The Three Levers of Personal Finance

Give me a place to stand, and I shall move the Earth with it


Personal finance can be incredibly complicated with you want it to. Around the world, billions of people wrestle daily with managing their money. It can feel like an intractable problem. But using the Three Levers we work out how to solve any money dilemma.

The Three Levers

  • Earn more
  • Save more
  • Invest more (or better)

How do the Three Levers work?

I think that personal finance boils down to two equations:

Expenses + Savings = Income

Income tomorrow = Earnings tomorrow + Yesterday’s Savings plus return

Now we can see how pulling the Three Levers helps us:

  • Earn more: Our income increases, we have more money to spend and save
  • Save more: We have more income to spend and save tomorrow
  • Invest more (better): We get a better return, so we have more money to spend and save tomorrow

Pulling the levers

It’s possible to pull down hard on all the levers. It’s also possible to pull down on none of them.

The extent you pull on them depends on what you want to achieve and what you’re comfortable doing.

Pulling down the earning lever means working harder, longer hours, gaining skills, getting a profession, moving jobs or developing multiple sources of income.

Saving more means cutting spending, embracing elements of frugality or going without some of the finer things in life.

Investing more means taking more ‘risk’ by putting more money into stocks and bonds versus cash, saving more into Pensions and ISAs or managing an investment portfolio.

Financial Independence and the Three Levers

If you want to be Financial Independent or Retire Early (FIRE) you have to pull hard on at least two of the levers, arguably all three. You need to earn a good income, save a lot of it and invest it wisely.

That’s what I did. I found a well-paid profession (accounting) and worked hard, moved jobs and gained skills to get paid more. I saved most of my money. Usually around 60-80% of my net salary. I invested wisely, well over half of my “money” is in low-cost index-tracking funds that have generated a return of over 10% per year over the last 5 years.

Why FIRE isn’t for everyone

It follows that FIRE isn’t for everyone.

If you have a low-paid job and are unable or unwilling to earn more then FIRE will be difficult.

[At this point, I want to be a bit controversial and say that most people, in the UK at least, can earn more money. If you are earning minimum wage, in many cases, you are doing that by choice. Pretty much any skill or profession you can think of can be gained for free. Programming – loads of excellent free courses online. Accountancy – free courses and some places will even pay you. Building, plumbing, carpentry, electricians – you can study at your local college and often for free. For a more forthright take, go over to The Escape Artist and find out why earning more is not cheating]

If you like fancy things and jetting around the world, again, it’s more difficult.

If you don’t want to take a risk with your savings and you want to hold everything in cash, again, it will be more difficult.

Implicitly, FIRE won’t be suitable for people stuck in a low-wage job, like having lots of stuff and don’t want to invest in the stock market.

Of course, it’s possible to pull down on the levers a little less – instead of turning it up to “11!” many people in the FIRE community do. Lots of people take early retirement in their 50s and 60s, escaping the rat race a few years early.

Finding the balance

You have to do what’s right for you. Yanking down a lever that doesn’t want to be there and it will yearn to go back up. If you aren’t a frugal type, there’s nothing wrong with that. Instead, if your financial goal demands it, you will have to pull the other levers hard. Some people don’t want the stress or hassle of a high-paid, high-pressure job. Again, that’s fine. But you have to “cut your cloth” accordingly.

These things change over time too. Career-driven 20-year-olds may mellow in their 30s, feeling the work/life balance trade-off is not worth it. Likewise, empty nesters in their 40s and 50s might feel more comfortable spending less. The right call for you will vary as your life changes.

A word on criticisms of FIRE

The most common criticism of FIRE I see is: “If you earn the average or below average wage, don’t save much and don’t trust the stock market then FIRE is completely unreasonable.

No shit Sherlock!

But for my face, love handles and awkward manner I’d be as handsome as George Clooney.

Questions to ask yourself

It’s a question we stop asking ourselves after we turn about 15 and instead think about drinking alcohol and having sex all the time: What do you want to achieve in life? How much money and when do you need it to achieve those things?

Then turn to the Three Levers, which ones will I pull to get there?

  • Income:
    • Do you want to earn more money? If so, are you willing to learn new skills, change careers, move jobs or location, work in a more stressful or longer-hours environment?
    • Can you earn less money and still meet your goals? Is work too much, too stressful? Can your other levers take the slack? Would working part-time or flexi-hours be a better suit for you?
  • Saving:
    • Can you save more? Do you spend money on things that don’t bring you joy? What hobbies or pastimes bring you the most happiness? Which ones the least? Can you cut back in any areas?
    • Are you scrimping too much? Do you chafe under frugality? Are you punishing yourself by going without things that you truly enjoy? Are there small expenditures that would dramatically improve your life?
  • Investing:
    • Can you take more risk? Are you comfortable tying up money for longer, in riskier assets?
    • Are you investing too much? Do the ups and downs of the stock market stress you out? Do you check your portfolio every day? Would you be happier, and still achieve your goals, in low-risk investments?

There is ‘no one size fits all’. Be intentional about how much you pull on the Three Levers.

All the best,

Young FI Guy

13 thoughts on “The Three Levers of Personal Finance

  1. Excellent analogy. Personally I’ve always been a full on kind of person. Whether that’s been in video games or in real life – I’m getting that high score, even if I’ll be exhausted doing it! Ever since I found the FIRE movement I’ve been pulling down all three levers as hard as I can.

    It’s probably not for everyone, but I’ve realised I seem to take more joy in giving something my all than taking it more slowly. Unless there’s risk involved e.g. – If I could be getting to the ‘max-level’ 20% faster but there’s a 50% chance it would be much slower, I’d stick with the -20% speed.

    1. Thanks Saving Ninja – I’ve been enjoying your blog. I suspect that your attitude is similarly felt by many in the FIRE community. I think a lot of people in the community are hard working and want to do their very best. Whereas work may have been a traditional outlet for that, FIRE may feel more appealing to many!

  2. Nice little breakdown, I definitely find myself erring towards the latter two, and I agree knowing the what you want to achieve is integral to knowing how much you need in your fund.

    I’ve actually got the handbrake on in many ways for my potential earnings, as I’m slowing down my path to maximum salary to achieve some personal goals. These relate to life goals outside of FI I won’t compromise on. It’ll go up gradually anyway. Instead I’m focusing on saving more, changing my hobbies to cheaper ones and then investing smart (in theory).

    Ultimately I think anyone can have a target of FIRE, it’s just how tight they’re willing to have their belt to reach it. It’s all about compromise.

    1. Hi FIREShrink, hope you are well. Knowing what you want is really important, but we rarely talk and think about it. Something close to home for you, but I’ve talked to people in the NHS about finances. One gripe I often hear is that they are in Band X and think they should be in Band Y (i.e. get paid more money). I ask them what are they doing about it, and often the case is very little. It’s amazing how many training opportunities the NHS offers, sometimes they even give you money to go. Similarly, I often find out there are higher paying jobs if the person is willing to move role within the trust or to a new location but would mean taking on more responsibility and more stress. Of course, deep down it’s not more money that is usually the issue: often it’s a psychological block at work, or politics or not seeing a clear career path/sustainable future. When it’s framed like that, many people become more explicitly happy about the trade-off of less money but for an easier life.

      1. i agree about the trade off – the higher you go in the NHS the more you have to manage staff which i think would increase stress and unhappiness at work- therefore i have made a conscious decision re my pay and how much further up i am willing to go…

  3. I like your very honest post and lever feels more suited to the subject than the standard ‘three step’ approach.
    I always figured I’d amp up my wage after the kids started school but now that day has come I find I’m not willing to deal with the stress. So full FIRE isn’t what I’m looking for, I want a degree of financial independence while living a comfortable family life.
    In short – I’m prepared to work less, for longer.
    I’ll still be better off than the maxed-out-credit-card lot ?

    1. Hi SmlSave, I imagine most people probably feel the same way as you. In many ways, those who’ve developed skills over a long-career or have gained a profession often find they can ‘have their cake and eat it’. I think that’s a great position to be in!

    1. It’s an important point Fit&Undemployed. A difficult one too. And I’ve written about it in the past. Here’s the problem: which side of the cartoon am I on? Neither. Because my life has been a mix of both (although much much more towards the ‘unprivileged’ side than the other, whatever that means). When you make it black and white you forget about the little things you control. Those things I listed in the article, they are open to everyone – for free.

      Learning new skills is incredibly powerful and open to everyone. All you need is an open mind and some time. I understand there are people who don’t even have those things available to them, be they single mums (like my grandmother was) or because they are physically unable to do so due to disabilities (like my mother). But if you’re unhappy with your lot there are many things you can do, no matter how small.

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