Using the 80/20 Rule For Money and Life

by TTMK on July 1, 2013 · 5 comments

I’m sure most of us have heard of the 80/20 rule. Often described as the Pareto Principle, it’s a concept illustrating how certain things provide a higher level of results than others.  It helps us invest our time, energy, and money into things that will pay off.

It seems like a pretty good concept to me.  If results are disproportionate to effort invested, it merits our attention.  20% of effort leading to 80% of results is a powerful idea, and makes me want to try to identify what that 20% is!  Now, it may not always be 80/20.  Perhaps the split is different depending on the situation.  Sometimes is might be 90/10, other times 70/30, or anything else.

There is probably a lot to this that could be explored.  Here are some examples of the 80/20 rule:

Business

I suspect that in many companies, the impact on the success of a business is not equally sourced across employees.  Some are good, some are average, some are deadweight.  Yet, some are probably stars, more productive than others in helping the business reach its goals.

This could also be applied to customers.  Some customers take a lot of time and effort to market to, but aren’t super profitable.   Yet others are really profitable and yield big results for less time invested.

Career

In terms of our own money, there are many applications of the 80/20 rule.  One that comes to mind is our careers.  When thinking about the 80/20 rule and careers, we can realize that there is a different return on investment of our different activities.  For example, when job searching,  a person could go online and apply to a bunch of jobs, or get in touch with their network to get an “in” at a company they’re interested in.  Often times, working through someone you know could be more efficient that applying as a random candidate.

Another manifestation of the 80/20 rule and our careers would be the reality that there are certain things that matter more to the boss than others.  If we spend our time focused on getting done a lot of things, that might be okay.  However, it may be better sometimes to hit it out of the park with the few things that are most important to our boss, and let some of the other things go – or be highly deprioritized.  Again, 80% of “impact” could come from a core of 20% of the things we have to do.

Personal Lives

Let’s say we are trying to get (or keep) in shape.  We could invest a ton of time working out, taking vitamin supplements, etc.  However, if we disregard nutrition, we might be making little progress.  Perhaps balancing how we spend our time, and reallocating it, might allow us to get a better return on our time invested.  Which, ideally, could help us reach fitness goals more quickly.

This could also apply toward spending time with certain people, dating, etc.  There are some situations that are just a better use of time than others.

My Questions for You

Do you ever think about the 80/20 rule?

Where do you apply this rule, and invest your time efficiently to get results?

Where in your life do you think you could do a better job of applying the Pareto Principle?

{ 5 comments… read them below or add one }

Grayson @ Debt Roundup July 1, 2013 at 11:00 pm

I use the 80/20 rule a lot in my job as a project manager. I don’t like being inefficient, so I like to maximize my effort and time.

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Matt Becker July 2, 2013 at 7:54 am

I’ve certainly tried to eliminate wasteful activity from both my personal and work life. One thing I’ve really tried to focus on is the amount of times I perform a certain activity, such as checking email. Can I achieve the same results checking email once every few hours as I do if I check every 20 minutes? Most of the time I can, which saves me time and give me a better ability to focus on other tasks. I think I still have a long way to go with this kind of thinking, but it’s definitely a helpful outlook.

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AverageJoe July 3, 2013 at 8:36 am

I’m glad you brought this up because I used to use it all the time. When I was an advisor, if I wasn’t careful, it was always the squeaky clients that I’d spend time servicing. Instead, I focused on the 20% of my clients who were my biggest profit centers and this was a big boon to my career. Actually analyzing who is the right 20% is a huge key to success.

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Jules@Faithful With a Few July 3, 2013 at 10:57 am

Great principle. May sound crazy, but I use the 80/20 rule when it comes to my eating. 80% healthy and then the 20% of what I want to eat. Moderation is key in all facets of life.

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Thomas | Your Daily Finance July 5, 2013 at 11:01 am

I think the point that really would hit a lot of people is the food example. I see people killing the gym and running to lose weight. I say its not the exercise its your diet, change your lifestyle with the eating and they look at me like I totally lost it. Another problem is too many of the people are following the 80% and not the 20% of the people. Just because majority do things a certain way doesn’t make it the best way. One example I use is with digital marketing and seo. I have had client talk about needing more and more traffic. When I come in and say you don’t need more traffic you need targeted traffic/people who will convert. Think look like they have seen a ghost. 1000 visitors who are simply looking for information is not the same as 50 people ready to buy.

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