The Aggregation Of Marginal Gains

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Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

The aggregation of marginal gains is a concept made famous by British cycling coach Dave Brailsford, who eventually lead the British cycling team to take home 10 gold medals at the 2008 Beijing Olympics. Previous to this victory, the team had not been able to pull off any significant wins.

Brailsford believed that victory at the Olympics would be achieved by focusing on a 1% margin for improvement in everything they did. He decided that he and his team would focus on improving every aspect of performance and these aggregations would add up.

To quote the man himself:

We hired a surgeon to teach our athletes about proper hand-washing so as to avoid illnesses during competition (we also decided not to shake any hands during the Olympics). We were precise about food preparation. We brought our own mattresses and pillows so our athletes could sleep in the same posture every night. We searched for small improvements everywhere and found countless opportunities. Taken together, we felt they gave us a competitive advantage.  (Source)

His belief was that if you improved every area related to cycling by just 1%, then those small gains would add up to remarkable improvement. In Brailsford’s case, this meant focusing on optimizing in areas of exercise, rest, nutrition, team management, morale, and equipment–not just time spent on the bike.

To anyone taking on any large goal–whether it be reaching FI or trying to secure gold at the Olympics, it can be an overwhelming task simply to get from where you are to where you want to be. But applying small changes along the way and accumulating optimizations, is where we can truly strike our own Olympic gold on our path to financial freedom.

First Understand the Power of Marginal Losses

Making sweeping behavior changes can be overwhelming and often, unrealistic. For someone who has battled obesity throughout their life, weight didn’t simply happen overnight–but often was the result of small choices, time after time that lead to a weight gain I wasn't happy with.

Avoid “lifestyle creep”

We often see this correlation with what we’ve termed as “lifestyle creep” where families slowly and steadily get off track as their incomes improve.

Instead of staying the course and saving money, they start spending just a tad more when they earn more–and the aggregation of all these small increases really add up to bust a budget.

Eating out just once or twice more during the course of a month, making less than stellar decisions with an increased credit limit, or simply telling yourself you “deserve” a brand new luxury car because you got a raise, are all small losses that paint a big picture of debt.

It’s one problem that most FI’ers recognize, or may have even found themselves in at one time. While the aggregation of marginal losses can paint a bleak picture, it also paints the way out to an achievable, FI-friendly path forward.

Understanding the Power of Marginal Gains

It’s easy to spend time on the ChooseFI message boards, or read about bloggers who have achieved FI and lament their wins–surely, they had a stroke of luck, were far smarter than you or, perhaps they had a rich uncle who recently died. Seeing other people’s accomplishments sometimes leads us to think that some big “make or break” moment lead them to hitting their financial goal.

Yes, it may absolutely be true that some folks hit FI because they had a long lost rich auntie who gifted them a mansion, and others did work hard, but pulled in $150,000+ a year as a nuclear engineer.

While these factors are important to consider, the truth behind any success–FI or otherwise–is that it happens as the result of the smallest decisions we make over time. Each decision can put us closer to or further away from where we want to go. That's the compounding power of 1% improvement.

Choosing to focus on even the smallest gains, when done consistently and in tandem with other positive efforts, yields results. Aggregating marginal gains makes it happen.

Applying the Power of Marginal Gains

Using this philosophy towards a victory on our path to FI, applying a 1% improvement means looking at not just the money we invest or how we invest it–but everything that impacts the goal.

For us, it means looking at our entire lives as an ecosystem that is interrelated–our health, social lives, where we live, our work and career, what we eat, what we do for entertainment and where we spend our time.

Here are some areas that can be regularly evaluated and optimized to take advantage of marginal gains:

Home: Moving to a lower cost area/closer to work, energy efficiency, refinancing your mortgage or getting a roommate.

Career: Negotiate for a raise, switch jobs that’s closer to home or has a flexible work policy, take advantage of a 401(k) match.

Health: Cut your grocery bill and eat better foods, exercise regularly, make strides to deal with stress, visit your doctor and dentist regularly.

Personal: Read finance and personal development books, surround yourself with people aligned with your goals, develop a side hustle to earn more income and build your skill set.

These are just a few examples (more to come on the ChooseFI blog) but none of them are related to investing tactics, yet they all help you move the needle forward towards FI.

Reading a book a month or joining a running club to get healthy may not seem like it moves the needle much, but combined with your other efforts to live financially free, you may make more progress in your portfolio than you think!

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The Aggregation Of Marginal Gains

 

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