The Aggregation of Marginal Gains (Part 2)

The key insight from The Aggregation of Marginal Gains (Part 1) is that every little helps.

The little things, if done better, all add up to create great results over time.

If you can make lots of small improvements in different areas, they all add up to the sort of world-class performance that wins you a long race such as the Tour de France.

Your wealth is an outcome. It’s the result of all the thousands of past decisions we made about our jobs, spending, saving and investing (if we were on auto-pilot, then maybe other people made those decisions for us?). Throw luck into the mix (obvs) and you get what you get.

Talking of luck, we’re all drawn to the idea of quick and easy solutions. Winning the lottery (or inheriting money) seems to avoid the usual annoying trade-offs and delays involved with getting rich.

But there are 2 problems with winning the lottery. The first problem is that the experience ruins many (most?) of the “winners”. They’re not ready to handle the money. It’s like giving a 17 year old boy a Ferrari, a bottle of champagne and a couple of lines of cocaine: it’s probably not gonna end well.

The second problem is that the odds of winning the lottery are terrible. It’s an inefficient form of gambling because the prizes paid out are only a fraction of the money taken in via sales of lottery tickets. I’m more interested in games (things like stockmarket investing) where the odds are stacked in my favour. And in things that will almost certainly work.

It won’t be easy. There are no guarantees and no magic wand solutions. To get rich, we have to stop dreaming about winning the lottery and other instant fixes. We know from The Millionaire Next Door that most millionaires make their money slowly and not very glamorously. This means that by the time they are millionaires, they’re ready to handle it. The journey has prepared them for the destination.

In the real world, a millionaire is not made in one fell swoop; a millionaire is made ten bucks at a time. It all adds up… but there’s more to it than just simple addition. That’s because, with time, compounding means that your money multiplies. £10 + £10 does not just equal £20…after 7 years compounded at 10% per year it equals £40.

And, as I may have mentioned before, £15,000 saved into a pension by age 25 grows to over £1 million by the age of 65 if you get a 10% annual return in global equities.

So far, so familiar (hopefully). But let’s go further:

  • Compounding works both forwards (good) and backwards (bad); and
  • Compounding works in multiple areas of your life

Salary rises are an example of the power of compounding. Every time you get a pay rise at work, you are re-basing all your future pay rises. If you get a 3% pay rise that’s not very exciting. But if you got a 10% pay rise last year, that 3% boost applies to the expanded base. It’s a gift that keeps on giving.

It’s not just money that compounds. If you are doing it right, your skillz, knowledge and personal effectiveness should compound over time as you gain experience, wisdom and self-mastery. Compounding works in money, careers, health and relationships.

Compounding works both forwards and backwards. In other words, if you get a little bit better every day then great things happen. But if you get a little bit worse every day then, before too long, things will quickly go down the toilet. That’s the problem with debt: your compounding machine is stuck in reverse gear.

Here’s a graph that I love from the book Atomic Habits by James Clear.

This graph helps explain the inequality of outcomes that we see in personal finance (and life). Not all inequality can be explained this way, partly because not everyone gets dealt an equal hand at birth (I don’t think that’s possible even if it were desirable).

But let’s run a thought experiment. Imagine a world where everyone starts from the same place…with the same health, intelligence and wealth. To allow this perfectly level playing field, imagine two identical twins who both start from zero net worth.

One of the twins pursues The Aggregation of Marginal Gains. They spend their time and energy getting better: learning about investing, personal finance and self-development. Every day they get 1% better. They work to get better at their job and then getting a better job. They learn about diet & nutrition, exercise, relationships and about what makes them sustainably happy.

The other twin chooses a very different path. They eat junk food, they don’t bother with exercise. They cruise along in the same entry level job that they’ve been in for years. They don’t learn about personal finance. They spend all their money on crap possessions, they don’t invest for the future and instead leave angry comments on the internet.

Over time the (equal) starting points for the twins becomes irrelevant and increasingly it’s the trajectory that matters. This suggests we should focus less on where we are now (and whether are we “ahead” or “behind” others) and more about whether we are making progress, taking baby steps every day and moving in the right direction. What is your trajectory?

Let me give you one example of a marginal gain that may seem tiny but could save you money over a lifetime. It’s easy, there is no downside to it and it’s a gift that keeps on giving.

Here it is: take your car to a petrol station and pump up your tyres.

Yes, that’s it. If you look in your car owners manual (or perhaps on the inside of your petrol cap hatch) you should find the manufacturers recommended tyre pressures. There are two “settings”: loaded and normal. Loaded is for when the car is full of people and luggage (e.g. driving to your family holiday). This is the one you want.

When the tyres are pumped up to the “loaded” setting (pun not intended) the car handles better…it feels more like a sports car and less like driving a big fat bouncy castle. But it also saves petrol. And that matters because burning petrol is burning money.

So the financial benefit is an improvement in fuel efficiency. With higher the air pressure, the tyre holds its shape better and has less rolling resistance. So there is less friction, less roll and less energy wasted within the tyre. Something like that anyway…the full science of hypermiling is here.

You can test this for yourself by comparing a mountain bike with soft tyres (which feels like riding uphill) versus pumping the tyres up fully. Notice how much easier it is to accelerate and retain speed.

[Side note: Cars generally are money incineration units. So if you can design your life without one, that’s a huge win. But if you need / want a car, you should know that small / budget cars don’t just cost less money to buy, they cost less money every time a part needs replacing and every time you insure them.

A tyre for a Skoda might cost £40. A tyre for a Porsche might easily cost £160. This means that frugality can actually be more powerful than it may look at first glance. You don’t just save the purchase cost, you save on maintenance, storage, insurance, repairs. It’s a gift that keeps on giving.]

What with this being the internet, I probably need to spell out the obvious and say that this, in and of itself, will not be enough to get you to financial independence.

But every little helps. Pumping up your tyres goes on saving you money day after day, year after year. It does not require deprivation. There is no such thing as a free lunch in economics but this is about as close as you’ll get.

But could there be some other, less obvious benefits from pumping up your tyres?

What if this were associated with other changes? There is an old saying in self-development: “How you do one thing is how you do everything”. That saying is not literally true but it does contain a core truth. Sloppy people tend to do everything sloppily. And efficient people tend to do lots of things efficiently.

The most powerful type of change that you can make is to change the way you think about yourself, to change your self-identity. This will not change just one single decision, it has the potential to change EVERY future decision you make.

The mistake that most people make is that they just wish for a better outcome. They wish they were richer. But to get better wealth outcomes, we need the right processes (e.g. paying yourself first, investing in the stockmarket) that lead to those better outcomes. And to get the right processes and stick to them, we need the right mindset, beliefs and identity.

You may want more money but if your identity is someone who consumes rather than creates, then you’ll continue to be pulled toward spending rather than earning

James Clear, Atomic Habits

The way I think about identity is with the phrase: I am the sort of person who…

For example:

  • I am the sort of person who never leaves free money on the table
  • I am the sort of person who does what they say they’re gonna do
  • I am the sort of person who pumps up my tyres

These work for me. They may be small but they’re symbolic. They are behaviours that, over time, became habits and eventually part of my identity. We become what we repeatedly do. This is why you should embed good habits and helpful beliefs that work for you.

Thinking like this is a force multiplier for making financial decisions. It’s far more powerful than relying on willpower. By resisting one “treat” and changing one spending decision, all you have done is use up some willpower.

But by changing the way you think about yourself (in relation to money), you change thousands of future decisions. That unleashes the full power of The Aggregation of Marginal Gains.

Don’t aim for a perfect life, just try to be a bit better every day.


  1. James Clear was on the podcast, Secret Leaders this week and i found him really interesting. I’m very tempted to buy Atomic Habits now.

    1. Even better, borrow it from the library!

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