A couple of hundred years back, an Italian economist by the name of Vilfredo Pareto discovered something really really interesting that was going to change how we understand the world.
He discovered that he could measure the relationship between cause and effect precisely in mathematical terms (80/20).
I know that probably sounds a bit mystifying and confusing, it was for me too, so to break it down further what he discovered was that 80% of results come from 20% of efforts.
You are probably as shocked about this and if you are honest a bit doubting too.
What this means for you is that:
- 80% of the money you make comes from 20% of the time and effort you put in.
- 80% of your products are the ones bringing in 20% of the money you make.
- 80% of your customers bring in 20% of your income.
And it also applies to everyday life too:
- 80% of the world's wealth is in the hands of around 20% of the world's population.
You probably wear 20% of your clothes 80% of the time too.
The Pareto principle or the "80/20 rule" as it is now popularly called has been proven times without number and it is now known as the efficiency mantra because if 80% of the results come from only 20% of the time and efforts put in...that means you are wasting 80% of your time and efforts.
You know what else this rule applies to, your finances & spending habits.
- 80% of the things you spend money on only give you 20% of pleasure/utility.
What this simply means is that a very large percentage of your expenses are unnecessary and provide little short time value and absolutely no long term value.
Expenses you could do without, that are just needless spending.
The whole point of the 80/20 principle is for you to take a step back and evaluate the decisions you are making, and in this case, the expenses you are making.
Draw up a list of some of your most recent purchases, objectively evaluate which ones have been of the most value to you and the ones that you could have done without, you will be surprised by how many expenses you make that are of no use.
Cut back on the needless expenses and avoid making purchases like that in the future and divert the money you spend on ventures like that to better initiatives that are of fruit like investing or saving.
The 80/20 principle has helped to impact thousands of lives around the world and it is my sincere hope that it does yours too.