You have probably heard of the 80/20 rule and wondered what it means or how it applies to you. Also called the Pareto law, the 80/20 rule states that across every facet of life, the vital 20% is responsible for and controls the mass 80%. In everyday terms, it means that you wear 20% of your clothes 80% of the time, the vital 20% of your staff are responsible for 80% of the work done, 20% of your clients bring in 80% of the profit you make and 20% of the population are privileged to be in leadership positions, thus controlling the 80% mass.
Think about it, you may have a thousand names in your client database but you know your customers, the ones who buy again and again. They constitute your 20%. No matter how filled your wardrobe is, you most likely have that pair of jeans or shoes you pull out by default. If the amount invested in your wardrobe is calculated, those work clothes or comfortable tees perhaps account for just 20% of the money spent but they do 80% of the work and appear 80% of the time.
Applying this principle demands that we focus on the vital 20% and the 80% will be sorted. This applies to business, work ethic, relationships and investments. Identifying the 20% is pertinent to maximising resources and achieving greater results. Man’s needs are unlimited but again, only 20% of those needs are essential 80% of the time. Such that if physiological and safety needs are met, the other needs can easily appear as wants. Hence the way to build sustainable wealth is to channel 20% of your income towards the future while channelling the remaining 80% to solve the vital 20% of your unlimited needs.
It starts with dissecting your 100. Of all the money you make, only the one you save is yours to keep. The money spent on things goes to the people from whom you buy. It is therefore wise to pay yourself first before you pay others. Since the 20% is channelled towards your future, the 20% is the money you pay yourself. Thus, in distributing your 100, you must first pay yourself with your 20%. Paying yourself does not imply pampering yourself, no. It implies saving the 20% or investing it to grow and yield more for you. Remember that 20% is supposed to grow into 80% of your wealth.
To meet your needs, you then budget your 80% based on your lifestyle and expenses. Always start from the vital 20%- food, shelter, transportation, health, adequate raiment, your faith and valued relations. Each will get a percentage of your income.
It is essential to measure growth, setting timed goals for the 20% you are paying yourself is paramount. Your goal must be such that will advance you and move you closer to the fulfilment of your dreams.
In subsequent editions, we will discuss maximising your 80% and setting financial goals for your 20%.
Do you have questions about the 80/20 rule? Can you think of other aspects of life this rule applies? Let’s discuss in the comment section.
