’t mean you shouldn’t save up though (higher yields are actually a reason to save, not a reason to refrain from saving).
For what it’s worth: a lot of people think emergency fund means cash in a normal savings account, but this is not a good approach. Instead, buy bonds or money market funds with your emergency savings, or put them in a specialized high yield savings account (which to repeat is likely NOT a savings account that you get by default from your bank).
Or just put the money in equities in a liquid brokerage account.
I think typical financial advice is that emergency funds should be kept in very low-risk assets, like cash, money market funds, or short-term bonds. This makes sense because the probability that you need to draw on emergency funds is negatively correlated with equities: market downturns make it more likely that you will lose your job, or some sort of disaster could cause both market downturns and personal loss. You really don’t want your emergency fund to lose value at the same time that you’re most likely to need it.
Yeah, my understanding is there is debateabout whether the loss in EV from having an emergency fund in low yield low risk assets is offset by the benefits of reduced risk. The answer will depend on personal risk tolerance, current net worth, expected career volatility, etc. The main point of my comment was just that a lot of people use default low yield savings accounts even though there’s no reason to do that at all.
Having a savings target seems important. (Not financial advice.)
I sometimes hear people in/around EA rule out taking jobs due to low salaries (sometimes implicitly, sometimes a little embarrassedly). Of course, it’s perfectly understandable not to want to take a significant drop in your consumption. But in theory, people with high salaries could be saving up so they can take high-impact, low-paying jobs in the future; it just seems like, by default, this doesn’t happen. I think it’s worth thinking about how to set yourself up to be able to do it if you do find yourself in such a situation; you might find it harder than you expect.
(Personal digression: I also notice my own brain paying a lot more attention to my personal finances than I think is justified. Maybe some of this traces back to some kind of trauma response to being unemployed for a very stressful ~6 months after graduating: I just always could be a little more financially secure. A couple weeks ago, while meditating, it occurred to me that my brain is probably reacting to not knowing how I’m doing relative to my goal, because 1) I didn’t actually know what my goal is, and 2) I didn’t really have a sense of what I was spending each month. In IFS terms, I think the “social and physical security” part of my brain wasn’t trusting that the rest of my brain was competently handling the situation.)
So, I think people in general would benefit from having an explicit target: once I have X in savings, I can feel financially secure. This probably means explicitly tracking your expenses, both now and in a “making some reasonable, not-that-painful cuts” budget, and gaming out the most likely scenarios where you’d need to use a large amount of your savings, beyond the classic 3 or 6 months of expenses in an emergency fund. For people motivated by EA principles, the most likely scenarios might be for impact reasons: maybe you take a public-sector job that pays half your current salary for three years, or maybe you’d need to self-fund a new project for a year; how much would it cost to maintain your current level of spending, or a not-that-painful budget-cut version? Then you could target that amount (in addition to the emergency fund, so you’d still have that at the end of the period); once you have that, you could feel more secure/spend less brain space on money, donate more of your income, and be ready to jump on a high-impact, low-paying opportunity.
Of course, you can more easily hit that target if you can bring down your expenses—you both lower the required amount in savings and you save more each month. So, maybe some readers would also benefit from cutting back a bit, though I think most EAs are pretty thrifty already.
(This is hardly novel—Ben Todd was publishing related stuff on 80k in 2015. But I guess I had to rediscover it, so posting here in case anyone else could use the refresher.)
Relevant: I’ve been having some discussions with (non-EA) friends on why they don’t donate more.
Some argue that they want enough money to take care of themselves in the extreme cases of medical problems and political disasters, but still with decent bay area lifestyles. I think the implication is that they will wait until they have around $10 Million or so to begin thinking of donations. And if they have kids, maybe $30 Million.
I obviously find this very frustrating, but also interesting.
Of course, I’d expect that if they would make more money, their bar would increase. Perhaps if they made $1M/year they would get used to a different lifestyle, then assume that they needed $50M/$150M accordingly.
It feels like, “I don’t have an obligation or reason to be an altruistic person until I’m in the top 0.01% of wealthy individuals”
A friend recently shared this reason for not giving (fear of an expensive medical crisis). I think if a good resource existed with the base rates of events that can cause financial hardship and solutions for reducing their likelihood (e.g., long term care insurance), this might help some people feel more comfortable with giving.
I passed this along to someone at GWWC and they said this is on their list of ideas to write about.
I like the thought, but would flag that I’d probably recommend them doing some user interviews or such to really dig at what, if anything, might actually convince these people.
I’d expect that strong marketing people would be good here.
Typically the first few reasons people give for why they aren’t more charitable are all BS, and these sorts of people aren’t the type willing to read many counter-arguments. It can still be good to provide just a bit more evidence on the other side, but you have to go in with the right (low) expectations.
That said, I do think that solutions (like insurance) are a pretty good thing to consider, even to those not making these excuses.
The biggest risk is, I believe, disability resulting in long-term income loss. My US-centric understanding is that private disability insurance that is both portable (not bound to a specific employer) and broad (e.g., covers any condition that causes a significant loss in earnings capacity) can be difficult to find if you’re not in particularly excellent health.
Basefund was working on the broader issue of donors who subsequently experience financial hardship, although I haven’t heard much about them recently. My assumption was that limitations imposed by the project’s non-profit status would preclude the Basefund model from working for people considering larger donations but worried about needing them back down the road if a crisis happens.
Meeting those needs for those unable to access general-purpose private disability insurance would probably require some sort of model under which the donor paid an insurance premium and reduced their would-be donation accordingly. If there were enough interest, I could see one of the big disability insurance shops underwriting a product like that. Probably wouldn’t be cheap, though. Of course, if someone were willing to financially guarantee claims payment, thus removing any financial risk from the policy administrator, that would make the program more attractive for a would-be administrator.
Yeah this was what I found too when I looked into private US long-term disability insurance a while back. My recollection was:
there’s a surprising number of health exclusions, even for things that happened in your childhood or adolescence
it’s a lot more expensive in percentage terms if you’re at a lower income
many disability cases are ambiguous so the insurance company may have you jump through a lot of hoops and paperwork (a strange role-reversal in which the bureaucracy wants to affirm your agency)
I had the impression that it was a great product for some people, meaning those with high income, clean medical history, and a support network to wrestle with the insurance company. But at the time I looked into it, it didn’t seem like a great option for me even given my risk-adverse preferences.
Planning to look again soon so could change my mind.
One dynamic worth considering here is that a person with near-typical longtermist views about the future also likely believes that there are a large number of salient risks in the future, including sub-extinction AI catastrophes, pandemics, war with China, authoritarian takeover, “white collar bloodbath” etc.
It can be very psychologically hard to spend all day thinking about these risks without also internalizing that these risks may very well affect oneself and one’s family, which in turn implies that typical financial advice and financial lifecycle planning are not well-tailored to the futures that longtermists think we might face. For example, the typical suggestion to save around 6 months in an emergency fund makes sense for the economy of the last hundred years, but if there is widespread white collar automation, what are the odds that there will be job disruption lasting longer than six months? If you think that your country may experience authoritarian takeover, might you want to save enough to buy residence elsewhere?
None of this excuses not making financial sacrifices. But I do think it’s hard to simultaneously think “the future is really risky” and “there is a very achievable (e.g., <<$1M) amount of savings that would make me very secure.”
That’s a fair point, but a lot of the scenarios you describe would mean rapid economic growth and equities going up like crazy. The expectation of my net worth in 40 years on my actual views is way, way higher than it would be if I thought AI was totally fake and the world would look basically the same in 2065. That doesn’t mean you shouldn’t save up though (higher yields are actually a reason to save, not a reason to refrain from saving).
Thanks for this, Trevor.
For what it’s worth: a lot of people think emergency fund means cash in a normal savings account, but this is not a good approach. Instead, buy bonds or money market funds with your emergency savings, or put them in a specialized high yield savings account (which to repeat is likely NOT a savings account that you get by default from your bank).
Or just put the money in equities in a liquid brokerage account.
I think typical financial advice is that emergency funds should be kept in very low-risk assets, like cash, money market funds, or short-term bonds. This makes sense because the probability that you need to draw on emergency funds is negatively correlated with equities: market downturns make it more likely that you will lose your job, or some sort of disaster could cause both market downturns and personal loss. You really don’t want your emergency fund to lose value at the same time that you’re most likely to need it.
Yeah, my understanding is there is debate about whether the loss in EV from having an emergency fund in low yield low risk assets is offset by the benefits of reduced risk. The answer will depend on personal risk tolerance, current net worth, expected career volatility, etc. The main point of my comment was just that a lot of people use default low yield savings accounts even though there’s no reason to do that at all.
Definitely agreed on that point!