The Pareto Principle was founded in 1896 by Vilfredo Pareto who was an Economist as well as an amateur Gardener.
Vilfredo discovered that most of the peas in his garden were produced by only a few, and also realized that the principle apples elsewhere … like 80% of the land belonged to 20% of the population coupled with similar distribution ratios in many other sectors of the life.
ÿþApply the Pareto Principle – the 80/20 rule – to your financial life, as well aa other areas like career. You can suoercharge your retirement planning by taking the steps that produce the best financial results.
This Principle is the observation that many things are not always distributed evenly. For example, the inputs of 20 percent of an organizations’ employees could be responsible for 80 percent of the company’s productivity / profits
This 80/20 principle, named after Vilfredo got popularized by Richard Koch’s book in 1999. Koch postulated that many organizatiins discovered that 80% of their business income are realized from 20% of their clients.
The Principle thus urges us to focus more energy on what produces the greater results in any endeavor.. financial or otherwise… to get the best results. That is to say, know WHERE the application of effort would bring the greatest benefits.
This is law of the vital few, or the principle of factor sparsity.. approximately 80% of effects habitually resulting from 20% of the causes.
Money that is “worked for” (e. g, ‘earned’ income) tends to attract more thought before being spent, compared to “free money” (say a bonus, inheritamce or an unexpected windfall) that tends to get spent more freely. This is something behavioral scientists have discovered.
But then, money is money, no natter what it represents.
Rather than adopt the attitude of “easy come easy go” with “free money”, the money can be better utilized to solidify wealth. The idea is to focus more stringently on the important things which are ordinarily overlooked.
If you focus your energy more on the 20% that results in the greatest returns, lots of waste get eliminated, efficiency is enhanced and productivity increases dramatically
Protect your wealth by concentrating more on your recurrent essential expenditure like school fees, rent, vehicle fueling, etc. These are money leaks which, individually may not mean much, but collectively and over time, have the greatest impact on your financial future.
Avoid waste by going for the least costly items that would serve your needs… your vehicle, smartphone, your home, etc. After all, Warren Buffett, the billionaire still lives in the house he bought in 1958 for $ 31,000. Clearly, he can afford to live in a lot lot more ostentatious house, but the old man didn’t become that rich by being frivolous in spending.
Get the best out of items you purchase. Stop “trading in” items like smartphones. You merely keep throwing good money into a bottomless pit
There are numerous money moves that you make consistently, – seemingly unimportant moves – that have the greatest impact on your financial health / wellbeing .. over time.
Apply this Pareto Principle by making a habit of moves that have the greatest impact on wealth buildup. This will ensure you can retire earlier than you imagine possible.
It Is Often Smart To Be Lazy.. by spending time (money?) to save save far more time (money?) later..
Yes, little drips (drops?) of water do make a mighty ocean.