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Let us first understand what is 80/20 Rule ? It means that 80 percent of your outcomes come from 20 percent of your inputs. It’s also called “law of the vital few” or Pareto principle . This rule applies to almost all the areas of life, even though it’s called 80:20 rule , the main idea of this principle is that a large part of outcomes are result of a few number of actions and 80:20 was the best fit for most of the things. A very simple example of this rule is that 80% of the world Wealth is owned by 20% of population . Let us see some example to understand this rule .
* Look back at your exams , 80% of your marks came from the studies you did on 20% of the days
* If you are coder , you will accept that 80% of the execution time is taken by roughly 20% of the code .
* Even on this blog , 80% of the comments are written by roughly 20% of the readers
* Also 80% of the total comments are from 20% of the total articles .
* 80% of the recognition your get is for a small amount of work (20%) you do .
* 80% of sexual satisfaction comes out of 20% of total time spent .
* Most of out worries (80%) are result of small number of problems (20%)
* 80% of the Assets under management is with 20% Mutual funds .
Some Examples from Financial Life
The same 80:20 rule applies to our Financial Life too ..
* 80% of the good returns we get is from 20% of good investments we make or 20% good decisions.
* 80% of the money lost or opportunities lost are result of the 20% small things we didn’t took care of .
* 80% of the money we could have made in Stock markets are due to those 20% of the times we didn’t take the risk.
* 80% of the Financial Planning clients are handled by 20% Financial planners (individual or companies) in India .
How to change our way of thinking
There are many small things in our financial life which looks very small , but we don’t concentrate upon them and don’t appreciate the impact it can have on our financial life , some of the 20% things which we don’t take care of are
* Budgeting : A nice article on Budgeting from PV Subramanyam
* Planning for goals by writing it into a piece of paper.
* Reviewing our asset allocation and performance of investments every year
* Keeping track of Documents
* Keeping our expectations low or realistic
* Not spending time on increasing your knowledge
These are 20% part which if taken care properly can greatly improve the performance or your returns (at least mental satisfaction) by great deal . We concentrate mostly on things like strategies , “finding best funds” , “finding cheapest plans” , “finding the easiest way to maximize the returns” , but these are 80% part of process which accounts for less than 20% of the success .. Just ask yourself
* Look back at your exams , 80% of your marks came from the studies you did on 20% of the days
* If you are coder , you will accept that 80% of the execution time is taken by roughly 20% of the code .
* Even on this blog , 80% of the comments are written by roughly 20% of the readers
* Also 80% of the total comments are from 20% of the total articles .
* 80% of the recognition your get is for a small amount of work (20%) you do .
* 80% of sexual satisfaction comes out of 20% of total time spent .
* Most of out worries (80%) are result of small number of problems (20%)
* 80% of the Assets under management is with 20% Mutual funds .
Some Examples from Financial Life
The same 80:20 rule applies to our Financial Life too ..
* 80% of the good returns we get is from 20% of good investments we make or 20% good decisions.
* 80% of the money lost or opportunities lost are result of the 20% small things we didn’t took care of .
* 80% of the money we could have made in Stock markets are due to those 20% of the times we didn’t take the risk.
* 80% of the Financial Planning clients are handled by 20% Financial planners (individual or companies) in India .
How to change our way of thinking
There are many small things in our financial life which looks very small , but we don’t concentrate upon them and don’t appreciate the impact it can have on our financial life , some of the 20% things which we don’t take care of are
* Budgeting : A nice article on Budgeting from PV Subramanyam
* Planning for goals by writing it into a piece of paper.
* Reviewing our asset allocation and performance of investments every year
* Keeping track of Documents
* Keeping our expectations low or realistic
* Not spending time on increasing your knowledge
These are 20% part which if taken care properly can greatly improve the performance or your returns (at least mental satisfaction) by great deal . We concentrate mostly on things like strategies , “finding best funds” , “finding cheapest plans” , “finding the easiest way to maximize the returns” , but these are 80% part of process which accounts for less than 20% of the success .. Just ask yourself
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