Money Psychology - 80 / 20 Rule

The 80/20 Rule and How it Applies to You
Written by FrugalTrader on Apr 13, 2009 filed under Money Psychology

As I’ve been doing a lot of reading lately, I came across a principle that can have a profound impact on productivity if applied properly. The principle is called the 80/20 rule (Pareto Principle). There is a pattern in the world that occurs over and over again where 80% (the majority) of the results come from 20% (or less) of the causes.

Here are some examples from the book Living the 80/20 Way:

80% of your enjoyment in life is from 20% of the time

80% of your relationship fulfillment is from 20% of your friends.

Far less than 20% of the Earth’s surface produces 80% of its mineral wealth.

More than 80% of the food comes from less than 20% of the land.

More than 80% of the worlds wealth is held by less than 20% of the population.

This can apply to personal finance and investing in many ways:

If this principle holds true, it means that 80% of your investment returns come from about 20% (or less) of your portfolio.

80% of your business income, comes from approximately 20% of the revenue sources.

80% of your productivity at work comes from about 20% of your time (so true).

80% of the company productivity comes from 20% of the employees.

80% of your savings come from 20% of your frugal strategies.

80% of your family income is derived from 20% of the income sources.

If you apply this to your own life, you’ll realize that a relatively small amount of effort brings the majority of the results. If you focus on the tasks (20%) that bring the most success (80%), then you’ll increase your overall productivity and reduce time wasted.

In other words: Less is More

The focus now is to exploit this rule and work on the 20% that brings the most results. With that said, I’m off to write more articles.

Do you use the 80/20 productivity rule?The 80/20 Rule and How it Applies to You

Tucker Wright- Toronto Life Insurance