We’ve all been asked to donate to our favorite causes.
School events, charities, public radio, and politicians have all asked for our cash. They each promise the biggest bang for our buck.
How about you, have you donated small amounts of cash to any politicians?
According to this Washington Post article, small donations under $200 accounted for 26% of Trump’s 2016 campaign budget (as of 2015-12-31) and 16% of Clinton’s budget.
These politicians don’t necessarily want your small donation. They want you to buy into their vision. Once someone has stated his or her position (with a donation), that person tends to remain consistent. People want to be viewed as stable and reliable. That future support is what the politician is looking for.
But you just shelled out $5 or $200 and you’re feeling like you’ve made a difference.
2017 was a record year for destructive hurricanes in the United States. You may remember learning that you can text REDCROSS to 90999 and donate $10 to American Red Cross Disaster Relief (it’s true).
Your $10 donation is a drop in the American Red Cross’ annual budget of around $600+ million.
While those small donations certainly add up, do you think your individual donation changes the world?
The Law of Diminishing Returns
The Law of Diminishing Returns tells us that the cost of our investment doesn’t remain proportional to the benefit of the investment. The benefits become less impactful as the overall resource pool grows.
An $200 operational budget would get a huge boost from a $200 donation, but that same $200 donation isn’t going to move the needle on a $1 billion budget.
Your $200 cost remains the same to your pocketbook, of course. But the opportunities that you miss, known as your opportunity cost, can be far more impactful to your productivity or happiness or goals.
The Law of Diminishing Returns is applicable to many decisions in life.
- Does it make sense to continue spending money on Netflix? The answer depends on the benefits you currently receive after your 5 year subscription.
- Should you keep studying for your upcoming exam? Studying 10 hours should help, but those last 5 minutes aren’t the most important time spent.
- Do you need another pair of boots? The answer depends on your current boot scenario. Maybe this purchase fulfills your need for work boots. It’s a very necessary purchase. Or, maybe you have a dozen pairs already and this isn’t necessary at all. The returns of this additional pair have diminished as you can only rotate them in so often.
The Law of Diminishing Returns can shine a light on our own behavior.
Are you spending your limited time or money on a situation where you no longer receiving the same benefits as you once did?
Are you acting out of habit? Does that habit continue to serve you? If not, you could be spending that time or money elsewhere.
If you’re making the donation, make it to an organization where your cash has the largest impact. Maybe they’ll name an award after you!
~~ The (Your Name Here) Award of Charitable Excellence ~~
If you’re requesting a donation, you don’t want to discuss the Law of Diminishing Returns. Instead, discuss the benefits of that contribution, the pain it can relieve, and the social proof of others making similar contributions. Act like it’s the only $200 you have.
If you’re able to receive a recurring contribution, that’s all the better — momentum will likely ensure people continue with that automatic contribution — especially if they’re reminded of the benefits they may be providing.
We’ve discussed a lot with donations and charity in this post, but the idea remains the same with purchasing from businesses, the time you spend with family, and more.
Put your limited resources to their best use.