First published 2015, updated in 2023
If you grew up in Britain in the 80s, you’d know that back then cycling was about as popular as leprosy. Cycling was for kids, the French and people that couldn’t afford a car.
Back then, the idea of a British team winning the Tour de France or dominating Olympic cycling seemed about as likely as Scotland winning the World Cup.
This underlines what an amazing achievement it was that Great Britain won the most cycling medals at the 2008, 2012 and 2020 Olympics and that the British Sky team came to dominate the Tour de France for many years.
How was this possible? Why not ask Dave Brailsford, the manager that led first Team GB and then Sky Cycling? When asked to explain his secret Dave Brailsford described his approach as The Aggregation of Marginal Gains. Check out this interview with him where he explains this.
It’s hard to convey the power of The Aggregation of Marginal Gains via media soundbites.
Journalists often asked Brailsford about the example of using the riders own pillow from home when staying in a hotel during a race to sleep better and gain an edge. The implication was: Pull the other one, Dave. I mean really…how is that supposed to win you a gold medal?
The answer of course is that on its own it won’t. The magic is in the aggregation of many such gains.
Can you see the analogy with financial independence here?
It all adds up
For years I failed to fully join the dots between small lifestyle changes (the pillow) and financial independence (winning the Tour de France). Frugality tips always sounded a bit lame to me. I mean really…who wants to re-use their tea bags?
But maths is maths and we can not deny that cost savings add up over time.
Consider the price difference below:
If it were a one-off purchase, then it’s only a small difference.
But what if you buy this regularly throughout your entire life? What if you pay a brand tax every single time you make a purchasing decision?
The problem we face is that modern consumer society has been carefully designed to upsell you on every single purchasing decision that you face. So you have to understand this and fight against the adverts and marketing messages.
It’s not about the single decision (the £2.75 saving). It’s about changing your entire operating system so that you unleash the full power of The Aggregation of Marginal Gains.
So where do you stand on ketchup?
It’s not a trick question…but neither is it a question with just one correct answer.
The appropriate level of frugality depends on where you are on your journey. There are different levels to the money game.
Level 1 : Asleep
These people either didn’t spot the price difference or, if they did, they don’t care. They don’t realise they’re paying a “brand tax” of £2.75 every single time they choose the branded version.
They don’t understand what relevance this has to getting rich. Can’t do basic arithmetic. Never heard of The Aggregation of Marginal Gains. Fat. Broke. Asleep at the wheel of their own life. NGMI.
Level 2: Price conscious
When you start to wake up, you realise that every little helps. That’s a start. Now the game of wealth-building can at least begin.
If you are broke and in debt, you have to go hard core. I suggest a period of Monk Mode.
Level 3: Value conscious
Okay, you can afford the branded version.
But does the 275% price difference for such similar products make any sense? Can you even taste the difference in a blind-taste test? These are the questions that a value conscious person would be asking.
Level 4: Health conscious
But there is more to life than money…and a health conscious person might well ask: Why on earth would I put that any of that stuff inside my body? After all, sugar is poison. Processed food is poison.
Level 5: Wealthy
As with level 1, these people don’t care. But for different reasons. They are rich beyond money worries. They are physically and mentally vibrant (not just healthy). They can take it (ketchup) or leave it. This applies to all “stuff”.
If they like authenticity and a little taste of Americana then so what?…It’s only a bit of ketchup and they can afford it…so does it even matter?
I’m not saying any of these levels is right or wrong…although you can probably guess that I would prefer to operate further down the list towards level 5.
My suggestion: Be Intentional. Think twice about your spending decisions (tracking your spending for a month will do this) and when / whether brands make sense for you.
Decisions, decisions
Every day we face hundreds of decisions. Because thinking about all these would slow us down too much, we follow habits using crude short cuts based on the following: What is the quickest or easiest way? What is the most convenient? What seems most comfortable?
If we want to build wealth, we need to replace that default setting with a new operating system that is based on: what is optimal given my objective?
What is the return on investment of this spending? Am I getting value? Can I toughen up a little bit? What will challenge and strengthen me? And what will make me more productive and more valuable?
Look for decisions whose consequences repeat day after day, week after week, year after year. Changing these has a huge multiplier effect.
What car?
If you drive a car, replacing your big fat SUV 4×4 with a more fuel efficient car will save you money every day.
You can buy used cars rather than new. You can get a smaller car that does more miles per gallon. You can pay cash rather than borrow using consumer finance (when you are in debt, compounding is running in reverse).
You can haggle when buying. You can pump up the tyres and drive to optimise fuel efficiency. And so on…
Why buy the biggest house you can?
The problem with buying a bigger house is not just the obvious and immediate costs: the purchase price, the fees and the future mortgage interest.
It’s the hidden costs. The bigger the house, the more money you will spend to fill it up with stuff. Nature abhors a vacuum and my wife abhors an unfurnished room.
There is no end to the amount that can be spent on cushions / pillows / soft furnishings / home decorating / interior design / more stuff. Like I said, it all adds up.
Should you turn down your heating?
If I were to suggest you to save money on your central heating bill by turning down your thermostat by 1C, you might wonder: why bother?
It’s true that, on its own, turning down the thermostat is not going to make you rich. But it’s a single step on a long journey (a journey in which there are few shortcuts)
It’s not just about the cost saving either. It’s about learning to be a teeny-weeny bit tougher and more resilient.
You need to understand compounding
There are 2 types of people in this world. Those that understand the power of compounding and those that don’t.
If you save £15,000 between 18-25 and invest it so it compounds at 10% per year, when you are 65 it will be worth over £1 million. That’s a 66x multiple.
Once you understand this and start to think of each $ as worth $66 in 40 years time…you might start to get more excited about each dollar that can be put to work for you.
Invest in yourself
Penny pinching will only take you so far. What got you here won’t get you there.
People who get stuck in penny-pinching mode often fail to see the bigger picture: the bigger gains that come from investing in yourself, investing in your own education, investing in your own health, investing in your network of relationships. I know this from making these mistakes myself earlier on.
If you sacrifice your maximum potential to try to live “risk free” just by saving up your pennies, you are not doing it right.
Think of yourself as CEO and CFO of your own life. Cutting costs is great but you cant ignore revenue. Building wealth is not just about spending less. Its also about creating new sources of value, new skills, new ideas and new sources of income.
Some ideas help you reduce spending, other ideas boost your income by monetising skills you have or creating micro-businesses. Even small alternative income streams are more valuable than you might think. They provide optionality and increase your risk profile and resilience.
Spin-off benefits
Everything in life is connected. Improvements lead to positive benefits in apparently unrelated parts of your life.
So you might cut down on doughnuts to save money but end up losing weight and looking better. This might get you better promotions / pay rises at work that earn you more money. As a result you might become more optimistic. As a result, people might enjoy being around you more, so you do better at work…and so it goes on.
These spin-off benefits are impossible to predict in advance. But they are real and they will come.
Why the path to financial freedom is like a space rocket
Imagine your net worth as the rocket...it starts at ground level.
Before you can earn anything you have to learn, finish school and get a job. In the same way, there are hundreds of actions to be taken just to build a rocket and get it to the launch site.
It then takes a huge amount of energy and effort to raise the rocket even an inch off the ground.
We have to spend less than we earn and that does not come easily. There are huge forces of gravity, mass and inertia to be overcome even to get the rocket to the height of a tree.
But once the rocket achieves lift off, it starts to accelerate faster and faster. As it gains altitude, the air gets thinner, the resistance decreases and the rocket gains ever more momentum.
Eventually the rocket escapes the atmosphere and Earth’s gravitational pull. This is your Financial Independence moment.
If you do not start, you will not finish
Where to start? I suggest you start from where you are.
A ladder does not climb itself…we all have to start at the bottom and work up. It’s not particularly hard to get to the top of a ladder…left foot, right foot etc….unless you don’t start climbing, in which case it is impossible.
You can start by getting your income up or your recurring expenses down. Better still, combine both. It doesn’t matter exactly where you start…what matters more is whether you start.
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The Escape Artist 
Fuck yeah!
Pretty much how I used to think. I’m earning decent money, why not buy a sandwich and coffee for lunch.
But it’s all about the aggregation of these smaller amounts. And changing your habits so that you are operating on autopilot rather than making concious decisions and feeling like a martyr all the time.
And as it’s never going to be as good as this *deletes have drafted marginal gains post*
Mr Z
Thanks! I didn’t quite understand the last line in your comment but, other than that, I think we can safely say we are in agreement Mr Z.
Hey TEA… I think he just meant he was already half way through writing a similar post but it was never going to turn out as good as your one, so he’s deleted it!
Anyway great post as usual 🙂
It’s such a simple concept yet one that many can’t get their head around. If I shave 1-2% off my spending in 10 different areas that starts to add up pretty quickly, and those £2-3 per month savings add up for much more over a year and then 10 years.
Great post, it really does pull together a bigger picture for why each if those smaller money saving tips matters.
When I talk to people about saving money you can tell that they often can’t join the dots between one example and how it could be repeated (along with others) to make a huge difference. Maybe I need to show them your post!
I have found what you are saying to be very true in my own life, and am still finding it to be even more so as we continue to earn and invest more and make our spending more efficient. The speed we are building up means that gravity is finding it much harder to slow us down. It’s a great feeling!
Of course you should show them my post!
Great timing on this! I’ve hit a few financial potholes recently and my motivation has been sagging as a result. My efforts seem to produce no results even though intellectually I know they’re adding to the momentum of the rocket (nice analogy) and every day I get closer to my goal; it just doesn’t *feel* like it.
Fortunately my relatively frugal habits are fairly, well, habitual, so I keep doing them anyway, but emotionally it’s a bit rocky, so good to be reminded that every little helps.
The reminder on the value of even a small side cash flow is extremely timely; while it may not be a long-term option I have got a promising short-term side hustle in my eye which could return a couple of thousand a year and this might help me feel the value of that better. (If it’s not long-term viable I guess it’s not strictly correct to compare it with the return on an invested lump sum, but I think I’ll try to ignore that for the emotional filip. 🙂 And it might work long-term anyway, you never know.)
Cheers!
Brilliant! Indeed I had an argument recently on why reducing expenses matter as much as increasing income and combining both will see you reach your goal quicker. Seems obvious but a lot of people cringe at what they see as penny pinching. Done sensibly, after a while, it becomes second nature.
I really enjoyed this post. Whilst not at “lift off” stage yet (and in truth as a downshifter it’s not my only goal) I can certainly feel the benefits of a lot of small changes Mrs LCIL & I have made over the years: our net worth just creeps up regardless of what we spend month.
Thanks for the introduction to the concept of “Aggregation of marginal gains” and your write up of concept. Also liked the rocket analogy at the end. Currently I’m on the launch pad perhaps even starting the launch, waiting for weather to clear up before taking off (i.e. seeing where this market is heading [I know I should just invest full steam ahead, but its something I’m working through nibbling here and there when things go on a good sale])
We all know the little things do add up, but sometimes it’s hard to see it, as you stated, it takes years for those small changes to manifest themselves into something measurable.
Nice little pick me up to keep me plugging away.
Talking of pick me ups Sundeep – check out the snazzy video clip I’ve just embedded into the article.
On the subject of market timing, Warren Buffett’s latest letter to shareholders is worth a read.
Yes worth a read and key takeaways nicely explained here: http://25iq.com/2015/02/28/a-dozen-things-taught-by-warren-buffett-in-his-50th-anniversary-letter-that-will-benefit-ordinary-investors/
Great story about the GB team! Thanks for reminding me that instead of getting a few extra minutes in bed each morning, I get up so that I have time to make my lunch for work and it’s worth it in the end as it all adds up. I very rarely spend any money during the week – I dread to think what I was spending when I couldn’t be bothered (and was too lazy) to bring my own lunch in.
Thanks, I didn’t do the DIY lunch thing…I wish I had though…would have been out of the Camp sooner!
Some uncommon (or at least, uncommonly known) wisdom here; many thanks. I’ve certainly seen the benefits of the “sweat the small stuff” approach in my own life and in others (and also the astonishing effects of failure to do so!).
May I offer a couple of tiny thoughts in exchange for this great piece ? First, always worth remembering that an extra $1 saved is worth considerably more than an extra $1 earned, as the former comes tax-free – and there ain’t much of that around these days.
Second, it’s actually pretty easy to do compounding calculations in your head, via a simple rule: any amount of money compounding at X per cent per annum doubles every 69/X years.
So, in the example you give, 10 per cent p.a. will produce a doubling every 6.9 years – call it 7 years. As there are 29 years between 21 and 50, in that time you’ll get 29/7 ~ 4 doublings, i.e. 16-fold increase….so $100 turns into roughly $1600.
But the real benefit of sweating the small stuff comes from your Rule 2: “repetition”. That really turbo-charges the compounding effect, as you’re repeatedly adding $100 to the amount being compounded. This has a staggering effect on the final sum…increasing it from $1600 to something close to $16,000 over the timespan you use – an amazing 10-fold increase.
At a more realistic 3% pa rate of return after inflation and fees, and (say) $100 saved a month, that leads to approximately $50,000.
Such is the power of “compounding + persistence” !
Yes, you certainly may. You are absolutely right that this stuff is easy but not commonly known.
I think its reasonable to expect better than 3% real returns….see this post for explanation.
Thanks v much for the link to the earlier post on SWRs etc – very cheering for those of us who started late to this game.
Messing around with the maths of “compounding + persistence”, I came up with another quick rule of thumb to make the sums easier for those who can’t be bothered to do a spreadsheet etc:
If your one-off sum, compounding at an average of P % over a given period, grows N times larger, then salting away the same sum every year for the same amount of time, grows by a factor of (N – 1) x (1 + 100/P).
So, in the example you give, your one-off sum of $100 grew to $1600, a factor of 16x. So if you’d salted away that $100 _every_ year for the same amount of time, you’d end up with a sum that was (16 – 1) x (1 + 100/10) = 15 x 11 = 165x larger.
Thanks again !
haha – you’ve turned into MMM – good work..
penny-wise pound foolish is definitely significantly more important than marginal gains as per paretos rule mentioned above – sweat the big stuff first
marginal financial gains are good as long as they don’t also incur marginal negative impacts. so its very personal and as such you have to figure out what works for you, be careful as you can become very little fun if you get it wrong
perversely, in endurance sport, one marginal gain is often all you need due to the way performance falls off a cliff at the lactate threshold. have you heard of the term ‘sandbagging’ which refers to how you deploy marginal gains over time to try and maintain competitive advantage for as long as possible? i.e. don’t blow all your best cards in one hand.. that brailsford is definitely a clever fella
[…] little thing. Check out The Escape Artist’s awesome article about Dave Brailsford and the Aggregation of Marginal Gains if you don’t believe me. But of course you know that, cos you’ve already read it, […]
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Absolutely great post!
The tellers used to laugh at me when I went on Saturdays (this was the 80’s) and deposited my .19 cents or .27 cents or whatever I could scrape up. It was the repetition of making a weekly run to the bank that got me started savings. My logic at the time was this, “Okay, Patty, if you can’t save the small amounts what makes you think you’re ever going to be able to save the large amounts???” Duh, that’s what’s wrong with most ‘Muricans. We think it’s futile to save the small bits. They were still laughing when a few months later it was a $1.39 deposit, etc., etc. Until now they are asking me how I am able to put such large chunks into savings. Like anything else in life one must start where they are. We aren’t all going to win Publisher’s Clearing House and be able to put back the one large chunk that’s going to get us to FI. Some of us will need starting where we are with the odd bits and bobs and then practice it religiously, then you’ll be able later to do the larger bits as you progress. Not everything is done in flying leaps. Some of us can only skip to get started, but that’s okay. That’s how we learn. Marginal gains.
Go. You can do it!
Great post. I am currently in the internal argument phase of ‘concentrate on the big things vs the aggregation of marginal gains’. I think this article has just convinced me that I still need to focus on both. I’m new to FI and have started going through each one of your posts from the very start. Great site!
This is a great link between sports and investing/FI. Interesting to change the perspective on the smaller things that will add up over time, have to take note and evaluate things!
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Good stuff. The concept of slow growth makes most people jump out of their paths and just continue doing what everyone else does – keep running on the rat wheel.
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Every financial decision, no matter how small, can contribute to long-term success. Great insights!