16 Pareto Principle Examples for Immediate Application
You’ve probably heard of it before:
The Pareto principle, also known as the 80-20 Rule (rarely 20-80 Rule). It roughly states that you can get 80% of the success with 20% of the effort. This principle is a very valuable tool to use your time better and more efficiently. However, it may be a bit difficult at the beginning to get a feel for this principle
So here are a few examples that you can apply right away to do more. Over time you will develop a feel for it and automatically scan your everyday life afterwards.
If you already know about the Pareto principle, then you are welcome to skip the first section of this article and scroll directly to the examples below.
- Short and sweet about the Pareto principle
- What does that mean for you now?
- Pareto principle examples
- A few admonishing words at the end
- You think this post is good? Then support Homemade Finance!
Short and sweet about the Pareto principle
The Pareto Principle simply says that in many cases you can get the most out of your success with a fraction of the effort. I’ve shown you that graphically, unfortunately, has not become as nice as I had hoped, mea culpa.
As you can see, in the beginning the gain in success is steeper than when you would swap a unit bet for a unit of success linearly. Although this rule is not a natural law, it can be observed in many areas empirically in a similar way.
A classic example that everyone knows: Your apartment has once again urgently needed a spring cleaning. In the beginning, you see success relatively quickly, you pick up the clothes from the floor, put the furniture back in the right place, clean the dishwasher and everything does not look so bad anymore. But if you go into detail and wipe off the lampshade, then the gain in cleanliness is lower than at the beginning.
And when clothes pick up, etc., went fast, so eat the small work as just dusting a lot of time, but do not contribute much to a first better first impression.
Incidentally, this principle was discovered by this very same gentleman named Pareto (Italian), who has found that 80% of land ownership is spread over 20% of the population. Gradually, he has also been able to determine this distribution more or less in other areas.
What does that mean for you now?
The 80-20 rule can also apply to your finances. So 20% of your investments will make up 80% of your success. If you have reached 20% of the millionaire’s fortune, you will have achieved 80% of his satisfaction. The same applies to your financial freedom. We have already discussed, the way to financial independence worth it today. The Pareto principle is the reason for that.
If you have achieved 20% of the necessary wealth for your financial freedom, you will feel 80% of the satisfaction as if you have fully achieved the amount.
Pareto principle examples
1. Clean up the apartment
You expect an hour visit and your place looks like S **, it would take 5 hours to clean up tippi toppi. Concentrate on the most obvious things in this remaining hour. Everyone sees clothes on the floor, not dust on the kitchen cabinets.
2. Divide your free time
Unfortunately everyone knows: too much but too little time and you can not decide? List the 5 most satisfying alternatives for you and strike the last four.
3. Learn for an exam
You are short of time and want to get the best out of the next exam? Put your focus on important things. Let’s say there are 5 different types of tasks, each with 5 examples that were calculated in the course. But time would only be enough to practice all five examples of a single type. Then you now count on a task of each type instead.
4. Learn a new language
With only 20% of existing vocabulary, you can master 80% of all situations (reading, writing, listening, speaking) in a foreign language.
5. Mop out the wardrobe
4/5 of your clothes you wear little or not at all. If you remove them from your closet, you will have a clearer wardrobe with just the parts you really like.
Eat 80% of your calories with 20% of your food. So if you want to lose weight reduce it specifically.
7. Do not consume so much news
Only 20% (if any) of the headlines you read have any informational value. Spend less time on news portals or Twitter and do something different instead.
8. Reduce stress
80% of your stress is generated by 20% of the activities and people. Try to reduce these activities as much as possible
9. Build up a depot
Many people invest a lot of time in the clever construction of a sophisticated depot, only to find that each widely diversified depot has a very similar performance over the long run. So why mess around with the umpteenth Japan Small Tech Cap ETF when a simple world portfolio does it? In the saved time, you could put in a few overtime hours and earn some startup capital for your account.
10. Pick a broker
It is very similar when choosing a broker. You spend hours trying to find the one that might be a few euros cheaper per month. In doing so, after a short search, one finds that standard brokers in Germany all have very similar terms. Choose one of these and do not make any science out of it.
11. Find the best daily interest rates
The biggest absurdity in my opinion and at the same time the German saver’s favorite hobby. Hunt on the Internet for the latest top interest rates. For a decimal place better return are invested hours of time, if one calculates the hourly wage one would have to start with most of the amounts to make it laugh.
Do not make it too complicated, look for a provider of overnight money, which in the past has consistently delivered ordinary interest (not necessarily the best but not the worst) and the arbor is finished. You prefer spending free time with friends, working or learning something.
12. Prioritize your tasks
If your task sheet is hopelessly overcrowded, write down all to do points and prioritize. The supreme tasks first and the rest you do later. For example, if there are 10 things on your list, then you’re going to be down the last eight and do the two important ones first. You do that every day anew and you will see, your task melt melts faster and more thoroughly.
13. Focus on the important customers
The prime examples when it comes to the Pareto principle. 20% of customers generate 80% of sales. So it makes sense to focus on exactly this clientele in the work.
14. Focus on the important products
The same applies to products in a company. 20% of the products account for 80% of sales. So concentrate on these
15. Work in a new software
Studies have shown that 80% of people only use 20% of the full functionality of a software. That means you should dare to deal with new software. Often it does not take so much time to be halfway inside. Furthermore, it is, depending on the software, another qualification.
16. Focus on the biggest troublemakers
80% of complaints come from 20% of customers. So if you want to do it as efficiently as possible, then focus first on these and then on the others.
A few admonishing words at the end
The Pareto principle is a very powerful tool to do more, but as so often it is more a Pi times thumb story. In the past, the 80-20 principle has been more or less stubbornly applied to almost any situation. Empiricism does not always confirm the 80-20 ratio, sometimes it can be shifted in one direction or another, for example 90-10, 70-30 or even 20-90.
Incidentally, the numbers do not always have to add up to 100. This has probably just been a good fit and people like “round” numbers and that’s why you seem to have stayed there.
Furthermore, it is not always possible after 80% success simply to stop, sometimes you just have to go for the 100%, with the corresponding higher effort.
Also, the 20-80 rule should not be an invitation to sloppiness. Just because 80% can be reached quickly does not mean that you should not do your job properly. On the contrary, I claim that the ability to work conscientiously makes the Pareto Principle applicable in the first place. Because 20% bullshit is still bullshit.
Finally, one can say that the Pareto principle is a useful tool to make more of your life. No matter in which area, be it professional, (passive) or private.
Time is a limited good for all of us, so it is even more important to spend it only with the really important things.