Investments

What The Pareto Principle Can Do For Your Life

Many of us already know the 80/20 rule developed by Vilfredo Federico Damaso Pareto. In case you don’t, Pareto principle states that 20% of our inputs yields 80% result. This means that with only 20% action, you can generate 80% results. This may seem foolish but through his discoveries, it was proven that sometimes, it takes less effort to achieve more result than vice versa.

pareto principle

How to Simplify Your Life Using the Pareto Principle

During a course in banking, we were taught that 80% of a bank’s revenue comes from 20% of their overall customers while the remaining 80% of their customers only generate 20% of their total revenue.   As a result, we were taught that banks channel their best resources towards serving those 20% of their customers who generate 80% of their income.

Think about it, you may live in a five bedroom duplex but you spend 80% of your time in one room. What about your wardrobe? If you check it, only 20% of all your clothes and shoes get worn repeatedly while the rest 80% of them are just forgotten.

Applying the Pareto principle in your life can affect your life positively in many areas. This principle is a guide to action, personnel management, time management, etc.

How to apply the Pareto Principle

• Time management. You can apply the Pareto Principle while using your available time every day. Spend 80% of your time on the 20% activities that yield 80% of your results. With this Pareto rule, you can now sieve the chaff out of the main grain. Focus on quality yielding activities and spend less time on non yielding ones.

• Resources management. With my explanation so far, you will understand that it is better to channel more of your resources towards those project that will yield more income. If you are a business man, it is better to use more resources to grow your business than to chase millions of new opportunities. If you are an executive, use more resources to develop the 20% of your staff that generates 80% outcome.

• Relationship management. Do you know that it is a few of your friends out of the many acquaintances have that can shape your life positively. Instead of wasting all your time trying to please everyone, spend 80% of your time with the 20% that affects your life 80% of the time, rather than chasing shadows all around.

• Project management. Applying this rule will help you to make the right decisions when you want to embark on a new project. After doing what is known as project evaluation, you will know the projects that are likely to yield more returns on investment than others. Even if you want to start with two at the same time, you will know the one that deserves 80% of your resources and the one that only need 20%.

There are so many things you can make easier with the Pareto rule; you can use this rule to change your eating habit, investment decisions, etc. It is a guide to decisions and actions. It shows you that sometimes, 80% of your effort may yield 20% result while 20% of your action is responsible for 80% of your good results. With this in mind, you can now stop wasting your effort on actions that doesn’t profit much while channeling more of your energy towards the profitable ones.

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