Apply the Pareto Principle to Your Money

The Pareto Principle is also known as the 80/20 rule. You might see this explained different ways, but basically it means that a large portion of the results or problems are generated by a small portion of the effort or people.

What this means from a money perspective is that there are probably one or two areas that, if you focused on them, would make the biggest impact on your financial life.

Identifying those one or two areas, and then focusing your effort there, could really pay off.

If you’re not sure which areas those would be for you, start by spending some time taking notes. As you move through your daily life, when something money-related annoys you or causes you problems, write it down.

Chances are you’ll see a pattern emerge.

If I had done this years ago, my list would have looked something like this:

  • Got an overdraft
  • Ugh, another thing wasn’t entered into Quicken!
  • What the heck did I/he buy?
  • Oh no, this letter’s from the bank. I hope it isn’t another overdraft. Oh good, it’s just a statement. I’ll have to look at that sometime.
  • The car broke down. How are we ever going to pay for that?

Do you see any common themes in those complaints?

Two pop out at me: a lack of planning and a failure to pay attention.

So focusing my efforts on planning ahead (preparing for eventualities and emergencies) and actually paying attention to my money would probably net me the greatest results.

And in fact, doing so has made a world of difference. Probably…80% of the difference, if I had to guess.

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4 comments

  • It’s true that planning and thinking ahead is your insurance for staying on top of finances and not being totally devastated when the “unexpected” arises, as it always will. Planning leads to a sense of peace and we could all use some of that.

  • 80% of my current stress is generated my something I have no control over and my allergy-ridden Pug. My husband is working on getting a signed contract (that’s the first thing) and my Pug is on medicine that is helping. The other 20% of my stress is from all kinds of little things that seem to rotate month-to-month…oh well…

    Great post, I do love the fact that you make me think every day!

    • Well at least it sounds like things are on the right track with your husband and your pug. So hopefully soon there will be 80% less stress..