Archive - Giving RSS Feed

Review: The American Institute of Philanthropy (A Charity Watchdog Organization)

       I’m a big proponent of careful and wise giving to make sure resources are used most effectively. There are many charity watchdogs, but after careful analysis I prefer The American Institute of Philanthropy (AIP) over the rest. Here’s why:

AIP Strives for Independence

       AIP does not charge the charities it reviews and accepts absolutely no advertising in its publications or on its website. Heads of nonprofit organizations are excluded from their board of directors to prevent conflicts of interest. Over 95% of their support comes from individual donations (which provide membership and a subscription to AIP’s Charity Rating Guide). This allows AIP the freedom to speak openly and to be critical of unethical practices in the charities they review without fear of losing funding.

AIP Uses Stringent Review Criteria

       AIP’s standards for evaluating charities are considered the most stringent among charity watchdog organizations. They carefully review the financial information of each charity using audited financial statements. This information has been verified and reported by a third-party outside of the charity. This helps AIP see how charitable gifts are really spent. When rating a charity, AIP considers how much actually goes to charitable programs, effectiveness of fundraising efforts, and years of available assets.

AIP Reviews a Wider Range of Charities

       Other charity watchdog organizations will only review charities that are required to file Form 990 as required by the IRS. They will request audited information from religious charities and social welfare groups (like the ACLU, Human Rights Campaign, National Right to Life Committee, and the Sierra Club). These charities and groups are not reviewed by other popular charity watchdogs like Charity Navigator. For example, AIP is the only place I can find a review of one of my favorite charities, Mennonite Central Committee.

AIP Provides Valuable Tips and Reports

       You can find a list AIP’s top-rated charities and their grades for free online. You can see a list of all the charities they review here. A donation of at least $40 is required to become a member, which will provide you with their triannual Charity Rating Guide where you can read reviews of all the charities. Additionally, they provide several free articles about charities and their practices as well as valuable tips. Check out their article on tips for giving wisely to charities or seven tips for reducing unwanted solicitations.

Do Your Homework

       AIP does not screen charities for certain values (religious or otherwise) – they only look at how effective the charities are at using the money they receive. I think their top charities list is a good place to start. But if you want a charity that also follows your values, you’ll need to do further research on your own. I’ll be looking at some of the top-rated Christian charities in future posts. Sign up for free updates to Provident Planning if you want to get future articles in your email or feed reader!

New Covenant Giving: Give Joyfully and Cheerfully

       We’ve looked at giving yourself to God first, giving in response to Jesus’ gift, giving with sincere desire and love, giving under grace instead of a commandment, giving as much as you are able or even more, and giving so that there may be equality. The next aspect of New Covenant Giving we’ll look at is giving joyfully and cheerfully. God wants us to give with joy. He desires a sacrifice of giving accompanied with a right heart. Our giving does not please Him if we do it only because we feel that we must.

Joy in Christ Produces Sacrificial Giving

       Contentment and joy in Christ lead us to sacrificial giving. When we put Christ first and seek God’s kingdom we break the control of materialism and greed over our lives. Once our lives revolve around serving God completely, He is able to make the power of His Spirit abound in us. It is only then that we can truly produce the fruit of the Spirit. The grace of generous giving will abound in us when we find joy in following Christ and view our lives in light of eternity – when we realize that our eternal life is much more important than this life.

       It was in this way the Macedonian churches were able to give so generously – even beyond their ability. Their abundant joy in Christ led them to give much more than anyone could have expected. This is the power of God at work in Christians.

       1 Moreover, brothers, we make known to you the grace of God which has been given in the assemblies of Macedonia; 2 how that in much proof of affliction the abundance of their joy and their deep poverty abounded to the riches of their liberality. 3 For according to their power, I testify, yes and beyond their power, they gave of their own accord, 4 begging us with much entreaty to receive this grace and the fellowship in the service to the saints.

2 Corinthians 8:1-4 (WEB)



       Without the overflowing joy of Christ we cannot give with God’s generosity. We cannot expect sacrificial giving from someone who does not have the joy of Christ living in them. Their life is still rooted in this world, and they will value earthly treasures above heavenly treasures. Even the most profuse gift from them will be meaningless because they will be giving out of the wrong motives. In fact, unless we give out of joy our gift does not even please God.

God Loves Cheerful Giving

       God doesn’t want us to give because we feel we must. He wants us to give cheerfully – out of love and joy. That is why Paul tells the Corinthians that we should give as we have decided in our heart:

       Let each man give according as he has determined in his heart; not grudgingly, or under compulsion; for God loves a cheerful giver.

2 Corinthians 9:7 (WEB)



       God doesn’t want us to give because we know we should. God doesn’t want us to give generously to try to please Him. He wants us to love from a pure heart and to find our joy in Him. He knows that sacrificial giving will follow a true sacrifice of the self. This is why He has said:

       For I desire mercy, and not sacrifice; and the knowledge of God more than burnt offerings.

Hosea 6:6 (WEB)



       This idea is so important that Jesus quoted this same Scripture when he replied to the Pharisees who were so careful to observe the Law but did not have God’s love in them. We must find our joy and contentment in Christ before we try to change our outward ways. Only when that is true can we please God with our giving.

Learning Contentment

       If you find yourself struggling with contentment in Christ, I highly recommend you check out my free e-book Contentment Is Wealth. You’ll learn why we should seek contentment and power it can have in our lives.

New Covenant Giving: Give So That There May Be Equality

Colors of Poverty by Findsiddiqui on Flickr       We’ve looked at giving yourself to God first, giving in response to Jesus’ gift, giving with sincere desire and love, giving under grace instead of a commandment, and giving as much as you are able or even more. The next aspect of New Covenant Giving we’ll look at is giving so that there may be equality. God desires that our giving may result in equality among believers. He does not want some to be burdened while others have it easy. This principle of New Covenant Giving helps us see why using the Old Testament tithe of 10% is not part of God’s desire for Christians.

God’s Desire for Equality

       New Covenant Giving is based on the principle of equality – all believers having just enough to meet their needs. This is what Jesus meant when He taught us to pray for our daily bread. God desires that our giving reflect this idea of equality. Those who have more should give more, and those who have less should give less. Those who cannot afford to meet their own needs should be receiving gifts from Christians who are more prosperous.

       Paul taught God’s desire for equality in his letter to the Corinthians:

       12 For if the readiness is there, it is acceptable according to what you have, not according to what you don’t have. 13 For this is not that others may be eased and you distressed, 14 but for equality. Your abundance at this present time supplies their lack, that their abundance also may become a supply for your lack; that there may be equality. 15 As it is written, “He who gathered much had nothing left over, and he who gathered little had no lack.”

2 Corinthians 8:12-15 (WEB)



       When one Christian has an abundance, he should use that abundance to help supply the needs of others. When those who were in need find abundance, they should look to supply the needs of others. Just as the Israelites who gathered manna only had what they needed regardless of what they gathered, God wants Christians to meet each others needs through their giving. This equality according to what each Christian can give is only possible when we use God’s New Covenant Giving principles.

       God’s desires for New Covenant Giving are far superior to the Old Testament tithe because they promote true equality among the believers. Let’s look at how New Covenant Giving requires more faith than tithing.

Why New Covenant Giving Is Better Than a Tithe

       New Covenant Giving is based on the guidance of the Holy Spirit according to what you have and can give. We no longer have a legalistic standard for how much we should give. God teaches each one of us what we should give. Some Christians have high incomes and can afford to give much more than those who are poor and struggle to get by.

       For example, a family making $200,000 a year will have much more left over than a family making $20,000 a year if both are giving based on the Old Testament tithe. Where one would have $180,000 left over to meet their needs, the other family would only have $18,000. And you definitely don’t need $180,000 a year to cover your true needs – your daily bread. Tithing puts an undue burden on the poor – the exact burden that Paul preached against in his letter to the Corinthians.

       It’s the same for two families who earn the same each year but one has high medical bills while the other does not. God does not require both of these families to give the same amount. God desires that we give according to what we have – not what we do not have. God’s New Covenant Giving principles no longer place a burden on the poor or struggling. Even the tithe of the Old Testament was created to help the poor and struggling, but New Covenant Giving prompts Christians to give much more than just 10% if they can afford it.

The New Covenant Giving Guidelines

       God has made it clear that He expects Christians to give as much as they are able – whether that’s more than or less than 10% of their income. Jesus talked about selling everything you own and giving it to the poor. Paul explained giving in terms of following the Spirit after giving yourself completely to God and giving according to what you have. God desires equality among the believers – not legalistic giving based on percentages, Old Testament laws, or the worry that people won’t give enough to keep the Church going and spread the Gospel. God wants us to give by faith. He wants us to lay it all down at His feet to be used for His glory.

       God’s teaching on New Covenant Giving makes it clear that the rich are expected to give much more than the poor. Paul explained this expectation to Timothy:

       17 Charge those who are rich in this present world that they not be haughty, nor have their hope set on the uncertainty of riches, but on the living God, who richly provides us with everything to enjoy; 18 that they do good, that they be rich in good works, that they be ready to distribute, willing to communicate; 19 laying up in store for themselves a good foundation against the time to come, that they may lay hold of eternal life.

1 Timothy 6:17-19 (WEB)



       Christians who are blessed financially in this life should not hold on to their worldly riches. Jesus commanded those who were rich to choose God over Money if they want to see the Kingdom of Heaven. Paul’s instructions to Timothy reflect that same teaching. As Christians, we have riches in heaven beyond anything we can imagine here. Jesus wants us to realize how important it is for us to focus on heavenly treasures and give up our devotion to Money.

       This choice to fully serve God is reflected in our giving. If we choose to give and teach others they should give 10% based on Old Testament laws, we are choosing not to follow God’s Spirit. We are rejecting His New Covenant Giving principles and placing a burden on the poor that God never intended. God desires that we give as much as we possibly can so that there can be equality and everyone’s needs can be met. This is the standard of giving for Christians. Any other standard rejects God’s Word and teaching, His desire for Christian Giving, and the teachings of Jesus.

New Covenant Giving: Give As Much As You Are Able or Even More

       We’ve looked at giving yourself to God first, giving in response to Jesus’ gift, giving with sincere desire and love, and giving under grace instead of a commandment. Today, we’re going to look at how God’s grace working in us can lead us to give as much as we are able – and sometimes even beyond our ability to give. God’s power is able to do much more than we can even imagine, especially when it comes to giving.

Giving Beyond Your Ability

       When we look at the early Church and the first Christians, we do not see an emphasis on giving a certain amount every week. The examples we see of God’s grace working through those early churches are examples of extreme generosity and love for one another. Look at what Paul had to say about the churches in Macedonia:

       1 Moreover, brothers, we make known to you the grace of God which has been given in the assemblies of Macedonia; 2 how that in much proof of affliction the abundance of their joy and their deep poverty abounded to the riches of their liberality. 3 For according to their power, I testify, yes and beyond their power, they gave of their own accord, 4 begging us with much entreaty to receive this grace and the fellowship in the service to the saints. 5 This was not as we had hoped, but first they gave their own selves to the Lord, and to us through the will of God.

2 Corinthians 8:1-5 (WEB)



       Even though the Christians in Macedonia were poor themselves, the joy of the Lord moved them to give very generously to help the poor Christians in Judea who were suffering a famine. They didn’t just give the extra money they had at the end of the week. They didn’t even give just what they could afford. They gave far beyond their ability – to the point where they chose to deny some of their own needs in order to help others. It’s in this act of generous giving that we see the power of God and His love when allowed to work in a Christian’s life.

       The Macedonian Christians gave so much that they astounded Paul and his fellow workers. Paul says the Macedonians gave much more than he had even expected. They gave freely and gave even beyond what anyone could reasonably expect them to give. You might expect someone who is wealthy to give away some of their extra money even if they’re not a Christian. But you’d never see a rich person give up so much that they would even begin to deny their own needs for the sake of others – unless they followed Jesus and fully gave themselves over to God. The Macedonians gave beyond their ability, despite their deep poverty, and they were happy to do it! That’s the power of God’s grace of giving at work.

       God’s power is able to accomplish much more than we can even imagine – more than even Paul could imagine. But it can only happen when we give ourselves fully to God’s will. Then, and only then, can we see this kind of abundant generosity working in the Church again.

       However, please understand that this is not a command for all Christians at all times. We are to give sacrificially as we are able, but God has made it clear throughout the Bible that we have a duty to care for our families and a duty to pay anything we owe. We should not neglect those duties in order to increase our giving.

       We can, however, choose to increase our giving by denying some of our wants. Cable or satellite subscriptions, eating out, a bigger/nicer house than necessary, a nicer car than necessary, or anything else that is not necessary for the survival and well-being of us or our families are some examples of wants that we can sacrifice to increase our giving.

       On the other hand, there may be occasions where God’s Spirit leads us to give beyond our ability just as the Macedonians did. Denying our own needs for a time is a great example of sacrificial giving, but we must consider such choices carefully and be sure they are in accordance with God’s will. We must also discern when God’s will for our giving changes and adjust accordingly. This requires much prayer and wisdom.

A Challenge to Give

       I’m going to personally challenge you to follow the example of the Macedonian churches – which is really the example of Christ. Give yourself fully to God. Relinquish all your rights, desires, and goals to Him. Seek the counsel of His Spirit, and follow His will. Then, give. Give generously! Give, even beyond your ability to give!!! Choose to deny your own desires and wants so that you can give even more. Choose to even deny your needs for a time.

       But I also challenge you not to do this in an attempt to be holy if your heart is not in it. If you do not feel joy in the giving, then don’t do it. When you give under compulsion and grudgingly, you do not give out of love. Your gift becomes meaningless because there is no love with it.

       But if your faith is responding to the grace of God – to the glorious gift of His Only Son who has freed us from sin and death – then give as much as you can and even more! Allow God’s power to work through your life to do more than you can even expect or imagine. Let His love flow through you so that you can give with joy despite your own situation. The testimony of your generous giving will show the power of God’s love working in your life, and many will give thanks and believe because of the grace God has given you. Do not give so that you may boast in your generosity and righteousness. But know that your giving will still send a powerful message even if you’re not the one speaking it. And remember that God sees what is done in secret. He will reward you for the love and sacrifice you give.

       I pray that all of us who believe may give as generously as the Macedonians did. I pray that we will give ourselves to God first. And I pray that we will then give in response to Jesus’ gift out of love and appreciation for Him. Please join me in this prayer as we all seek God’s will and desire to show His love to the world.

New Covenant Giving: Give Under Grace Not Commandment

       In our study of New Covenant Giving principles, we’ve examined giving yourself to God first, giving in response to Jesus’ gift, and giving with sincere desire and love. Today, we’re going to talk about giving under grace – not commandment. New Covenant Giving is based on the desire to give and love produced by the Holy Spirit. This grace of giving is superior to the Old Testament requirements of tithing because we are taught directly by the Holy Spirit how we should give – not by the requirements of the Law.

Give According to the Spirit’s Leading

       In his instructions on giving to the Corinthian church, Paul makes it clear that he is not asking them to give because of the Old Testament requirements of tithing. He explicitly states that he is not encouraging them to give by way of a commandment. Instead, he appeals to the service of love, which comes from the Holy Spirit.

       I speak not by way of commandment, but as proving through the earnestness of others the sincerity also of your love.

2 Corinthians 8:8 (WEB)

       Let each man give according as he has determined in his heart; not grudgingly, or under compulsion; for God loves a cheerful giver.

2 Corinthians 9:7 (WEB)



       It’s clear that there is not even a hint of a commandment, requirement, compulsion, or demand in Paul’s exhortation to the Corinthians to give to help the poor. We are no longer giving under the Law of Moses but under the Law of Grace. It is God’s Spirit working in us that compels us to give generously to help each other as He directs our heats. The law of tithing is not found in the New Covenant Giving principles.

       The Law imposed tithing as a divine requirement. But Christian giving is completely voluntary. It’s a test of sincerity and love. When we fully understand, accept, and build our hope upon the Good News of Jesus Christ, we find ourselves overcome with love for God. And our love for God leads us to follow His command to love our neighbors as ourselves. Love freely gives whatever is needed. Love doesn’t need a command telling it to give a specific percentage of it’s income. Love wants to give. Love needs to give. It is love’s nature to give. It cannot do otherwise.

       Under the grace of the New Covenant, God is not seeking the gift of your money. What He’s looking for is an expression of your total devotion to Him and His Ways. He cares for the poor, and when His Spirit dwells in you then you’ll care for the poor just as He does. Your giving is proof of the same love, concern, and compassion that God has for the needy.

       That’s why the principles of New Covenant Giving are so much better than the Old Testament system of tithing. New Covenant Giving is not bound by percentages. New Covenant Giving is not proof of your adherence to the Law – it’s proof that God’s love dwells in you. New Covenant Giving is free to be extravagantly generous, just as God has generously given us Christ. Can you imagine how generous Christians would be if they based their giving on the love that gave us Jesus even while we were rejecting that same love?

       Under the New Covenant, we obey God because He has made us a new creation in Christ. We no longer follow our sinful nature. We follow the nature of Christ. We are no longer taught by commandments and laws – the Holy Spirit teaches us how to live. We don’t need to be told to give 10% or any set amount because God has given us a nature of generosity. His Spirit teaches each one of us how we should give. The Holy Spirit leads our hearts to decide what is right to give, and then we give it joyfully and cheerfully – not out of guilt, or compulsion, or requirement.

       We have a higher responsibility than making sure we give 10% of our income. We are called to follow the Holy Spirit in our giving – as in all other areas of our Christian life. Instead of trying to follow legalistic rules, seek the counsel of God’s Spirit in deciding how much you should give. Then give as you have decided, willingly and cheerfully, and experience the grace of giving as we are taught under the New Covenant.

New Covenant Giving: Give with Sincere Desire and Love

       So far in our New Covenant Giving series, we’ve looked at giving yourself to God first and giving in response to Jesus’ gift. Today, we’re going to look at the importance of giving with a sincere desire and love. When you give yourself fully to God, His love will live in you and will be evident in your desire to help others – especially the needy. Without God’s love and the sincere desire it produces, giving does you no good.

Having the Desire to Give

       Christian giving should be the result of a sincere desire to give. This sincere desire comes from God’s love dwelling in us, which compels us to look after the needs of others. In following Jesus’ teaching that we should love others as ourselves, we look after their needs as much as we do our own.

       1 If there is therefore any exhortation in Christ, if any consolation of love, if any fellowship of the Spirit, if any tender mercies and compassion, 2 make my joy full, by being like-minded, having the same love, being of one accord, of one mind; 3 doing nothing through rivalry or through conceit, but in humility, each counting others better than himself; 4 each of you not just looking to his own things, but each of you also to the things of others.

Philippians 2:1-4 (WEB) emphasis mine



       Jesus compels us to love each other, just as He loved us. Our love for one another is manifested in our desire to look after each other’s needs and to meet those needs as we are able. In fact, it is our desire to give that makes our gifts acceptable and pleasing to God.

       10 I give a judgment in this: for this is expedient for you, who were the first to start a year ago, not only to do, but also to be willing. 11 But now complete the doing also, that as there was the readiness to be willing, so there may be the completion also out of your ability. 12 For if the readiness is there, it is acceptable according to what you have, not according to what you don’t have.

2 Corinthians 8:10-12 (WEB)



       It is our desire, willingness, and love that make our gifts acceptable – not a certain amount or percentage. We know that God loves a cheerful giver, and this is why He wants us to give willingly what we have decided in our hearts. Christians aren’t going to give less because they’re no longer under a compulsory tithe. If we’re following God’s Spirit, we’re much more likely to give generously – even beyond our means. It’s all because God’s love is acting through us, and God’s extravagantly lavish love for us has been made evident to us through His Son.

Give with Love

       Jesus taught us that we will keep the whole Law if we focus on loving God and loving our neighbors. Love is the essence of God’s Spirit. And if we’re following His Spirit, we will do everything with love. Giving with love is so vital to New Covenant Giving that Paul said our giving does us no good if it’s not done with love.

       If I dole out all my goods to feed the poor, and if I give my body to be burned, but don’t have love, it profits me nothing.

1 Corinthians 13:3 (WEB)



       God doesn’t want us to give because “we’re supposed to”, because “that’s what Christians do”, or even because “it’s just the right thing to do”. He wants us to give because we love one another and have a desire to show that love through our giving. Even giving everything we have to the poor is meaningless if it isn’t a result of love. Giving sacrificially will mean nothing unless it comes from love. And giving 10% is certainly meaningless if it’s only done because of a commandment, obligation, guilt, misunderstanding, or a false teaching.

       We should do good because we love one another – not because we feel like we’re just supposed to do it. Our love for God and our love for each other are made evident in our actions – our deeds show proof of God’s love living in us.

       10 In love of the brothers be tenderly affectionate one to another; in honor preferring one another; 11 not lagging in diligence; fervent in spirit; serving the Lord; 12 rejoicing in hope; enduring in troubles; continuing steadfastly in prayer; 13 contributing to the needs of the saints; given to hospitality.

Romans 12:10-13 (WEB) emphasis mine



       When God’s love is living in us, we will do those things that show our love for each other. Giving to help each other is one way that we prove our love and the sincere desire that God places in our hearts. Freewill, sacrificial giving demonstrates the sincerity of our love and the fruits of the Spirit in our lives.

       I speak not by way of commandment, but as proving through the earnestness of others the sincerity also of your love.

2 Corinthians 8:8 (WEB)


Give Even to Your Enemies

       The love of God is so powerful that it can even impel us to love and give to our enemies. God has shown His compassion and mercy to the whole world by giving His Son to die for our sins even while we were still in our sins and unrepentance. It is clear that once we accept His wonderful gift His love in us will be made evident in the good we’ll show not just to each other but to our enemies as well.

       32 If you love those who love you, what credit is that to you? For even sinners love those who love them. 33 If you do good to those who do good to you, what credit is that to you? For even sinners do the same. 34 If you lend to those from whom you hope to receive, what credit is that to you? Even sinners lend to sinners, to receive back as much. 35 But love your enemies, and do good, and lend, expecting nothing back; and your reward will be great, and you will be children of the Most High; for he is kind toward the unthankful and evil.

Luke 6:32-35 (WEB)



       So do not give if it’s not out of a sincere desire that God has placed in your heart. And do not give if you’re giving for any reason other than love. God’s love will lead you to give according to His will – to give generously, lovingly, cheerfully, and even sacrificially when needed.

       And if you find you do not have God’s love producing that sincere desire in you, seek God’s Spirit and pray for His love to live in you. Give yourself fully to Him. Remember His unspeakable gift in Jesus Christ. Pour yourself out to Him, and He will surely give you His love and desire to care for others.

The Diminishing Marginal Utility of Hoarding: Why Being a Stingy Miser Doesn’t Pay

       The other day I was playing around with an Excel spreadsheet I made. I was looking at how much you need to save to reach your retirement goals. At one point, I thought to myself, “What happens if you save more than necessary? How much will it increase your chances of reaching your retirement goal?” The answer I found was very interesting and backs up a verse in Proverbs. But before I can tell you what I discovered, I’ll have to explain what I was doing and how I was doing it.

Monte Carlo Analysis

       In financial planning, we use Monte Carlo analysis to simulate random stock market returns among other things. When you’re planning your retirement, it doesn’t make sense to assume you’re going to get an 8% return every single year. The stock market just doesn’t work that way. Monte Carlo analysis gives a more realistic, though not perfect, representation of how the stock market actually delivers returns.

       Monte Carlo analysis uses the assumptions you give it to randomly pick numbers within a specific range. I used Monte Carlo analysis to pick random stock market returns within a range based on historic performance results. I looked at how a person’s savings would grow as they invest for 45 years to reach their retirement goals.

       Each 45 year investment period is called a “trial”. The success or failure of a trial depends on whether or not you reach your goal at the end of the period. I was testing to see whether you would have accumulated enough money to retire at the end of 45 years based on your retirement goals.

       Running just one trial isn’t enough. To get a meaningful result, you have to run thousands of trials. To figure out your success rate, you divide the number of successful trials by the total number of trials you ran. In my example, I ran 5,000 trials (that means 5,000 sets of 45 year investment periods). An 80% success rate would mean that 4,000 out of my 5,000 trials were successful.

       Monte Carlo analysis is useful because it incorporates the uncertainty of the stock market into your retirement planning. It has some limitations, but it’s the best we can do for trying to predict the future. The stock market doesn’t work exactly the way the model works, and there’s also the question of what a good result should be. Traditionally, a success rate of 80% or higher is “good” because there are so many assumptions built in to the model. Trying to go for a higher success rate means you’re placing much more importance on your assumptions being correct.

       I found that saving 20% of your desired retirement income and increasing it by inflation each year would give you an 82% success rate to reach your retirement goals. That’s pretty good, but then I wondered what would happen if you saved even more. How much would your success rate increase if you saved even more?

The Results: The Diminishing Marginal Utility of Hoarding

       So I proceeded to run a Monte Carlo analysis at different savings rates. I started at 0% and increased it by 5% for each new analysis all the way up to 100%. Here’s a graph of my results:


Success Rate As a Function of Savings


       As you can see, saving 0% gives you a 0% chance of reaching retirement – which makes sense, right? Saving 10% gives you about a 60% success rate, and saving 20% gives you an 82% success rate. But do you notice the interesting part? As you begin to save more than 20%, your chances of successfully reaching your retirement goals go up less and less. After you hit that 20% savings mark you don’t get very much bang for your buck.

       It might be easier to see what I’m talking about using this chart:


The Marginal Utility of Hoarding


       So when you go from saving 0% for retirement to saving 5%, you increase your chances of success by 37%. If you go from 5% to 10%, you increase your success rate by another 23% giving you a success rate of 60%. From 10% to 15% increases your chances of success by 13%, and from 15% to 20% gives you another 9% increase. Once you get to 20% though, saving another 5% only increases your success rate by 3%. Every little bit more that you save gives you a smaller and smaller increase in your chances of success.

       This shows what I call “the diminishing marginal utility of hoarding”. In economics, the law of diminishing marginal utility says that for each additional unit you use you get less satisfaction than you did with the last one. For example, eating one chocolate bar tastes good. A second one right after doesn’t taste quite as good, the third a little less so, and so on. Eating seven chocolate bars in a row just gives you a sick stomach.

       What we’re seeing here is the law of diminishing marginal utility applied to saving. Saving money for retirement is good. But once you get to a certain point (which depends on how long you have until retirement and how much you have already saved), saving more and more doesn’t increase your chances of success quite as much as it did before.

How Can This Be True?

       Because Monte Carlo analysis is looking at thousands of possible scenarios, you’re going to have some scenarios where the stock market loses money for several years in a row. While that’s (hopefully) not as likely in real life, saving more and more isn’t going to help you much if that happens. You’ll just keep losing the money, and the impact is even greater if you already have a lot saved. So this phenomenon is partly due to the method we’re using, but it also illustrates a fundamental truth – being stingy doesn’t help you quite as much as you might think it will.

What God Has to Say about It

       I was so excited to see these results because they help illustrate some of God’s wisdom about giving:

       24 There is one who scatters, and increases yet more. There is one who withholds more than is appropriate, but gains poverty. 25 The liberal soul shall be made fat. He who waters shall be watered also himself.

Proverbs 11:24-25 (WEB)



       Maybe you’re thinking I didn’t really prove that point, and you’d be right if you’re only thinking about dollars and cents. When Jesus talked about giving our money to the poor, He never said that it would make us rich in this life. When we give to honor God, we store up treasures in Heaven. This is precisely how one person can give away a lot of his money and become wealthier while another is stingy but becomes poor.

       Being a stingy miser won’t give you a better chance of reaching your retirement goals. Once you’re saving enough, you have to be content that you’re doing what you should and hand the rest over to God. Hoarding money for yourself doesn’t help you that much in this life, and it will severely impoverish you in the next.

       So how do you know when you’re saving enough? To find out, sign up for free updates to Provident Planning. I’ll be examining that question and many more that will help you prepare for a retirement that honors God and live a life that glorifies His name.

Page 9 of 10« First...«678910»